5 benefits of a down payment for a VA loan

A deposit for a VA mortgage is not required. However, if you save 5% or 10%, you can pay less overall, get a lower monthly payment, and compete better with other buyers.

We know that mortgage loans from the Department of Veterans Affairs do not require a down payment. Why the hell would you make one Here are five great reasons to put money into a VA loan.

1. You pay lower VA finance fees

VA fees are initially required for VA mortgages, whether or not you make a deposit. But.

“The finance rate has stopping points where it falls above 5% or over 10%,” said Mark Connors, VA Lender Liaison.

For example, a qualified regular military borrower would first see the VA finance rate increase from 2.15% to 1.50% with a deposit of 5% or more. A deposit of at least 10% would reduce the fee to 1.25%.

Casey Fleming, author of “The Loan Guide: How To Get The Best Possible Mortgage,” and mortgage broker in San Jose, breaks down the bill for buying a $250,000 home. The zero initial finance rate is $5,375, he says. Although a 5% deposit requires $ 12,500, your finance charge is reduced by $1,812.50, he explains.

2 and 3. You have a lower monthly payment and less interest

With a deposit, your monthly payment and lifetime costs are lower. Fleming creaked the numbers again.

Assuming an interest rate of 3.50% on a 30-year mortgage of $250,000, the monthly payments and the lifetime cost of each loan are factored in, not including closing costs, which can vary.

With a 10% deposit, not only are your monthly payments over $100 lower, but you also save over $15,000 in interest charges and pay almost half the initial finance charge compared to making a down payment. .

“So if you pay an advance, you can save thousands of dollars over the life of the loan,” Fleming says.

4. You can navigate a competitive market better

Living in a competitive real estate market can present challenges for the non-down payment payer. Places like San Francisco, Dallas, San Diego, Denver, and even Columbus, Ohio, have too many buyers who don’t have enough sellers.

If you have an “in-game skin” by putting money first, show the sellers that you are a serious buyer.

If you have an “in-game skin” by putting money first, show the sellers that you are a serious buyer. Some of your deposit can also be used for cash: cash that you deposit into an escrow account to do business with a seller.

“Make the biggest deposit possible with the offer,” said Joe Parsons, a loan officer at PFS Funds in Dublin, California. “Even though you are not required to make a deposit and the closing cost could be as low as $ 5,000, a deposit of $10,000 would not be inappropriate and the veteran will get a refund of any excess funds to the fence. Believe in credibility. “

5. You immediately have equity in your home

Without a down payment, you probably don’t have equity in your home right off the bat. If property values ​​fall, it is “upside-down”. It is when the market value of a house is lower than it should be. In this case, you could have real problems if you have to move and cannot earn enough if you sell your existing home to buy another.

If you have an embedded value in your home, you also have financing options, such as B. a home equity line of credit or a home loan. Being able to capitalize on your home can be a real budget saver when major repairs or upgrades are needed.

You may not have a choice

In some situations, you will have no choice but to pay a deposit: If the price of the house is less than the purchase price, you must leave enough to make up the difference.

If the home you want to buy costs more than the VA approved VA credit limit, you must leave enough to make up some of the difference. “VA guarantees the loan as long as the borrower pays 25% of the amount over the credit limit in cash,” Parsons says.