If you’re an active service member, veteran, or surviving spouse planning to build or purchase a new home, you may wonder, “Do VA loans require a down payment?” The U.S. Department of Veterans Affairs offers home loans with exclusive benefits, including no to low down payment options. In fact, nearly 90% of VA-backed home loans require no money down.
Here’s what you need to know about VA loan guidelines for down payments:
VA down payment benefits of full entitlement
When you apply for a loan, the VA can approve you for full, remaining, or reduced entitlement. The VA determines your entitlement, or your pre-approval for certain VA home loan benefits, based on your past financial history.
To qualify for full entitlement, you must meet the following requirements:
- You’ve never previously used your home loan benefits
- You’ve paid back a previous VA loan
- You’ve completely repaid a VA loan after a foreclosure or short sale.
If the VA awards you full entitlement, you’ll have no loan limits and no down payment obligations.
VA loan down payment requirements for remaining entitlement
In most areas of the U.S., the VA loan amount limit is $647,200. Some areas, such as northern Virginia, top out at $970,800. If you have remaining entitlement, or unused funds from a previous VA loan, the VA can grant you a limited loan. However, the agency will require a 25% down payment of any amount exceeding your remaining entitlement. Here’s an example:
If you currently have a VA loan for $300,000, you have $347,200 remaining from the initial $647,200 full entitlement. If the home you want to purchase is $450,000, your down payment would be 25% of the difference between your remaining entitlement of $347,200 and the price of your home at $450,000. That would make the total difference $102,800. Thus, your down payment would be $25,700, or 25% of $102,800.
Down payment obligations for VA loans with reduced entitlement
The VA may grant you reduced entitlement, or a lesser pre-approved amount, if you have pre-existing financial concerns or a history of default on a previous VA loan. In this case, you would be responsible for a 25% down payment of the gap between your approved entitlement and your home’s price.
For example, if the VA grants you a total reduced entitlement of $300,000 but your home is $350,000, the agency would require a down payment of $12,500, or 25% of the $50,000 difference.
Obtaining a Certificate of Eligibility
To secure your VA-backed home loan, apply for your Certificate of Eligibility. This document will specify your entitlement benefits and confirm your loan qualifications to your lender.
As an OVM Financial customer, you have access to expert loan officers who can answer your questions about VA loans that require a down payment. Contact us to set up an appointment. In the meantime, you can get the answers to two common VA loan FAQs: “Does the VA loan cover closing costs?” or “Can I get a VA loan with my girlfriend?”