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The Pros and Cons of Putting a Down Payment on a VA Home Loan

For veterans and service members, the Department of Veterans Affairs (VA) Home Loan program often supports the journey to owning a home. One of the distinguishing features of VA loans is the ability to purchase a home with little to no down payment, a benefit that has made homeownership more accessible to millions of veterans.

Yet, there are both advantages and drawbacks to consider when deciding whether you should put a down payment on a VA home loan. To help you, we have created this comprehensive guide with Dana Hendrix at DSLD Mortgage, an approved VA lender. Read on to learn more about the pros and cons of putting a down payment on a VA home loan.

Five Pros of Putting a Down Payment on a VA Home Loan

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  1. Reduced Monthly Payments: One of the most apparent advantages of putting a down payment on a VA home loan is the immediate reduction in the loan amount. A larger down payment means borrowing less money, resulting in lower monthly mortgage payments.
  2. Lower Funding Fee: While VA loans typically come with a funding fee to help offset the cost of the program, a down payment can lower this fee further. The funding fee is often waived for veterans with service-related disabilities, but for those who don’t qualify for a waiver, a down payment is a way to reduce this upfront cost.
  3. Improved Loan Terms: A down payment may also help you secure more favorable loan terms, such as a lower interest rate or better loan conditions. Lenders generally view a down payment as a sign of financial stability and a demonstration of financial responsibility. This will potentially lead to more competitive loan offers and better terms.
  4. Protection Against Financial Difficulties: By investing your own money into the property upfront, you have a buffer for future financial difficulties. A substantial down payment will make it easier to refinance in the future, if you need to.  A larger down payment also helps to mitigate the risk of owing more on your mortgage than the home is worth, particularly in volatile housing markets.
  5. Shorter Loan Term: Opting for a larger down payment can allow you to reduce the loan term. The shorter the loan term the  less interest you will pay over the life of the loan, which can significantly reduce the total cost of homeownership.

Five Cons of Putting a Down Payment on a VA Home Loan

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  1. Limited Cash Resources: For many veterans, coming up with a significant down payment may not be possible. VA loans are designed to make homeownership accessible, particularly for those who may not have substantial savings or access to traditional financing options. Opting for a down payment could strain your cash resources, leaving you financially vulnerable in the event of emergencies or unexpected expenses.
  2. Opportunity Cost: Money used for a down payment could potentially be invested elsewhere for higher returns. By tying up funds in your home, you may miss out on opportunities to grow your wealth through other investments or financial instruments.
  3. Delayed Homeownership: Saving for a down payment can take time, delaying your entry into the housing market. In competitive real estate markets where home prices are rising, waiting to accumulate a substantial down payment could mean missing out on desirable properties or facing higher purchase prices down the line.
  4. Potential Loss in a Rising Market: If you put a large down payment on a home in a market where property values are steadily increasing, you might miss out on potential gains by not leveraging more of the purchase price through financing. In such scenarios, the returns on your down payment might not keep pace with the appreciation of the property, resulting in a lower overall return on investment.
  5. Potential for Negative Equity: While a down payment can provide a buffer against market fluctuations, it may not fully protect against a significant downturn in home values. In the event that property values decline sharply, homeowners who have made large down payments could find it difficult to refinance to access the money if required.

Tips for Choosing the Best VA-Approved Lender

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  • Experience: Prioritize lenders with a proven track record of handling VA loans, as their expertise can streamline the process.
  • Compare Rates and Fees: Evaluate the APR, interest rates, and fees from multiple lenders on the same day to secure the most competitive terms available.
  • Customer Service: Choose a lender known for excellent customer service. Try sending an email query to find a supportive lender who responds quickly. This is a good indication that they will be there to support you throughout the loan process.
  • Check Reputation and Reviews: Research the lender’s reputation and read client reviews. Check reviews on platforms such as Google and Trustpilot and on the lenders social media sites, to gauge satisfaction levels and experiences.
  • Prioritize Transparency: Select a lender who values transparency and provides clear explanations of loan terms, funding fees and requirements. Choose a lender who answers your questions in simple to understand language and can be reached via telephone or email.

Final Considerations: Down Payment on a VA Home Loan

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Deciding whether to put a down payment on a VA home loan is a significant financial choice. To decide if it is the right option you need to carefully consider if the time it will take to save a down payment alongside your individual circumstances, such as current rent payments, longer term financial goals, and priorities.

While a down payment offers various advantages, such as lower monthly payments, increased equity, and potential cost savings, it also comes with drawbacks, such as delaying home ownership, limited cash resources, and reduced financial flexibility.

Ultimately, the decision should benefit you financially and align with your long-term financial plans and current housing situation. By weighing the pros and cons outlined in this guide and consulting with approved VA lenders, you can make an informed decision that sets you on the path to successful homeownership as a veteran or service member.