The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .
- VA loans do not usually require a down payment, but there are certain circumstances in which a down payment may be necessary.
- Making a down payment on a VA loan can help reduce your funding fee and monthly payments, and you’ll build equity faster.
- There are drawbacks to making a down payment, such as waiting to save up the money and draining your savings.
VA home loans can be an attractive option for military service members, veterans and eligible spouses looking to buy a home. Unlike other loan programs, VA loans do not typically require a down payment. However, making a down payment can reduce overall costs. Here’s how a VA loan down payment works and what to consider when deciding whether to make one.
Do VA loans require a down payment?
Not usually. One of the biggest selling points of a VA home loan, which is guaranteed by the U.S. Department of Veterans Affairs (VA), is the lack of a down payment requirement. While buyers with conventional and FHA-backed loans need to come up with a percentage of the purchase price, those with VA loans have a much easier number to hit: zero.
It’s important to note that there are exceptions to this rule. If you don’t have full VA entitlement, you might be subject to VA loan limits and need to contribute a down payment. Likewise, if the sales price of a property is higher than its appraised value, you’ll have to make a down payment to cover the gap.
Entitlement is VA-speak that roughly translates to “meeting criteria/being in sound financial shape.” You have full entitlement if:
- You’ve never taken out a VA home loan
- You’ve paid a previous VA loan in full and sold the property
- You’ve used the VA home loan benefit and had a foreclosure or short sale, but repaid the VA in full
Why VA loans do not require a down payment
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 part of VA loans, which are actually issued by private lenders.
This federal backing alleviates the risk a lender takes on when originating a VA loan. In general, mortgage lenders limit the amount of a home they’ll finance — demanding a down payment for the rest — to reduce their exposure: If a borrower has contributed their own cash, the thinking goes, they’ll be less likely to renege on the mortgage and abandon the house down the road. With a VA guarantee from the federal government — of at least 25 percent, more than the equivalent of a typical down payment — an additional contribution from the borrower isn’t necessary.
Should you make a VA down payment even though it’s not required?
Making a down payment with a VA loan has some advantages:
- It decreases the loan’s principal balance, so you’ll borrow less and pay less in interest.
- It reduces the funding fee.
- You’ll build equity faster, helping to increase your net worth and providing you with an asset you might leverage in the future.
- A down payment could make you a more competitive buyer in the market, especially in a low-inventory environment when sellers are more likely to choose among multiple offers.
Save on your mortgage
Making a down payment makes a difference every time you receive your monthly mortgage bill: Since you’re borrowing less money, you’ll have a lower payment and save money by paying less interest throughout the life of the loan. The larger your down payment, the more you could save on interest. Use Bankrate’s VA home loan calculator to estimate your monthly payments.
Pay a lower VA funding fee
If you make a down payment, you’ll pay a lower funding fee. Let’s say you’re a first-time homebuyer planning to take out a VA loan for $340,000. With no down payment (or a down payment of less than 5 percent), the funding fee would be 2.15 percent of that amount, for a total of $7,310. If you were to make a down payment between 5 percent and 10 percent, that fee would shrink to 1.5 percent, or $5,100. If you were to make a down payment greater than 10 percent, the funding fee would drop to the lowest available rate of 1.25 percent, or $4,250.
If this isn’t your first time using the VA loan benefit, there’s an even bigger incentive to make a down payment: The VA funding fee jumps to 3.3 percent after the first use if you put down less than 5 percent.
Build equity quicker
Making a down payment means you’ll have instant home equity — that is, an immediate ownership stake in your home (the part you financed technically belongs to the lender). It also means you’ll owe less on your home than it’s worth. Without an equity stake, if your home’s value drops drastically, your property could be “underwater,” meaning you might owe more on your mortgage than the property’s worth. If you need to move and can’t make enough on the sale to pay off the loan, you could be in financial trouble.
Building equity faster also means you can tap into it if you need to by taking out a home equity loan or home equity line of credit (HELOC). These types of secured loans, which use your home as collateral, can cost less, saving you money when you need cash.
Put your best foot forward
Putting down some money upfront can give you a leg up against other homebuyers. The average home was receiving over three offers as of August 2023, according to data from the National Association of Realtors.
Also, your VA loan application won’t automatically be approved. While there aren’t strict requirements for credit scores, you might want to make a down payment to strengthen your application and chances for approval. Making a down payment could also improve other factors lenders look at, such as your debt-to-income (DTI) ratio.
Other considerations before making a VA down payment
If you’re considering making a down payment, consider all the pros and cons before making a final decision:
- You might have to wait – If you need a few extra months to save up enough money for a down payment, you’re wasting precious time — with rates rising, you could end up with a much more expensive mortgage the longer you hold off. Moving right away and putting zero down means you don’t have to rent any longer and can start building equity immediately with lower borrowing costs.
- You could drain your savings – Making a down payment on a VA loan can deplete your available funds or emergency savings, leaving you vulnerable in case of urgent home repairs or other large expenses. Using up all your savings could put you in a tight financial situation in case of job loss, illness or unforeseen emergencies.
- You might need the money to fix up your new place – Having cash reserves on hand also helps to pay for related costs of home purchases. Maybe you found a home in a neighborhood you love but it needs a new HVAC system, or you want to purchase new furniture. In cases like these, freeing up cash flow can be a smart choice.
When do VA loans require a down payment?
The scenarios in which you will have to make a down payment include:
- Purchase price is higher than the market value: VA loans can only offer up to the home’s market value. If you are paying more than the home appraises for, you’ll have to make up the difference. For example, if you’re buying a home for $275,000 and it appraised for $250,000, you’ll need a $25,000 down payment to make up the difference.
- The VA loan amount is higher than the VA loan limit: Some borrowers face limits on how much they can borrow. Typically, these limits only apply to people who have defaulted on VA loans in the past or who already have a VA loan they’re paying off. If you’re trying to borrow more than the VA loan limit, you’ll need a down payment.
- You have partial VA loan entitlement: To get a VA loan, you must have a VA loan entitlement that states that the government guarantees your loan. Most veterans and service members will have a full entitlement. However, if you’ve defaulted on a VA loan previously, currently have a VA loan, or still own a home that was paid for with a VA loan, you’ll only have a partial entitlement. If the home costs more than your entitlement amount, you’ll need a down payment.
Can you use your VA home loan benefit multiple times? If so, how?
Active-duty members, veterans and surviving spouses who qualify for a VA loan can use their VA loan benefit multiple times throughout their lives. VA loans are specifically intended for primary residences. Individuals can have two VA loans simultaneously, but each loan must be for a different primary residence. If a previous VA loan has been fully repaid, the individual typically needs to sell the home to have their full entitlement restored.
However, there’s no limit to how many times you can use a VA loan as long as you maintain eligibility and you meet the lender’s qualifications. But if you want to obtain a second VA loan without paying off the current one, or you’ve paid off a previous VA loan without selling the house, there may be a reduced entitlement or a need to request a one-time restoration of entitlement.
What are the advantages of a VA loan compared to other mortgage options?
VA home loans allow borrowers to purchase a house without putting down any money upfront, unlike conventional and FHA loans. Additionally, you don’t need to pay private mortgage insurance (PMI) with a VA home loan like you would with conventional mortgages if you put down less than 20 percent of the home’s purchase price.
Lenders are more flexible with their requirements for VA loans because the government supports them, which reduces the lenders’ risk of financial loss in the event of loan default. As a result, VA loans often come with lower interest rates and other favorable terms.