Comparing Va And Conventional Down Payments
In the November Origination Insight Report from Ellie Mae, a mortgage software company that compiles monthly data on three major loan programs, the average loan-to-value of conventional loans was 80 percent. Compare that with 98 percent for VA loans. Even if a down payment is required, a Veterans cash out-of-pocket expense is generally far less with a VA loan than with a conventional loan. See the comparison below:
TIP: Compare loan programs to see which gives you the best advantage when it comes to down payment and other costs.
Cons Of Choosing A Va Mortgage
- They come with a funding fee, which is paid to support the program.
- The funding fee increases after every subsequent use of VA loan benefits. You will pay more in funding fees the second time you borrow a loan.
- The loans could exceed market value.
- The loans are provided only by VA-approved private lenders.
- You cannot purchase a vacation home or an investment property with these loans.
Your Path To Buying A Home With A Va Loan:
Navy Federal Credit Union makes the process easy for you. Theyre a top VA lender and can help you determine if you meet VA home loan requirements and answer any questions along the way.
Read Also: How To Qualify For Bridge Loan
Low Down Payment: Fha Loans
The FHA mortgage is a bit of a misnomer because the Federal Housing Administration doesnt actually lend money.
Rather, the FHA sets basic lending requirements and insures these loans once theyre made. The loans themselves are offered by nearly all private mortgage lenders.
FHA mortgage guidelines are famous for their liberal approach to credit scores and down payments.
The FHA will typically insure home loans for borrowers with low credit scores, so long as theres a reasonable explanation for the low FICO.
FHA also allows a down payment of just 3.5% in all U.S. markets, with the exception of a few FHA approved condos.
Other benefits of an FHA loan are:
- Your down payment may come entirely from gift funds or down payment assistance
- The minimum credit score is 500 with a 10% down payment, or 580 with a 3.5% down payment
- Upfront mortgage insurance premiums can be included in the loan amount
Furthermore, the FHA can sometimes help homeowners who have experienced recent short sales, foreclosures, or bankruptcies.
The FHA insures loan sizes up to $ in designated high-cost areas nationwide. High-cost areas include places like Orange County, California the Washington D.C. metro area and, New York Citys 5 boroughs.
Note that if you want to use an FHA loan, the home being purchased must be your primary residence. This program isnt intended for vacation homes or investment properties.
You Might Have To Wait
If you need a few extra months to save up enough money for a down payment before you can buy a home, youre wasting precious time with rates rising, you could end up with a much more expensive mortgage the longer you hold off. Moving right away and putting zero down means you dont have to rent any longer and can start building equity immediately with lower borrowing costs.
Don’t Miss: How To Get The Ppp Loan
How To Calculate DtiHow to Calculate DTI on a VA Loan
|Child Care/ Child Support/ Alimony||$300|
|DTI Ratio =||39%|
It’s also important to understand that mortgage lenders don’t consider all income equally. Some forms of income will count toward qualifying for a mortgage with no problem. But other forms, like overtime, self-employment income and others, will often require at least a two-year history. And some forms of income, like GI Bill housing allowances, won’t be counted as effective income toward a mortgage.
Lenders don’t count all your debts, either. Things like cell phone bills, car and health insurance, groceries and other expenses aren’t factored into this calculation.
Calculating your DTI ratio is one step. But the question is: How does that number affect your ability to land a VA home loan?
Occupancy Requirements For Va Loans
You can only use a VA loan to buy a home you intended to make your primary residency . You cant use VA loans to buy second homes, rental properties, or investment properties. The requirements for VA IRRRL refinances are different. For this type of refinance, you just need to certify you lived in the home in the past. You are not required to live in the home now.
Recommended Reading: How Do Loan Originators Get Paid
Va And Lender Dti Benchmarks
Lenders can set their own benchmarks for the maximum allowable DTI ratio. Those caps can vary based on a host of factors, including the presence of compensating factors and whether the loan file needs to be underwritten manually.
Some lenders might allow a DTI ratio above 50 percent, even well above it, in some cases, depending on the strength of the borrower’s overall credit and lending profile.
In these cases, borrowers will get an up-close look at the link between DTI ratio and the VA’s guideline for discretionary income, known as residual income.
