How to Get a No-Money-Down VA Loan

Can you get no-money-down on your VA loan? Is such a thing even possible? Well, if you’ve ever asked that question, then you’ve come to the right place. Such a thing is possible, and here you can find out how! There are factors that can combine to make any new purchase loan a no-money-down loan, and there is also an easy way to do a VA refinance with no money down as well. Find out the secret to both!

No Money Down on a New Purchase Loan

No Money Down on Your VA LoanThis is possible due to a combination of a number of factors. The first thing that makes this possible is that VA loans do not require a down payment of any kind. You can obviously make a down payment, and if you do you can expect a better offering from the lender, but you do not have to and there is no penalty for not doing so. Since the down payment is often the single largest piece of money down on a new purchase loan, having this removed makes a VA loan far more affordable than it would otherwise be. This leaves two other things that cost money right at closing: the VA Funding Fee, and closing costs on the loan. The VA Funding Fee is usually around 2.15% of the loan amount and is normally due at closing. However, the VA allows the borrower to roll the Funding Fee into the loan amount so that the borrower does not need to pay it upfront. Considering that on a $200k home, the Funding Fee would be around $4,300, that takes a significant chunk out of the out-of-pocket costs as well.

So of all the normal upfront costs of purchasing a home, all that is left is closing costs charged by the lender. Much of closing costs are paying for services the lender has provided in regards to originating the loan, but other things such as the appraisal are also included. For origination, lenders are only allowed to charge a maximum of 1% of the loan amount. Combined with the other charges that aren’t considered origination, you’re probably looking at 1.5 – 2% of the loan amount in these closing costs. Considering that your down payment (if you were making one) would probably be at least 5%, which would be $10,000 on a $200k home, plus the $4,300 from the Funding Fee on that home, plus the 2% of closing costs ($4,000 on a $200k home), you could be looking at an upfront cost of $18,300, so even if the only thing you’re stuck with is closing costs, a $4,000 tab is much better than an $18,300 tab.

You can, however, also have that $4,000 taken care of in some instances. The VA loan program allows the seller to pay the borrower’s closing costs up to a certain point. Especially if you’re buying without a real estate agent, most sellers will be willing to pay up to 2% of the loan amount in closing costs for you as part of the deal, and it’s not usually too difficult to convince the lender to do so. Obviously, this depends on the market and the home you’re buying (if the seller has three other offers on the house then they may not be as motivated to help you buy it), but it’s often very possible.

No Money Down on a VA Refinance

Obviously, the same ability to roll the Funding Fee into the loan applies to refinances, and no down payment is required on refinances period,No Money Down for VA Refinance the only question that remains is how to address the remaining closing costs. The way to do a VA refinance with no money down is by using the VA’s streamline refinance option, called the Interest Rate Reduction Refinance Loan, or IRRRL. This streamline refinance option is what allows you to do a no-money-down refinance. The VA allows IRRRL borrowers to roll every penny of closing costs into the loan amount along with the Funding Fee (which is actually quite small on the IRRRL compared with a new purchase or a normal refinance). This means that you don’t need to rely on anyone else’s generosity in order to do your refinance with no money down. The VA makes this option possible to help out borrowers that need to refinance their homes but don’t have a whole lot of cash saved up.

Do you want to purchase or refinance your home with no-money-down?  Find out if a VA loan could make that possible for you!

VA vs. Conventional Loan Down Payments

VA vs. Conventional: Down Payments

 

Saving up the money for a down payment is one of the largest (if not the largest) obstacle that first-time home buyers face. Once you’ve bought a house and begun to build up equity, a down payment isn’t as much of an obstacle, but is still present, especially if you’re looking to move to a more expensive house. Unfortunately, a down payment is just a part of buying a house and there’s nothing you can do about it – or is there? The VA loan program is designed to directly address the obstacle of a down payment that veteran home buyers face. In this article, we’re going to show how the VA loan program offers a more borrower-friendly package, especially when it comes to the down payment requirements.

