VA-backed loans: down-payment & closing cost requirements
Qualifying service members and veterans can receive VA-backed home loans – which generally offer several benefits to those who are eligible. Benefits include potential exemption from down payments, mortgage insurance, and credit score requirements. Additionally – VA-backed loans require set standards of building stability/quality, allow for a degree of freedom in underwriting for private lenders, and the VA provides Loan Technicians in the event of financial counseling being required by the borrower.
Again: VA-backed loans do not, generally, require a down payment. However – there can be benefits to providing one if the borrower has the available finances. For example: a down payment can allow a borrower to reduce their funding fee costs. Also worth noting, though, is that a veteran with a service-connected disability rating of 10% or higher generally qualifies to have the funding fee waived entirely.
What about closing costs? This really depends more on the circumstances of the loan and sale than the VA specifically. Borrowers using a VA-backed loan may not have to pay closing costs for multiple possible reasons. The home’s seller, for example, is allowed to pay a set percentage of the property’s appraised value towards closing. Also, some lenders can adjust the interest rate to avoid closing cost’s preventing a more financially limited borrower from closing on their loan.
Worth noting in closing, too – is that the VA doesn’t set the rates established by the private lender. That said, these rates do tend to stay very competitive and, generally, favorable because many lenders are eager to attract qualifying veterans and servicemembers.