Should your VA customers make a down payment?

by Ryan Smith15 Aug 2016
While VA home loans don’t require a down payment, that doesn’t necessarily mean your borrower shouldn’t make one. There are pros and cons to taking the no-down-payment option, according to a report by Bankrate.com.

One of the big benefits of making a down payment is that it will lower the funding fee, according to Bankrate.com. That fee is charged to support the loan guaranty that encourages lenders to offer lower rates and more relaxed guidelines for VA loans. Borrowers generally finance the fee upfront as part of their loan amount.

While borrowers with a service-connected disability are usually exempt from the fee, those in the Reserve or National Guard generally pay a slightly higher funding fee without a down payment.
The funding fee for eligible first-time buyers is 2.15% of the loan amount without a down payment, according to Bankrate.com. With a 5% down payment, that fee drops to 1.5%. With a down payment of  10% or more, the funding fee drops to 1.25%.

VA buyers who use the program to buy their next home will pay a funding fee of 3.3% with no down payment, according to Bankrate.com. With 5% down, that fee is cut more than in half, down to 1.5%. With a 10% down payment, it drops to 1.25%.

And of course, making a down payment will lower the borrower’s base loan amount and their monthly payment.

“The 5% down payment factors in (to the savings) as well because you’re financing 5% less,” Mike Dill of Guaranteed Rate told Bankrate.com.
 

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