Just because you don’t have to make a down payment when applying for a VA loan doesn’t mean that you shouldn’t. There are times when making a down payment on these loans makes financial sense.
Lowers The VA Funding Fee
When you take out a VA loan, you'll have to pay a one-time fee known as the VA funding fee. This fee varies, largely depending on the size of your down payment. The larger your down payment, the lower your VA funding fee.
If you are taking out a VA loan for the first time, and your down payment is less than 5%, your VA funding fee will be 2.15% of your home's final purchase price. That comes out to $4,300 for a home costing $200,000.
If your down payment is 5% or more, your VA funding fee will be 1.5% of your home's purchase price. For that same home costing $200,000, then, your funding fee will be $3,000. If you come up with a down payment of 10% or more, your VA funding fee will be 1.25% of your home's final purchase price, or $2,500 on a home costing $200,000.
Cuts The Cost Of Monthly Payments
Coming up with a down payment can also lower your monthly mortgage payments. First, you’ll be borrowing less money. If you buy a home for $200,000 and you put down $10,000, you’ll only be borrowing $190,000, which will result in slightly smaller mortgage payments than if you were borrowing $200,000.
You’ll usually qualify for a lower interest rate, too, if you come up with at least some down payment. A lower interest rate means lower monthly payments.
A down payment can also help you build equity in your home. Equity is the difference between what you owe on your mortgage and what your home is currently worth. If your home is worth $250,000 and you owe $150,000 on your mortgage, you have $100,000 equity.
Coming up with a down payment immediately gives you equity. If you buy a home for $220,000 and come up with a down payment of $10,000, you now have $10,000 worth of equity before making any mortgage payment.
Equity is important. You can borrow against it to take out loans that you can use to pay for everything from home repairs to paying off credit card debt or paying for your children’s college tuition. The amount of equity you have when you sell your home also determines how much money you’ll walk away after closing the sale.
Reduces Principal Balance And Loan Costs
Making a down payment also reduces your loan’s principal balance, the amount you owe. If you buy a home for $200,000 and don’t make a down payment, your starting principal balance is $200,000. If you come up with a down payment of $5,000, your starting principal balance is a lower $195,000.
If your principal balance is lower, your loan closing costs can be lower, too. Closing costs are the fees that third-party providers – such as your lender, title insurer and real estate attorney – charge for the work they do in closing your loan.
Many of these charges are based on a percentage of your loan’s principal balance. The lower your principal balance, then, the lower your closing costs might be.
Increases Approval Chance
Coming up with a down payment could increase your chances of qualifying for a mortgage. Lenders consider you less likely to stop making your mortgage payments if you have already sunk some money in your home through a down payment. However, it’s important to remember that not making a down payment won’t scuttle your chances of qualifying for a VA loan. Most borrowers taking out these loans don’t make any down payment.
You don't need a down payment. None whatsoever. Most mortgage programs, such as FHA and conventional loans, require at least 3.5 percent to five percent down. That's up to $12,500 on a $250,000 home purchase.
The VA loan origination fee rule limits the amount a lender can charge for originating a VA loan to 1% of the loan amount. VA lenders can either charge you a flat 1% fee or itemize your loan origination fees, so long as they don't exceed 1%.
Borrowers can decrease their funding fee rate by putting at least 5% down on a VA home loan, and about one-third of all borrowers are exempt from paying the funding fee altogether. VA streamline refinance loans, however, only require a 0.5% fee for all borrowers.
So, the larger the down payment, the lower the funding fee. The base funding fee is 2.15% for first-time VA loan users and 3.3% for return buyers. Veterans who put at least 5% down can reduce their VA funding fee. Those with 10% can reduce the funding fee even more.
No-down payment VA loans are a benefit for past and present U.S. military members and their families — but there's also a financial reason for no down payment. As with FHA and USDA loans, the federal government (in this case, the VA) guarantees a portion of every VA loan, which are actually issued by private lenders.
The VA 5-year rule protects your disability claim by not allowing the VA to reduce your disability rating unless your condition has significantly improved over time. This rule pertains to a rating that has been in effect for five years or longer. After a five-year period, the rating is considered a stabilized rating.
The veteran will receive full benefits, but the VA may reassess their condition and adjust their rating if they have improved. However, when a veteran is deemed totally and permanently disabled, that 100% rating is locked in and can not be reduced.
Some Veterans are eligible for VA health care no matter their income. You may be eligible based on your VA disability rating, service history, or other factors. If you think you may be eligible, we encourage you to apply anytime. Review health care eligibility factors.
What is the VA Funding Fee? This is a fee that is charged to the veteran borrower to help offset the costs of the home loan program. It is the only closing cost that can be rolled into your VA Loan.
Average closing costs for Virginia range from 2% to 5% of the total loan amount. The average amount is about $3,425 for a $200,000 mortgage. That is just less than 2% of the loan amount and slightly more than the national average of $3,160.
Agent or REALTOR® fees: VA borrowers cannot pay real estate agent fees. In many cases, these fees will be paid by the seller. Application fees: The lender cannot charge you an application fee. Escrow fees: You'll likely need to fund the escrow account at closing.
Your payment should not be more than 28%. of your total gross monthly income. That means you'll need to make 11,500 dollars a month, or 138 k per year. in order to comfortably afford this 400,000 dollar home.
The VA home loan program doesn't have minimum or maximum income limits. But your mortgage lender will review your personal income to determine how large of a monthly payment you can afford. They'll also review your employment record to make sure you have a steady job and income source.
FHA loans. FHA loans are government-backed loans that are popular with first-time homebuyers since they only require a 3.5% down payment and have flexible eligibility requirements. For instance, people with credit scores in the 500s may be able to qualify.
Key takeaways. VA loans come with closing costs, which include the origination fee, funding fee, discount points and other fees for your home loan. VA closing costs can range from 1 to 6 percent of your loan, but the seller may pay up to 4 percent of the home's purchase price in closing costs.
The U.S. Department of Veterans Affairs doesn't set a specific VA loan credit score requirement. Lenders, however, can set their own minimum requirements for a VA loan. Most require a score of at least 620, but some go as low as 500.
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Introduction: My name is Virgilio Hermann JD, I am a fine, gifted, beautiful, encouraging, kind, talented, zealous person who loves writing and wants to share my knowledge and understanding with you.
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