Putting 5% Down on a VA Home Loan

Putting 5% down on a VA home loan purchase on your 2nd use instead of 0% down can offer several benefits for a veteran who doesn’t have VA disability and needs to pay the funding fee. Here are some advantages of making a 5% down payment:  Video on NW VA Guy

Reduced funding fee: The funding fee is a one-time payment required for VA loans to help offset the cost of the program. The amount of the funding fee varies depending on factors like the borrower’s military category, down payment amount, and whether it is the veteran’s first or subsequent use of the VA loan benefit. By putting 5% down, the borrower can lower the funding fee compared to a 0% down payment, resulting in long-term savings.

1. Lower monthly mortgage payments: A 5% down payment reduces the total loan amount, which in turn lowers the monthly mortgage payments. This can provide more breathing room in the budget and make homeownership more affordable in the long run.
2. Improved equity position: With a 5% down payment, the veteran starts off with a higher equity position in the home. Equity is the difference between the property’s market value and the outstanding mortgage balance. A higher equity position can provide a greater sense of financial security and offer more options in the future, such as refinancing or accessing home equity for other purposes.
3. Potentially better interest rates: Lenders often consider the loan-to-value ratio (LTV) when determining interest rates for VA loans. A higher down payment reduces the LTV ratio, which can make the borrower more attractive to lenders and potentially lead to lower interest rates. Over the life of the loan, even a slightly lower interest rate can result in significant savings.
4. Avoidance of mortgage insurance: Unlike conventional loans, VA loans do not require private mortgage insurance (PMI). However, with a 0% down payment, the VA funding fee partially serves as a form of insurance for the lender. By putting 5% down, the borrower may avoid additional insurance costs, further reducing monthly expenses.
5. Easier loan qualification: While VA loans generally have more relaxed credit requirements compared to conventional loans, making a 5% down payment may strengthen the borrower’s loan application. It demonstrates financial stability and a higher level of commitment, which can positively impact loan approval chances, especially if the borrower has a less-than-perfect credit history.

In summary, putting 5% down on a VA home loan purchase offers benefits such as reduced funding fee to 1.5%, lower monthly mortgage payments, improved equity position, potentially better interest rates, avoidance of mortgage insurance, and increased chances of loan approval. Veterans should carefully evaluate their financial situation and consult with a mortgage professional to determine the most suitable down payment option for their specific needs.

Example $400.000 purchase price with Zero down the loan amount with the 3.3% added is $13,200.  If you put 5% down is $20,000 down your funding fee added to the loan is only $5,700. By doing this you save money each month on your payment, and much less added to the overall loan.