When is a VA loan down payment required?

September 2, 2022 - 8 min read

VA loan down payments

One of the key benefits of a VA loan is that there’s no down payment required for home buyers. However, there are some special circumstances where a down payment might be needed.

Check your zero-down VA loan eligibility. Start here

A VA loan down payment can be required when the loan amount is above local loan limits, when one of the borrowers isn’t VA-eligible, or when the home buyer only has partial entitlement. (You might have partial entitlement if you’ve used a VA loan in the past and it’s not paid off.)

And some buyers will willingly make a down payment, even when they are not required to do so. VA loan down payments have multiple benefits, and there are many reasons why buyers consider making one.

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No down payment on VA loans

VA loans are famous for not requiring a down payment. Home buyers can get into a house with $0 out of pocket (aside from standard closing costs). That’s a huge benefit for first-time home buyers who might have trouble saving cash to buy a house.

Check your zero-down VA loan eligibility. Start here

However, while no down payment is the norm for VA loans, there are a few exceptions to the rule.

When a VA loan down payment is required

A VA loan down payment may be required in the following situations:

1. When you use a VA jumbo loan

Borrowers might need to make a down payment when financing a home with a VA jumbo loan.

Technically, there’s no cap on VA loans. The Department of Veterans Affairs is okay with any loan amount so long as the borrower is qualified and can afford the payments. But, in practice, many lenders impose VA loan limits that correspond to conforming loan limits. The current limit is $ in most parts of the country. VA loans above this amount may be considered VA jumbo loans.

The VA does not technically require a down payment for a VA jumbo mortgage. When your lender says that you can afford a loan, then the VA will guarantee it. But rules will vary between lenders, and yours may well require a down payment because of the increased risk that jumbo loans carry.

Some mortgage companies will originate loans with balances upward of $1 million or more without a down payment requirement, but you’ll probably pay a higher interest rate. Speak with several lenders to see what terms they can offer you.

2. When you have only partial entitlement

Veterans and military service members with full VA entitlement can borrow up to VA loan limits with no down payment needed. Borrowers typically have “full entitlement” if they’ve never used the VA loan program before or if they had a VA loan previously but it’s fully paid off.

If a VA borrower has only partial entitlement, it reduces the loan amount the VA will guarantee. To make up for that, lenders require a down payment to give the loan additional security.

VA buyers who have to put money down can ask their real estate agent to negotiate seller-paid closing costs to help offset their out-of-pocket expenses.

3. When your co-borrower is not VA-eligible

It’s possible for a veteran to buy a home with a non-veteran using the VA loan program. Your VA co-borrower does not have to be VA-eligible. As long as one borrower meets minimum service requirements, that’s enough.

However, a down payment is often required when one person on the loan is not VA-eligible. That’s because the VA will only guarantee part of the mortgage. This works a lot like having partial entitlement. Since the VA will not guarantee the full loan amount, a partial down payment is required to secure the rest of the loan.

If you’re a veteran buying with a non-veteran, talk to your mortgage lender about its policies. Down payment requirements and guidelines may vary by lender.

Benefits of making a VA loan down payment

Military home buyers get to enjoy the benefits of the VA home loan, including lenient credit requirements and no private mortgage insurance. What’s more, VA loans have exceptionally low interest rates. The average VA borrower will receive a lower interest rate than a conventional borrower, all other things being equal.

Check your zero-down VA loan eligibility. Start here

Even in light of all these benefits, often the most attractive feature of a VA loan is that there is no down payment requirement. Other loan types require down payments between 3% and 20% of the home purchase price.

But that doesn’t mean all VA borrowers put zero down. You’re free to make as large of a down payment as you wish. And many decide to pay at least something out of pocket. “Almost every VA buyer I’ve worked with has elected to make some sort of down payment,” says Jon Meyer, The Mortgage Reports loan expert and licensed MLO.

Benefits of a VA loan down payment:

  • Lower VA funding fees
  • Lower mortgage payments
  • Increased chances of mortgage approval

Today’s housing market sees military service members and veterans choosing a VA loan down payment, even though it’s not required.

1. Reduced funding fees

VA funding fees help keep the VA loan program self-sustaining and available for future home buyers.

The VA funding fee for first-time buyers with no down payment is 2.3% of the loan amount. But that drops to 1.65% if you make a down payment between 5 and 10 percent. With a down payment of 10% or more, the funding fee is just 1.4 percent.

In addition, some veterans are exempt from the VA funding fee. Those exempt from the funding fee include:

  • Veterans receiving or eligible to receive compensation for a service-related disability
  • Surviving spouses of veterans who died in active service or from a service-connected disability
  • Active-duty service members who provide, on or before the date of loan closing, evidence of having been awarded the Purple Heart

How much you can save

Imagine you’re taking out a VA loan for $250,000. Here’s how the funding fees break down with a 0%, 5%, or 10% down payment. Keep in mind that the funding fee can be rolled into your loan amount so you don’t have to pay it upfront. But including your funding fee in the loan means you’ll pay interest on it over time.

