The Reason You Can Put 0% Down on a VA Loan

The VA loan, no down payment.

We always get asked, is that possible and how?

Well, the reason you can put 0 down on a VA loan, if you so choose – because yes, it is possible – is in the way that the VA loan is handled and how a VA loan works.

Technically, the VA, the Veterans Affairs Administration, does not fund a loan, meaning they do not go to you as a buyer if you’re eligible for a VA loan and say, ‘Hey, we’re going to give you this VA loan at 0% down.’ It’s really not quite how it works.

How it works is the VA loan says, ‘Hey, all lenders out there, if you meet certain guidelines and criteria that we have for VA loans, we will offer the VA home loan guarantee.’

The official name for a VA loan really is a VA home loan guarantee.

And that means that the VA essentially says, ‘hey, lenders, if you’re going to meet these requirements that we have for a VA loan, making sure that they meet all the qualifications that we have, through what’s called a VA loan handbook, then we’re willing to offer a guarantee’ – or kind of think of it as like an insurance policy on the VA loan.

And that means for us as lenders, hey, that drastically reduces our risk because now all of a sudden, we have the VA willing to help us cover potential losses if this VA loan has any problems.

And the VA tells us as well, if you’re going to do this, you need to offer them some really good benefits.

And so those things that come through are, number one, extremely competitive interest rates. You should typically see more competitive interest rates on a VA loan than a conventional loan.

We also need to make sure that we don’t charge any private mortgage insurance.

So, with a VA loan, you’re not getting dinged extra monthly costs if you’re putting less than 20% down. That’s really powerful.

And then lastly, the VA loan has that ability for members to do a streamlined refinance and lower their rates relatively easier than any other loan type because of that VA guarantee and the VA saying, ‘Hey, we need to do the best thing for the veteran.’

So yes, you can do no down payment on a VA loan, and that’s one of the most incredible things about a VA loan.

However, we’ll also always want to point out, because every lender is more than willing to tell you 0% down, do it, you can leverage the whole thing.

I’m glad to point out that you can actually put money down on a VA loan, and there’s some benefit to doing so.

So, the VA, when they’re willing to do that guarantee on a home loan, they do charge veterans or active-duty military buyers.

That’s one thing too, when we say ‘veteran,’ we mean active duty as well, because active-duty members – sometimes, I remember when I was in, were like, ‘I’m not a veteran, can I use it?’ – Yes, you can. We get asked that sometimes. So when I say ‘veteran,’ no, it’s interchangeable.

But the VA says, ‘Hey, if you’re going to go ahead and do this loan, know this though, we’re going to charge that veteran a VA funding fee.’

And that VA funding fee is a percentage of the loan, and it’s charged the same no matter what lender you’re working with.

And that VA funding fee is 2.15% if it’s your first use of the VA loan and you’re doing 0% down.

Now, after you’ve used the VA loan once, that jumps up to 3.3% on any what they call subsequent use of the VA loan.

So, if you’re going to go take out a second or third VA loan, be it that you’re going to keep your other VA loan or not, it jumps up to 3.3% with 0% down.

But this is where the kicker is, and the VA actually incentivizes you some to put money down on a VA loan.

You put 5% down on a VA loan, they cut that funding fee from 2.15% for your first use or 3.3% for your subsequent use down to 1.5%, big savings.

Now that cost too is generally rolled into the loan, so it’s added in.

But the deal is, if you put a little bit of money down, you pull that funding fee back, which can be a really powerful benefit if you’re trying to use a loan to build wealth throughout your military career, if you’re active duty, or civilian career if you’re out and you’re just moving and trying to upgrade homes.

So, know that yes, no down payment, very doable.

We work with folks doing it all the time, especially when it’s at first purchase as active duty, that’s one of our prime groups that we work for. If you’re getting your first purchase from that move, a lot of folks are doing 0% down. But later on, we see folks actually putting money down.

Now note this too, on that VA funding fee, if you have VA disability compensation, which the VA estimates about half of all veterans who are out have VA disability, and even more could qualify for it, then there is no funding fee, 10% or greater.

We get an exempt Certificate of Eligibility from the VA that we can get for you, then you have no VA funding fee on your loan – period. Which makes it a big benefit.

So that even if you put 0% down, there’s really no penalty for putting 0% down period because there’s no VA funding fee.

So, you can do no down payment on the VA loan.

Know that there are some caveats and some extra pieces of thinking though if you do put some money down, then could alter and change your VA loan, sometimes for the better, but sometimes not if you have that disability.

My name’s Evan Kaufman, your VA loan originator. Really hope this helps you win a home with VA Loan. Take care.