How Would A Down Payment Influence Your Monthly Payments
Use a mortgage calculator to compare monthly payments with and without a down payment. What would happen if you put a small amount down? What if you went all the way to 20% down? Once you have sample payments, see how each fit in with your monthly budget.
A helpful rule of thumb is the 28/36 rule, which says that
- No more than 28% of your gross monthly income should be put towards housing costs, including mortgage payments, insurance, and homeowners association fees.
- No more than 36% of your income should go towards paying all your debts, including your mortgages, other loans, and credit cards.
For example, if you earn $4,000 a month, then you can spend up to $1,200 on housing and up to $1,440 on all debts.
Also Check: How To Pay Suncoast Car Loan Online
Reduces Principal Balance And Loan Costs
Making a down payment also reduces your loans principal balance, the amount you owe. If you buy a home for $200,000 and dont make a down payment, your starting principal balance is $200,000. If you come up with a down payment of $5,000, your starting principal balance is a lower $195,000.
If your principal balance is lower, your loan closing costs can be lower, too. Closing costs are the fees that third-party providers such as your lender, title insurer and real estate attorney charge for the work they do in closing your loan.
Many of these charges are based on a percentage of your loans principal balance. The lower your principal balance, then, the lower your closing costs might be.
Do Va Loans Require A Down Payment
VA loans do not typically require a down payment. In fact, according to the VA, around 80% of Veterans utilizing their VA loan benefits don’t put any money down on their home.
If you’re interested in using your $0 down VA loan benefit, contact a home loan specialist here. If you wonder what happens if you have a down payment or how the VA loan can offer Veterans a $0 down option, we explore that in more detail below.
You May Like: How Long Does Mortgage Loan Underwriting Take
No Mortgage Insurance Is Required For A Va Loan
Additionally, with a VA loan, you wont need to purchase private mortgage insurance . Most borrowers who pay less than 20% of the total home cost as a down payment will need to purchase PMI.The PMI protects the lenders interest in the home. Mortgage insurance can cost between 0.5% and 1.86% of the value of the home. This may not seem like a lot, but mortgage insurance can cost more than $100 a month and will add up over several years of homeownership.
Who Is Eligible For A Va Loan
To qualify for a VA loan, you must meet certain income and credit requirements and have a valid Certificate of Eligibility . While length of service, duty status, and conduct can also affect your eligibility for a VA loan, you may be able to obtain a COE if you belong to any of the categories below.
Don’t Miss: How To Accept Parent Plus Loan
Can You Foreclose On A Va Loan
A VA loan can go into foreclosure. The VA has programs in place to help borrowers avoid foreclosure, though. A veteran struggling to repay their mortgage can get help from the VA, whether they have a VA loan or not.
If a veteran does have a VA loan, they can request assistance from a VA loan technician if they are concerned about missing payments or falling behind. Once a borrower falls more than 61 days behind on payments, the VA automatically assigns a technician to their case.
A VA loan technician will review a borrowers options with them to help them avoid foreclosure. Options might include:
- Modifying the loan to reduce monthly payments.
- Moving the loan into forbearance so a borrower has additional time to make payments.
- Creating a repayment plan to help the borrower make up any missed payments.
- Delaying foreclosure so a borrower can sell the home.
- Arranging a short sale of the home if the loan amount is more than the homes value.
- Transferring the deed instead of foreclosure.
Generally speaking, borrowers who purchased their home after 1990 will not have to repay the government if they foreclose on the house.
Residual Income Requirements For Loans $80000 Or More
Expect to provide two years of employment history for underwritings income verification process. If youve been at your job for less than two years, the lender may ask for proof of previous employment or an explanation of gaps in your work history.
Depending on your employment record and type of work, you may have to provide pay stubs, tax returns, bank statements, or other forms of documentation.
Read Also: Can You Apply For Sba Loan Twice
When Is The Best Time To Get A Va Home Loan
When shopping around for a mortgage, many people wonder if there is a “good time” to apply. For some mortgage products, there is no doubt that key market conditions affect how much they’re going to pay. However, there is no tried and true advice for when you should – or shouldn’t – apply for a VA home loan. The things that affect the interest rates that are attached to the typical VA home loan are so varied and complex that there is no hard and fast rule to refer to.