  • Zero down: 2.3% funding fee = $5,750
  • 5% down: 1.65% funding fee = $4,125 (savings of $1,625)
  • 10% down: 1.4% funding fee = $3,500 (savings of $2,250)

If you decide to make a down payment as a home buyer, the lower funding fee will reduce either your loan amount and total interest cost or your upfront fees (depending on whether you pay the fee at closing).

Even lower funding fees for repeat buyers

Repeat home buyers stand to save even more when they make a VA loan down payment. Using a VA loan for the second time requires a “subsequent use” VA funding fee. This funding fee for repeat home buyers is 3.6% with zero down. But that drops to just 1.65% when you put 5-10% down and 1.4% when you put more than 10% down.

Here’s how the savings break down for a repeat home buyer with a $250,000 loan:

  • Zero down: 3.6% funding fee = $9,000
  • 5% down: 1.65% funding fee = $4,125 (savings of $4,875)
  • 10% down: 1.4% funding fee = $3,500 (savings of $5,500)

It can be a smart decision to make a down payment on a VA loan, especially for veterans who have used the program before. These veterans may be selling their current home and have cash proceeds from the sale. Making a small down payment can give you the benefits of a VA loan — like no mortgage insurance and easier qualifying — without the entire cost of the funding fee.

2. Lower monthly mortgage payments

A larger down payment means a lower loan balance and reduced monthly payment. Over the life of your loan, this can lead to considerable savings.

For example, consider a veteran purchasing a $300,000 home. By making a 10% down payment, this buyer could cut their loan balance by $30,000 and reduce their monthly payment by about $200 per month. There are significant savings available for veterans who can make a down payment.

3. Better chances of loan approval

There’s another benefit to making a down payment on a VA loan, and that’s easier approval.

VA buyers who are not initially approved should ask their loan officer to run their scenario assuming a small down payment. Just 1% to 2% down wouldn’t reduce the buyer’s funding fee, but it might turn a denial into an approval.

Across all loan types, down payments are one of the leading indicators of the borrower’s commitment to repay the loan. Making a small down payment can tip the scales for VA buyers who are “on the edge” of approval.

This strategy works especially well for VA buyers with lower credit scores or past credit blemishes. Sometimes a downpayment can make up for a less-than-perfect credit profile.

How a VA loan works

The VA mortgage is a path to homeownership for military service members and veterans. It’s a zero-down loan with no obligation to pay ongoing private mortgage insurance (PMI) or mortgage insurance premiums (MIP) — costs that can run hundreds of dollars per month on conventional loans and FHA loans.

Check your VA loan eligibility. Start here

VA applicants can qualify with lower credit scores, too. The Department of Veterans Affairs does not have a minimum credit score, but many lenders require a score of only 580-620 to qualify.

Eligible home buyers include:

  • Veterans
  • Active-duty service members
  • National Guard and Reserve members, veterans
  • Surviving spouses

Keep in mind that there are minimum service requirements needed to qualify.

VA loan requirements

In addition to meeting the standard VA loan requirements for income, credit score, and debt-to-income ratio (DTI), buyers will have a few other hurdles to loan approval, such as:

  • Obtaining a Certificate of Eligibility (COE): This document proves that you’re eligible for a VA purchase loan, and it provides your loan officer with detailed information about your VA entitlement
  • VA loan entitlement: This determines how much you can borrow. Most first-time home buyers will have “full entitlement,” as will those who have used their VA loan benefit before, but repaid the balance in-full. Still, some buyers may only have partial entitlement
  • Pay a VA funding fee: This is an upfront one-time fee that ranges from 0.5% to 3.6% of the total loan amount. Many first-time home buyers with zero down will pay 2.3%. This fee can be included in your closing costs or rolled into your mortgage loan balance
  • Meet VA minimum property requirements (MPRs): These are basic guidelines your new home must meet in order to qualify for a VA purchase loan. For example, the property must be used as your primary residence

The Department of Veterans Affairs also has refinancing options available for homeowners looking to lower their monthly mortgage payments, change their loan terms, or tap home equity.

Military homeowners can choose between a VA Interest Rate Reduction Loan (IRRRL) and a VA cash-out refinance.

Today’s VA mortgage rates

The VA loan program makes home buying affordable for millions of veterans and their families. While VA borrowers don’t have to make down payments, sometimes it makes sense. Talk to a VA mortgage lender about your options to learn whether a VA loan down payment is the right choice for you.

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Mark Henricks
Authored By: Mark Henricks
The Mortgage Reports contributor
Mark Henricks writes about finance, business and other topics. His articles have appeared in The Wall Street Journal, The Washington Post, The New York Times and many other publications.