Posted on Aug 25, 2022
Why do you need a Downpayment with VA Loan?
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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?
Loans
VA Loan
Loan Officer
Home Loan
Posted >1 y ago
Responses: 13
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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.
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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.
https://www.veteransunited.com/
Ask for Andy Strubel.
Veterans United Home Loans | #1 VA Lender for Homebuyers
We help Veterans become Homeowners. See why more Veterans and military families chose Veterans United for their VA home purchase than any other lender in 2021.
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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.
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.
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CPT (Join to see)
Cpl Vic Burk - So, yea, it personally happened to me. I literally got my credit score to 850. I watched it go up and down a few points, month to month and I narrowed it down to the automatic payment cycle of my Credit Card account (pay balance in full). So I could keep my 850 constant if I remembered to pay off the balance a week before the automatic payment schedule.
Anyway.............. last year, when I sold my house and zeroed out my mortgage balance (now living in my spouse's house, so I have no debt other than a revolving credit card that pays in full automatically) my 850 credit score has fallen between 832 and 834.
WTF??? Right????
Getting rid of all my debt and now only have minimal credit card balance that is always paid in full has cost me 18 credit points.
What it comes down to is one without debt doesn't have the DATA to EVALUATE one's credit worthiness in the event they take on debt. The data going into the calculations is constantly being updated.
I'm curious myself what would happen if I even closed out all my credit/debit cards, and went completely CASH and CHECK. None of the utilities is auto paying out of accounts in my name.
How low will my credit score go if I minimize the data sources of my credit score calculation.
I still need to be paid via direct deposit (checking account) and I still have a Gov Travel Card in my name so I'll always have some sort of data for credit scores to evaluate.
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On the other side of that experience, when I was young, and still new in my banking career I was constantly getting Credit Card offers.
So ONE DAY.......... I decided to accept EVERY SINGLE CREDIT CARD OFFER that was sent to me. Eventually I nearly had twice the credit card lines available to me than I made in an entire year. Finally, I started getting rejected.
I wish I looked up my credit score then. But I just wanted to see how much I could get in credit lines (nearly twice my annual income). It wasn't the time where we could just check our credit balance anytime we wanted.
Anyway.............. last year, when I sold my house and zeroed out my mortgage balance (now living in my spouse's house, so I have no debt other than a revolving credit card that pays in full automatically) my 850 credit score has fallen between 832 and 834.
WTF??? Right????
Getting rid of all my debt and now only have minimal credit card balance that is always paid in full has cost me 18 credit points.
What it comes down to is one without debt doesn't have the DATA to EVALUATE one's credit worthiness in the event they take on debt. The data going into the calculations is constantly being updated.
I'm curious myself what would happen if I even closed out all my credit/debit cards, and went completely CASH and CHECK. None of the utilities is auto paying out of accounts in my name.
How low will my credit score go if I minimize the data sources of my credit score calculation.
I still need to be paid via direct deposit (checking account) and I still have a Gov Travel Card in my name so I'll always have some sort of data for credit scores to evaluate.
******************
On the other side of that experience, when I was young, and still new in my banking career I was constantly getting Credit Card offers.
So ONE DAY.......... I decided to accept EVERY SINGLE CREDIT CARD OFFER that was sent to me. Eventually I nearly had twice the credit card lines available to me than I made in an entire year. Finally, I started getting rejected.
I wish I looked up my credit score then. But I just wanted to see how much I could get in credit lines (nearly twice my annual income). It wasn't the time where we could just check our credit balance anytime we wanted.
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Cpl Vic Burk
CPT (Join to see) - Insane! Punishing you because you don't carry a debt load. What a crock of $hit?!!!
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LCpl Sidney Green
CPT (Join to see) - I'm pretty sure those point wouldn't make any significant difference in your overall credit worthiness. Although nobody likes to see their rating go down.
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LCpl Sidney Green
Cpl Vic Burk - There is absolutely no benefit to carrying zero debt (other than your peace of mind). And yes, the credit industry is a scam. In fact, if I recall correctly, there was legislation to change the system from private agencies to government and put an end to all those ridiculous credit score penalties. But it seems to have fallen by the wayside.
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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.
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.
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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.
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This is an awesome benefit for us as defenders of our natiom.
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PFC Pamala (Hall ) Foster Check with USAA. They have wonderful underwriters of all sorts.
https://www.usaa.com/
https://www.usaa.com/
Insurance, Banking, Retirement & Investment Services | USAA | USAA
USAA offers competitive auto rates, no-monthly service fee banking and retirement options to all branches of the military and their family. Join now and let us serve you.
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I paid a down payment to the lender and the Va paid it back to me. Call your VA rep.
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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/
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.
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PFC Pamala (Hall ) Foster
Have a feeling soon as I sell the house I currently have, then that will make it possible to get a NO Down payment for the new home, and was told not to go lower than 150K, so looks good for a Spring move to SC and goodbye snow and ice. SFC Barbara Layman, I want to say thank you and am glad all of you who responded helped me see something I did not. Pray that I buy a house in the very near future.
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SFC Barbara Layman
PFC Pamala (Hall ) Foster - My personal experience has been that lenders have not required a down payment but delayed closing until the sale of the previous residence had been completed.
I'm thinking it's dependent upon the loan officer and how willing they are to work with one within the guidelines of the lender.
I'm thinking it's dependent upon the loan officer and how willing they are to work with one within the guidelines of the lender.
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