The Truth About No Money Down VA Home Loans

One of the most appealing perks of the VA home loan program is the no-money-down factor. Qualified borrowers can apply for a VA mortgage that requires no down payment, leaving the borrower free to use the money that would have been used for the down payment for other things.

"No money down" is prominently featured in the list of VA loan perks, but it's easy to make the mistake of assuming that the perk is a guaranteed feature of using a VA home loan to purchase property. Unfortunately, it's not.

The no money down option comes into play in many situations, but it is NOT a sure thing; there are plenty of factors that can affect whether a borrower can--or should--take advantage of a no money down VA home loan. The lender may require a down payment, which is permissible under VA regulations. What is NOT allowed in these instances is for the lender to insist to the buyer that a downpayment is required by the VA when it is not.

But the VA does require a down payment in situations where the established fair market value of the home is lower than the selling price. The down payment amount would be the difference between what the VA is willing to approve for the home loan and the asking price.

What is a situation where the buyer might wish to forgo a no-money down purchase? Any buyer with an eye on the long-term cost of the VA mortgage could be motivated to put more money down on the loan to help pay it off early. Any form of overpayment on a VA loan can potentially shorten the amount of time the vet pays. Since there is no early payoff penalty with VA home loans, a downpayment and monthly mortgage payments that go above the minimum can help the buyer save money over time. But as practical as that strategy is, it's not for everyone--some budgets demand a few long-term sacrifices in order to make the dream of home ownership come true.

There's nothing wrong with a no-money-down loan, especially when the VA loan applicant understands how much that option may cost over the lifetime of the VA mortgage. Borrowers who can afford a downpayment should do the math and see how much they'll save...spending the money up front can be a smart investment.