VA loans do not require a down payment

A VA loan is a mortgage backed by the Department of Veterans Affairs that lets you buy a home with zero down. You can borrow the full purchase price without putting any of your own money down at closing. This is one of the largest differences between VA loans and conventional mortgages, which typically require 3 to 20 percent down.

The no-down-payment feature exists because the VA guarantees a portion of the loan to the lender. If you stop paying, the VA covers the lender's loss up to the may provide amount. That protection means the lender takes less risk, so they do not need you to prove financial commitment through a down payment.

You still pay closing costs, though the VA limits what lenders can charge you for them. Some sellers will cover your closing costs as part of the sale negotiation, which is common in a buyer's market.

Key Takeaways

  • VA loans require zero down payment, meaning you can borrow 100 percent of the home's purchase price.
  • The VA's may provide to the lender removes the need for you to put money down upfront.
  • You still owe closing costs at closing, though these can sometimes be negotiated with the seller or covered by the lender.
  • The VA limits the fees lenders can charge you, capping what you pay to close the loan.

How the VA may provide replaces a down payment

When you get a conventional mortgage, the lender requires a down payment because they want to see you have skin in the game. If the home value drops and you walk away, they lose money. A down payment shrinks that risk.

With a VA loan, the lender does not need your down payment because the VA steps in. The VA guarantees that if you default, it will pay the lender back—up to a set amount called the entitlement. Your entitlement is usually enough to cover 25 percent of the loan, though the exact amount depends on when you served and your branch.

This may provide is what allows you to borrow the full purchase price. The lender knows the VA will cover losses, so they accept the risk you would normally offset with a down payment.

What you still pay at closing

No down payment does not mean no money at closing. You will owe closing costs, which cover the lender's work processing your loan, the title search, appraisal, and recording fees. These typically run 2 to 5 percent of the loan amount, though the VA caps what lenders can charge you for their own services.

The VA allows lenders to charge you for third-party costs like appraisals and title insurance, but limits lender fees to a percentage of the loan. You cannot be charged for a VA funding fee unless you choose to pay it upfront—more on that below.

Many sellers will negotiate to cover some or all of your closing costs, especially in a slower market. This is a normal part of the offer. If the seller agrees, you can close with no money out of pocket.

The VA funding fee and whether to pay it upfront

Most VA loans include a VA funding fee, which is a one-time charge that goes to the VA to offset the cost of the program. The fee is usually 1.4 to 3.6 percent of the loan amount, depending on whether this is your first VA loan and whether you are putting any money down.

You have two choices: pay the fee upfront at closing, or roll it into your loan and pay it over time with your mortgage. If you roll it in, you will pay interest on it, so the total cost is higher. But you do not need cash at closing.

Some borrowers are exempt from the funding fee, including Purple Heart recipients, disabled veterans rated by the VA, and surviving spouses of veterans who died in service or from a service-connected condition. If you are exempt, you owe nothing.

When you might choose to put money down anyway

Even though you do not have to put money down, some borrowers do. Putting down 5 or 10 percent can lower your interest rate slightly and reduce the funding fee, saving you money over the life of the loan.

Putting money down also reduces the amount you borrow, which means a smaller monthly payment. If you have savings and want to lower your debt, this can make sense. But the math depends on your interest rate, how long you plan to stay in the home, and what you could earn if you invested that money instead.

The choice is yours. The VA loan program does not penalize you for borrowing the full amount, so there is no pressure to put money down if you do not want to.

How VA loans compare to other zero-down options

VA loans are not the only mortgages that do not require a down payment. FHA loans allow you to borrow with 3.5 percent down, and some conventional loans backed by Fannie Mae or Freddie Mac offer zero-down options to borrowers in certain areas or with certain income levels.

VA loans are usually the cheapest option because the VA funding fee is typically lower than the mortgage insurance premiums you would pay on an FHA or conventional loan. With an FHA loan, you pay mortgage insurance for the life of the loan if you put down less than 10 percent. With a VA loan, you pay the funding fee once.

The trade-off is that VA loans are only for veterans, active-duty service members, and certain surviving spouses. If you are not may be able to access, FHA or conventional loans are your alternatives.

Frequently Asked Questions

Can I get a VA loan with no money down and no closing costs?

You can get a VA loan with no money down, but you will owe closing costs at closing unless the seller agrees to cover them. The VA limits what lenders can charge you, but third-party costs like appraisals and title work still explore. In a buyer's market, sellers often cover these costs as part of the negotiation.

What happens if I put money down on a VA loan?

Putting money down lowers your loan amount and can reduce your interest rate and funding fee. You are never required to do this, but some borrowers choose to in order to lower their monthly payment or reduce the total interest paid over the life of the loan.

Do I have to pay the VA funding fee upfront?

No. You can roll the funding fee into your loan and pay it over time with your mortgage payments. This means you do not need cash at closing, though you will pay interest on the fee. Some borrowers are exempt from the fee entirely, including Purple Heart recipients and disabled veterans.

Is a VA loan better than an FHA loan if neither requires much down?

VA loans are usually cheaper because the one-time funding fee is lower than the mortgage insurance you pay on an FHA loan. FHA mortgage insurance continues for the life of the loan if you put down less than 10 percent. VA loans are only available to veterans and service members, so may be able to access determines which you can use.