 

Down Payments on Conventional Loans

Understanding Down Payments

To give us a baseline, let’s talk about what you should expect as far as down payments go on conventional loans. You may have heard that semi-recently, federal restrictions on down payments were eased up all the way to allow as little as 3% of the loan amount to be sufficient for a down payment. While that’s technically true, you won’t be happy with how few lenders you have to choose from if that’s all you’re paying, and you definitely won’t be happy with the terms offered you. You’ve probably heard that a 20% down payment is required on conventional loans, and that’s true in a sense. Making a 20% (or more) down payment is the only way you can avoid having to purchase private mortgage insurance. Mortgage insurance adds to your monthly payment, sometimes as much as hundreds of dollars each month, and for no other reason than because you didn’t pay enough for a down payment. Most lenders will take borrowers making at least a 10% down payment, but your options start to get more scarce as you get lower than that. Unless you have $50,000 just sitting in the bank, you will probably have to pay mortgage insurance for your first home.

 

The VA Loan Offering

The VA recognizes that down payments constitute the single greatest obstacle to home ownership for first-time buyers. With that in mind, the VA loan program does not require a down payment of any kind. If you are getting a VA loan, you don’t have to put in a dime on a down payment. Why? Because the VA guarantee to the lender acts as your down payment and gets you the good loan terms (with no mortgage insurance) without forcing you to make a down payment. You can, of course, still make a down payment, and if you do you’ll be rewarded by getting a discount on the VA Funding Fee as well as better terms from the lender, but it’s not required and you don’t have to pay mortgage insurance if you don’t make a down payment. This is one of the greatest benefits of the VA loan program – the ability to buy a home without having 20% to make a down payment. It’s important to remember, though, that you’ll still need to have enough saved up to pay closing costs, which can be thousands of dollars. You can roll the Funding Fee into the loan amount if you wish, but none of the other closing costs can.

 

Why the Difference?

The biggest factor in play here is the VA guarantee – it’s because of the guarantee that VA lenders are willing to make good loans to borrowers who are not making a down payment. The VA offers the guarantee as a benefit to those who have served in the armed forces. Where the conventional loan market is just that – a market – the VA loan program is a specialized benefit made for active service members and veterans to reward them for their service. If you are eligible for the VA loan program, you should definitely use it to purchase your home, and not just because of the superior down payment requirements. The VA loan program also boasts some extremely beneficial loan types and options, as well as protections that the conventional loan program does not offer. And you don’t even have to deal much with the VA when you get a VA loan – you’ll need to get your Certificate of Eligibility, but that’s pretty much it; any other dealing with the VA is taken care of by the lender, and most lenders don’t need to submit their loan packages to the VA before closing. You can get your VA loan quickly, efficiently, and easily.

 

FAQ; Loan Mortgage Insurance on VA Loans

Do VA Loans Have Mortgage Insurance?

 

This question touches on one of the greatest benefits of the VA loan programs. In fact, the answer to this question is directly related to the thing that makes the VA loan program exist at all – the VA guaranty. The short answer is no. VA loans do not require the borrower to purchase mortgage insurance, even when no down payment is being made. This is one of the things that makes the VA loan program such a valuable asset for borrowers. Not only do VA loans not require borrowers to make a down payment of any kind, but they also do not require mortgage insurance, even when the borrower makes zero down payment.

 

No Down Payment VA LoanHave you ever wondered why? What makes this possible? Well, anyone who has purchased a home before is probably familiar that lenders will require a 20% down payment on the home for a conventional loan, and usually at least a 5% down payment on an FHA loan. The FHA offers the lender a guaranty to help mitigate their risk, and the FHA charges the borrower mortgage insurance in exchange for helping the borrower get a loan and to cover the FHA’s risk. Similarly, the VA guarantees a certain percentage of the loan to the lender so the lender will not require a down payment. In exchange, the VA charges the borrower a one-time funding fee, which adds a few thousand dollars to closing costs for the loan. Considering that mortgage can cost upwards of $200/month in some cases, the 2.15% one-time funding fee is a far better alternative.

 

Understanding the VA guaranty is important in understanding why it can negate the need for a down payment. We already know that mortgage insurance is simply how the FHA lowers their risk and thus the financial burden on the taxpayers for their program, and the VA funding fee (not to mention the military service of the borrowers) is how the VA lessens the financial burden of their program. But the lender’s biggest concern is losing money on a loan. Have you ever wondered why lender’s require a 20% down payment? Well, up until very recently, the federal government required that they do so, but as of October 2014, that has changed. The government no longer requires that borrowers make a down payment at all on a conventional loan. However, you’ll find that many lenders still ask for a 20% down payment, or at least penalize a borrower with a higher interest rate for not having that much put down, and there’s a very good reason why.

