Veterans’ affairs is an area of public policy concerned with relations between a government and its communities of military veterans. Some jurisdictions have a designated government agency or department, a Department of Veterans’ Affairs, Ministry of Veterans’ Affairs, Department of Veterans Services, or the like, which oversees issues relating to veterans’ affairs. These departments provide a variety of services for veterans.
A VA mortgage loan is a military benefit that doesn’t require a down payment or mortgage insurance. However, your credit score and credit history may still affect whether a lender is willing to offer you a loan with zero down payment.
As part of the Department of Veteran’s Affairs benefits program, borrowers who qualify for VA-backed mortgages, which includes most active-duty military and veterans, as well as surviving military spouses, have the option of purchasing a home with $0 down. This allows service members to invest in a home sooner or to put their savings toward other goals.
VA loans don’t require a down payment because the government guarantees the loan, ensuring that the lender will recover between 25% and 50% of the borrowed amount in case of a default. (This is also why USDA loans don’t require down payments and FHA loans only require small ones.)
While not spending a huge chunk of money upfront is tempting, putting money down can cut your costs in the long run.
“I think the biggest benefit is saving money” in the long run, says Lacey Langford, an accredited financial counselor who works with members of the military.
Veterans United has slightly higher rates and fees than other lenders on our list, and only offers in-person service in 18 states. However, in the JD Power 2020 Primary Mortgage Origination Satisfaction Survey, this lender would have had a high rating had it been able to qualify.
The advantages of making down payment,
Reduce your monthly payment: If you make a down payment, your monthly mortgage payments on the same home price will be lower, because you’re borrowing a smaller amount. Over the life of a loan, this can result in thousands of dollars in savings. The higher your down payment, the less you’ll pay each month.
For example, if you have a $200,000 30-year fixed rate mortgage with zero down and an interest rate of 3%, your monthly payment will be $842.
By contrast, if you make a 5% down payment on the same loan with the same interest rate, your monthly payment will go down to $800.
Reducing your total interest payments: By putting money down on a home, you’ll be financing a smaller amount of money. The lower your loan balance and the lower the balance the less you’ll pay in interest over the length of the loan. A larger down payment could also help you qualify for a lower interest rate, which can result in long-term savings as well, notes Langford.
Reducing your VA funding fee: By making a down payment, you’ll also reduce the amount you’ll pay toward the VA’s funding fee. This upfront fee is used by the VA to fund the mortgage program.
VA Disability benefits are tax-free. Veterans may be eligible for disability compensation if they have a service-related disability and they were discharged under other than dishonorable conditions. Notice that there aren’t any income restrictions for VA Disability!
Before applying for a VA loan, take a hard look at your finances and make the decision that will best suit your needs. “You need to look at the long-term plan for yourself and for your family and then really write out the pros and cons,” she says.
Long-term goals can include saving for retirement or building up a college fund for your kids. If you need the money for those goals soon, it may make sense to hold on to the cash you have. On the other hand, if you have time and can make a down payment, you can take the money you save from lower monthly payments and put it towards achieving your target.
If your top priority is to buy a home and you can afford the monthly payments and home maintenance but don’t have enough for a down payment, then the VA’s no money down feature can be a great opportunity.