Why do you need a Downpayment with VA Loan?

2022-08-25T15:00:00-04:00

Currently, I have my home on the market and I have a VA loan on the one selling and the one I am buying -but being told I have to bring a rather large downpayment to closing and debt income ratio is the reason. I still have OVER 400K entitlement remaining and I am so lost and wonder if getting a second lender opinion is a good idea because I am lost. Who do you recommend?

Response by COL Randall C. made Aug 25 at 2022 3:50 PM

2022-08-25T15:50:50-04:00

PFC Pamala (Hall ) Foster, the VA doesn't set any Debt-To-Income (DTI) ratios and leaves that up to the approved vendor, so other vendors may give you a different answer. Most lenders will want to have a DTI of about 36% or less (DTI is straightforward - divide your total monthly debt by your gross monthly income) and most won't give a loan to you if it's above 50%.

Again, it varies by lender, so you could get a 'yes' from someone else.

Why are they saying to bring a large down payment? In order to reduce the amount financed so the underwriters will approve a certain DTI percentage. The amount of entitlement you still have on your VA loan is immaterial to DTI, just the amount being financed (that's assuming the amount you are borrowing is less than your entitlement of course).

You can do some things to help the DTI. If you have a loan that is nearing completion, you can pay it off and it won't figure in to the DTI anymore (i.e., you are 6 months away from paying off your car and the payment is $300/month .. if you paid off the ~$1800, then the $300 wouldn't be calculated in the DTI).

Also work with the vendor to see if your pending house sale can be used to adjust the DTI numbers. They might work out something that way.

Response by CPT Private RallyPoint Member made Aug 25 at 2022 4:42 PM

2022-08-25T16:42:10-04:00

It invariably all comes down to the cash flows and who in the end is going to hold the loan to maturity and how that interacts with the investment markets.

When I was in banking (MBA and CFA) administering investments in bonds, mortgages and auto loans all that experience taught me where the money REALLY goes.

Long and the short of it is loan are churned over and over and over. There are those that process the loan, and then there are those the fund the loans, and finally those that hold the loans as an investment.

In the process of loans people need to get PAID!!!!! Otherwise there is no one to actually bother processing the loan. The funds usually available to make sure people actually get PAID ends up coming out of the borrower's down payment.

Where there is no or little down payment then the funds have to come out of the value of the loan when sold on the secondary market as an investment security. I get a sense the investment markets are just less willing to do that. Therefor increasing the need for larger down payments.

Down payments are also a buffer against an expectation of housing prices going down and lengthen the time time until the property falls into the negative equity zone.

Response by Cpl Vic Burk made Aug 25 at 2022 8:04 PM

2022-08-25T20:04:17-04:00

We got a VA Loan for our first house in Chicago. When we moved to Tennessee because we had excellent credit with the mortgage company and on our credit report, we didn't need a down payment (but we put one down anyways to reduce the monthly payment). If your credit is in A1 shape, you should be able to work with a lender for a no down payment loan. Shop around. When you sell your house take the money and put it on the loan and knock a few years off of the loan. I wish you luck.

Response by SFC David Reid, M.S, PHR, SHRM-CP, DTM made Aug 25 at 2022 8:18 PM

2022-08-25T20:18:40-04:00

This is an awesome benefit for us as defenders of our natiom.

Response by SFC David Reid, M.S, PHR, SHRM-CP, DTM made Aug 25 at 2022 9:09 PM

2022-08-25T21:09:41-04:00

You have to have skin in the game as a home owner

Response by SSgt Private RallyPoint Member made Aug 25 at 2022 11:30 PM

2022-08-25T23:30:05-04:00

Veterans United is an awesome VA centric organization. My wife and I closed on our 2nd house 6 months ago - smooth sailing the whole way.

https://www.veteransunited.com/

Ask for Andy Strubel.

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Response by SSG Laurie Mullen made Aug 26 at 2022 6:34 AM

2022-08-26T06:34:22-04:00

I didn't need a down payment when I bought my house in late 2007.

Response by SFC David Reid, M.S, PHR, SHRM-CP, DTM made Aug 26 at 2022 11:52 AM

2022-08-26T11:52:38-04:00

Yhis an excellent Benerit for Veterans for life.

Response by CSM Darieus ZaGara made Aug 26 at 2022 3:36 PM

2022-08-26T15:36:00-04:00

just because the max authorization for a VA backed loan is well over 700k does not mean everyone is rated to do so. It is likely as stated by another that your debt to cash flow is not high enough. There is also something having to do with residency and the like. Call your local VA support office.

Response by SGM Jeff Mccloud made Aug 27 at 2022 11:25 AM

2022-08-27T11:25:29-04:00

Is it because your current VA loan on the house you haven't sold yet is also part of your debt to income ratio?

Response by SFC Barbara Layman made Oct 29 at 2022 1:59 PM

2022-10-29T13:59:29-04:00

The simple answer - from 'the horses mouth'

You do not need a down payment for a VA secured home loan -

"A VA-backed purchase loan often offers:
No down payment as long as the sales price isn’t higher than the home’s appraised value (the value set for the home after an expert reviews the property)

Better terms and interest rates than other loans from private banks, mortgage companies, or credit unions (also called lenders)

The ability to borrow up to the Fannie Mae/Freddie Mac conforming loan limit on a no-down-payment loan in most areas—and more in some high-cost counties. You can borrow more than this amount if you want to make a down payment.

Learn about VA home loan limits
No need for private mortgage insurance (PMI) or mortgage insurance premiums (MIP)
PMI is a type of insurance that protects the lender if you end up not being able to pay your mortgage. It’s usually required on conventional loans if you make a down payment of less than 20% of the total mortgage amount.
MIP is what the Federal Housing Administration (FHA) requires you to pay to self-insure an FHA loan against future loss.

Fewer closing costs, which may be paid by the seller

No penalty fee if you pay the loan off early

https://www.va.gov/housing-assistance/home-loans/loan-types/purchase-loan/

Purchase loan | Veterans Affairs

Lenders offer competitive interest rates on VA-backed purchase loans. This can help you buy, build, or improve a home—especially if you don’t want to make a down payment. Find out if you’re eligible for this loan—and how to apply for your Certificate of Eligibility.

Response by CSM Darieus ZaGara made Oct 30 at 2022 6:47 AM

2022-10-30T06:47:15-04:00

I paid a down payment to the lender and the Va paid it back to me. Call your VA rep.

Response by SPC John Tacetta made Oct 30 at 2022 3:42 PM

2022-10-30T15:42:39-04:00

PFC Pamala (Hall ) Foster Check with USAA. They have wonderful underwriters of all sorts.

https://www.usaa.com/

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