Ice cream is all that’s required for a tasty treat; however, anyone who has sunk their spoon into the silky, decadent deliciousness of a hot fudge sundae knows that bringing something extra to the table can make a good thing even better. VA loan down payments are another great example of this. While it may not be necessary, making a VA loan down payment can offer a borrower significant benefits.
The Benefits of Making a VA Loan Down Payment
A VA loan is a mortgage extended by a private lender and insured by the U.S. Department of Veterans Affairs. This type of loan is a great option for qualifying veterans, service members, and military spouses who want to build, buy, improve, or refinance a home. As Credit Karma explains, you do not need perfect credit to be approved for this venerable form of financing, and using a VA loan means that you’ll enjoy favorable loan terms and certain consumer protections. It also means that you won’t need to pay monthly mortgage insurance or make a down payment.
Of course, just because you don’t need to make a down payment with a VA loan, that doesn’t mean that you can’t choose to do so. Why do some borrowers opt to make a down payment?
A Down Payment Can Improve the Odds of Approval
Making a down payment is seen as an indication that a borrower intends to repay their loan, so putting money down tends to make a favorable impression on lenders. If your credit history is a little shaky, a willingness to make a down payment can increase your odds of winning approval. In fact, people who have been turned down may be able to turn that denial into an approval by asking their lender to rerun the numbers with the addition of even a small down payment, according to The Mortgage Reports.
A Down Payment Reduces the Funding Fee
To help keep the VA’s loan program going and limit its cost to taxpayers, most borrowers who use a VA loan are required to pay a funding fee. This fee, which is a percentage of the total loan amount, can be paid upfront or rolled into the loan, and putting money down is a sure way to reduce it. The VA explains how making a down payment impacts the funding fee:
- With no down payment, members of the regular military using their benefit for the first time pay a 2.15% funding fee. For repeat users, the funding fee is 3.3%.
- With a down payment of 5% or more, both first-time and subsequent users who earned their benefit via service in the regular military pay a funding fee of 1.5%.
- With a down payment of 10% or more, both first-time and subsequent users who earned their benefit via service in the regular military pay a funding fee of 1.25%.
- With no down payment, National Guardsmen and reservists using their benefit for the first time pay a 2.4% funding fee. For repeat users, the funding fee is 3.3%.
- With a down payment of 5% or more, both first-time and subsequent users who earned their benefit via service in the National Guard or Reserve pay a funding fee of 1.75%.
- With a down payment of 10% or more, both first-time and subsequent users who earned their benefit via service in the National Guard or Reserve pay a funding fee of 1.5%.
A Down Payment Can Make Borrowing More Affordable
How does making a down payment make borrowing more affordable? When you put cash down, it reduces the total amount that you need to borrow. As NerdWallet points out, this offers several opportunities to save. For starters, your monthly mortgage payment will be lower. Plus, a smaller principal balance means that you’ll pay less interest over the life of the loan. Finally, you’ll jumpstart the process of building equity, and being able to access that equity through a home equity loan or line of credit can be an affordable way to make repairs or improvements to your home.
Are you weighing the pros and cons of making a VA loan down payment? Reach out to PrimeLending: Manhattan, Kansas. We firmly believe that financing your home should be about you, which is why we provide personalized service. Instead of offering cooking-cutter advice, we take the time to listen and work diligently to help you find the right loan for your unique situation. With the wide array of loan products that we offer, you’re sure to find one that’s a good match for your unique needs. Let us show you why so many people turn to the experts at PrimeLending for assistance in reaching their homeownership goals. Contact us today to schedule an appointment.