If there’s one thing most people know about the VA loan, it’s the lack of down payment that is required. You can get 100% financing in most cases. But there are some times when veterans have to make a down payment. Just when does this occur and how do you know if it pertains to you?
Full Entitlement – No Down Payment
Your VA loan is dependent on your entitlement. All veterans that serve enough time and have a discharge that isn’t dishonorable receive enough entitlement for a $453,100 loan. If you were to find a home for $453,100 or less and you have full entitlement, you won’t need a down payment. That’s how the typical VA loan goes.
But, there are exceptions to this rule that may require a veteran to make a down payment.
The Veteran That Buys a Home for More Than $453,100
Even veterans that have full entitlement may find that they have to make a down payment on a home. This occurs when they buy a home that costs more than $453,100. Let’s say you found a home for $500,000. You have full entitlement, which means you can get a guaranteed loan from the VA for $453,100. But there is still the $46,900 to consider.
Many VA lenders will supply the larger loan, but only if you put a 25% down payment on the difference. In this case, you would have to put down $11,725. This makes up for the fact that the VA would not guarantee the $46,900 part of the loan. Once you reach your maximum entitlement, the VA guaranty stops. With a 25% down payment, you give the lender what they would have gotten from the VA if you defaulted on the loan. It’s the lender’s way of protecting themselves.
The Veteran That Buys a Second Home With VA Benefits
Veterans can sometimes get a one-time exception on the rule that you can only have one VA loan at a time. Usually, the VA requires that you sell your current home and pay off the VA loan in full before you can take out another VA loan.
Sometimes veterans get relocated either with their civilian job or the military and they don’t want to sell their current home. If these veterans have entitlement left, meaning they didn’t use up the full $453,100 entitlement, they may petition to keep their current home and use their remaining entitlement for another home. If the VA grants the exception, the veteran can take out a loan with no down payment up to the amount of entitlement they have left. After that, they will have to put a 25% down payment on the difference.
For example, Joe was a veteran and he bought a home for $250,000 with his VA benefits. His job now relocated him and he wants to move, but keep his current home. He has $203,100 left in entitlement. The VA approves his request. Joe finds a house for $250,000. The VA will guarantee the first $203,100, but Joe must make a down payment of $11,725 to make up the difference.
The Veteran that Lost His Home
Some veterans do end up defaulting on their loan and losing their home in foreclosure. Unfortunately, these veterans lose the portion of their entitlement that they used to buy that home. Let’s say a veteran used $200,000 of his entitlement and lost the home in foreclosure.
He will be eligible for another VA loan in 2 years, but he will be unable to reuse that $200,000 of his entitlement that he foreclosed on – the VA will not forgive it. This leaves this veteran with $253,100 in entitlement to use moving forward. If the veteran needs a larger loan, he will have to make a 25% down payment on the difference.
As you can see, there are many situations where veterans have to make a down payment. If you buy a home, sell it, and pay off the VA loan, though, you won’t have to make a down payment. You will be able to reuse your benefits as long as you petition the VA to do so.