 

The lender, and any investor who purchases your loan, is taking a sizable risk ($300k is a lot of money) and the chance that you will pay back the amount owed dutifully either by paying through to the end of the mortgage or selling your home after a few years. Unfortunately, especially in today’s economy, people default on their loans all the time. Getting 20% of the loan in a down payment is usually enough that if the borrower defaults, the lender can make most of their money back selling the foreclosed home to a new buyer. When the borrower doesn’t make a down payment, it’s essentially a guarantee that the loan holder will lose a lot of money if the borrower defaults. Enter the VA guaranty.

 

The VA guaranty stands in for the down payment. On a normal (non-jumbo) VA loan, the guaranty amount will be at least 25%, more than covering the percent that the lender wants taken care of risk-free. This also explains why a borrower making a 20% down payment on a conventional loan and a borrower making no down payment on a VA loan will get offered similar terms. A borrower who makes a 20% down payment on a VA loan will likely be very pleasantly surprised at how good the terms are, since, in that scenario, 45% of the value of the home is completely risk-free.No Money Down

 

So there you go, I hope that not only answers the question about mortgage insurance, but also helps you understand a bit more about how the VA guaranty works, why the VA doesn’t require mortgage insurance, and the relationship between the VA guaranty, the down payment, mortgage insurance, and the funding fee.

 

The Maximum Amount for VA Loans and Downpayments

For those looking for a new home, and hoping to use a VA loan to finance it, questions about how much you’re able to borrow on a VA-guaranteed loan have probably arisen. You may be wondering about the maximum entitlement that you have, as well as what your interest rate and monthly payment would be at that maximum, so you know whether you could afford it. It may surprise you to find out that there is no national “standard” about how much you can borrow on a VA loan. The amount you can borrow depends a lot on the county you live in. The VA posts a list every year of the loan limits for each county in the United States. If your county is not on this list, it has a maximum of $417,000 that can be borrowed. That list can be found here: http://benefits.va.gov/homeloans/documents/docs/2013_county_loan_limits.pdf

As you can see from that list, there are several places that have over a million dollars that can be borrowed using a VA loan. A lot of places have maximums in the $600,000 and $800,000 range, but the lowest amount a county can have as its maximum is $417,000. While having higher loan amounts is great, if you think about paying off $800,000 with 4.5% annual interest over 30 years, you’re looking at over $4,000 for your monthly payment, which is far more expensive than most people can afford. In the great majority of places, very decent living accommodations can be purchased for under the $417,000 maximum that many counties have. But, if you’re a veteran and a successful business owner or well-to-do executive, getting a VA loan to purchase the big house on the hill is a much better deal than getting a conventional loan to do so.

It is good to know that even the numbers on that list are flexible based on other factors. Let’s say you find a house for $416,000, and you fall in love with it and want to buy it. The good news is, it falls under the maximum amount for your county, so you get the ball rolling and even sign an agreement to purchase with the seller. Then the VA appraiser comes and appraises the home, and says that the fair value of the home is only $350,000. Guess what? You will not be approved for a dime more than $350,000, even if the seller won’t budge on the price and you strongly disagree with the appraiser. There is an appeal process if you think there were errors on the appraisal, but if the appraisal stands then you will not be approved for the higher amount, even though it is under the “maximum” amount that can be borrowed in your county.

Unfortunately, it doesn’t work the other way around. If you’re in a county where the limit is $417,000, and you want to buy a home at $500,000, even if the appraiser were to establish $500,000 as the fair market value, you still could not be approved over the $417,000 limit. The VA will only approve the lower value between the county limit and appraised value of the home. This can cause consternation, especially when the appraised value of the home isn’t that much higher than the county loan limit. However, in these situations, all hope is not lost. In the event that the borrower wishes to buy a home that is more expensive than the county loan limit in which the home is, the borrower can make up the difference in their down payment.

One of the great things about the VA loan program is that VA loans do not require a down payment at all. If you don’t make a down payment or make a small one, you’ll pay a larger funding fee to the VA and have a larger monthly payment throughout the mortgage because you’re paying off more principal, but it can be a great option for those who don’t have enough money saved up for a down payment to still be able to get the home they want and need. But paying a down payment to get the loan amount low enough to be under the county limit can be a great way to get the home you really want. As always, it’s wise to get a lender involved as soon as possible in your house hunting so fewer things catch you by surprise and you can make the best decision for your budget in the long run.

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