If you are considering a VA home loan, contact a number of qualified lenders and ask them what the current rate is. Try to get a feel for whether rates have recently crept up or gone down, and act accordingly. Either way, you’re going to be paying a lot less than those who don’t qualify for VA loans are going to. Also, without the worry of private mortgage insurance and without having to make a down payment, you’re going to be ahead of the game financially anyway. In fact, the relaxed conditions for VA home loans makes any time a good time to get one. The VA loan benefit is flexible and widely used across the country. Here are usage stats for fiscal year 2018.
Dti Ratio & Residual Income
The residual income guidelines require borrowers to have a minimum amount of discretionary income left over each month after paying major expenses. The minimum amount varies depending on your loan amount, family size, and the country you’re buying.
For example, a Midwestern family of four would typically need $1,003 in residual income each month after paying their mortgage and other major debt obligations.
But VA buyers need even more residual income on hand if their DTI ratio is higher than 41 percent. These borrowers will need to exceed their residual income guidelines by 20 percent to satisfy the VA and lenders.
If our example Midwestern family of four has a DTI ratio above 41 percent, here’s what their residual income requirement would look like:
$1,003 x 20 percent = $200
$1,003 + 200 = $1,203
Our example family of four would need $1,203 in residual income every month to keep their loan moving forward, at least at the current loan amount.
And that’s also something to keep in mind: A huge piece of your DTI ratio is your projected monthly mortgage payment.
Don’t Miss: How To Apply For Fortiva Personal Loan
Pay A Lower Funding Fee
The funding fee is a critical part of the VA home loan program, helping to lower the cost to taxpayers. If you make a down payment, youll pay a lower fee.
Lets say youre a first-time homebuyer planning to take out a loan for $340,000. With no down payment , the funding fee would be 2.3 percent of that amount, for a total of $7,820. If you were to make a down payment between 5 percent and 10 percent, that fee would shrink to 1.65 percent, or $5,610. If you were to make a down payment greater than 10 percent, the funding fee would drop to the lowest available rate of 1.4 percent, or $4,760.
If this isnt your first time using the VA loan benefit, theres an even bigger incentive to make a down payment: The VA funding fee jumps to 3.6 percent after the first use.
How Does My County Loan Limit Affect Me
You may need to make a down payment if youre using remaining entitlement and your loan amount is over $144,000. This is because most lenders require that your entitlement, down payment, or a combination of both covers at least 25% of your total loan amount.
So if youre able and willing to make a down payment, you may be able to borrow more than the county loan limit with a VA-backed loan. Remember, your lender will still need to approve you for a loan. The lender will determine the size of loan you can afford based on your:
We dont require a minimum credit score, but some lenders may have different credit score requirements. Be sure to contact more than one lender to compare.
Note: You may have heard the terms additional entitlement, bonus entitlement, or tier 2 entitlement. We use these terms when we communicate with lenders about VA-backed loans over $144,000. You wont need to use these terms when applying for a loan.
Also Check: How Long Until You Can Refinance An Fha Loan
Va Jumbo Loan Limits Rates And Requirements
VA loans are a great benefit to our countrys eligible active-duty service members, reservists, members of the National Guard, veterans and qualifying surviving spouses. There are a lot of benefits, including no down payment, rates that are typically lower and some more flexible qualification requirements in many cases.
But what happens if you live in an expensive area or just need a loan thats a little bit bigger? A VA jumbo loan can help you buy or refinance that home. Well spend the rest of this post going over what you need to know to get a VA jumbo loan and whether it makes sense for you. But first, lets get back to the basics.
You Might Not Have A Choice On Down Payment
There are a few situations where you must make a down payment. If the home you want to buy appraises for less than your purchase price, then you must put up cash, or if the purchase price is more than the VA loan limits in your county, youll also need to make a down payment before the VA will guarantee your loan. Otherwise, youll need to back out of your purchase.
Read Also: What Does It Mean To Refinance An Auto Loan
How The Va Loan Offers $0 Down
A common misconception in VA lending is that the VA acts as the lender in the VA mortgage process. In reality, private lenders, such as mortgage companies and banks, make the loans while the VA backs a portion against default.
This backing, known as the VA guaranty, provides lenders with a safety net against loss if a Veteran is unable to repay their VA loan.
In short, the VA loan doesn’t require a down payment because the VA guarantees a portion of the loan, which protects the lender if the borrower defaults. This guaranty means the lender can offer more favorable terms, including no down payment.