Is it worth putting money down on a VA home loan?

Question

I've been in the National Guard for over 6 years and was deployed. I have the VA home loan benefit right now and I am not sure if putting money down on the VA home loan would a smart move. The reason why I am asking for advice on this, is because I just now started to save for a down payment on a house and I am looking to move into my first home next year. My overall goal is to house hack the property, but at this rate, I would have to save a significant amount per month to put around $5-6k as a down payment. I was thinking of using these funds for the closing costs instead. Any advice on how to go about this the smart way? I am looking into multi-family homes primarily. Thanks!

Jason Wray · Answer

Nicholas,

You do not need to put money down if you have your certificate of eligibility DD 214.  You qualify for 100% financing and the closing costs can be covered by getting "Seller credits" which is fairly common in this market.  You can also target 2-4 unit multifamily homes like a Duplex or Tri-plex to help take advantage of the other unit rents.  Those rents qualify as income to afford a bigger home loan and to offset the mortgage payment.

Its also a great way to move out and have a multi-unit property bringing in more cash per month with more doors.  You can refinance it into a conventional loan in 12 months and then re-use your 100% VA benefits on the next home.

If you have any questions feel free to reach out I enjoy helping and talking REI!

Jason Wray · Answer

You already paid it forward with your service!

Andrew Syrios · Answer

You don't need to put money down on a VA loan and given you won't likely be able to beat that interest rate (at least in this economy) so it would make more sense to use as much debt as you can and either pay down other debt or invest with the money you were thinking of putting down.

Caleb Brown · Answer

As others said you don't need to put money down. I would use the money for closing costs. In Kansas City you can negotiate depending on the property so you might not have to worry about closing costs. You can use the extra money as a nest egg. 5/6K would not make a big difference on your payments, if it was 10K's that's different. A lender should be able to get you a estimate on monthly payment so you can plan ahead

Mark F. · Answer

Nicholas I purchased my first duplex house hack with a VA loan. My personal opinion is to not put anything down and instead save for closing costs and unexpected but expected repairs. Once I closed I spent about $7500 on mostly reno but some repairs. I DIYed moat since I had more time than money as I was still AD.Even after an inspection things will pop up and I'd rather have the cash in the bank for repairs than just sitting as equity in the house. Or even have extra cash for reno to get a unit ready to get market rent.

Zack Karp · Answer

@Nicholas Halterman to answer your question, is it worth putting money down on a VA loan, the short answer is...it depends.

The answer differs whether or not you are just buying 1 home, or planning to house hack. And it also depends on whether you are disabled or not.

If you are just buying a home to live in and not invest, then I believe it's best to put at least 5% down if you can, since you won't need to save money for future down payments.

As a general rule, as an investor, cash is king. The less you can put down on any property, means more capital for future down payments.

For a VA loan, if you are not disabled, there is a funding fee that the VA charges. Now this gets financed into the loan, you don't need to pay it out of pocket. But it's still a real cost. The funding fee on your first property with 0 down is 2.15% of the loan amount. If you put 5% down, this lowers to 1.5%. Not a huge difference, but again money is money. But on any subsequent properties using your VA loan, with 0 down it's 3.3%, and with 5% down it's still only 1.5%.

Wait what, you can you use your VA loan more than once? Yes! More on that in a minute.

Because it's only a 0.65% difference on your first property, IMO it makes sense to put 0 down. But on your next property, you can certainly make the case that by putting 5% down you are saving 1.8% in cost.

The interest rate is the same either way, whether you put 0 down or 5% down.

And I am a HUGE fan of getting seller credit to cover your closing costs, that is something you would include in your offer(s). With a max seller credit, you can actually get money back at closing. The right loan officer can calculate all of this for you and set you up for success not only now but for future properties too.

And as I mentioned, you can not only use your VA benefit for 1 property, if your purchase price is low enough, you will have secondary/bonus entitlement to buy a second property with a VA loan. Again, getting with the right loan officer can help you plan these numbers so that you don't have surprises later.

Now, using the VA loan twice isn't as important anymore, now that you can do 5% down with a Conventional loan for a 2-4 unit. But if you want to buy 2 properties with 0 down, and save your money for property #3 and after, then that part is critical to make sure you don't overspend on property #1 and not be able to use your VA entitlement for property #2.

Hope that helps! TYFYS and best of luck!

Chris Seveney · Answer

The more you can put down typically the better. you also though want to make sure you have enough money in reserves for rainy day - such as a hot water heater breaks or something. So its a balance of you want to have some equity in the property but also want to make sure you have cash available as well for rainy day. If you plan on staying long term lower down payment is not as meaningful as it is if you only plan on staying for a few years.

Wale Lawal · Answer

@Nicholas Halterman

Thank you for your service!

The VA loan is a valuable tool for veterans, offering benefits like no down payment and no private mortgage insurance (PMI). It can be used for house hacking by purchasing a multi-family property, allowing one to live in one unit and rent out the others. To steer clear of house hacking, find a good realtor, get your loan approval early, plan for fix-ups and upkeep, pick tenants with care, and learn about property investing. The no down payment feature of the VA loan makes it easier to manage your money and makes homes more in reach, but it might mean you pay more each month and more in interest over time.

Good luck!

Sarita Scherpereel · Answer

Hi @Nicholas Halterman! Thank you for your service. I wanted to second what @Jason Wray said. You don't need to worry about down payment because that is one of the many benefits of this loan. You just need to save for closing costs and know how much of your VA benefits you have from your certificate of eligibility. If you have or qualify for disability that happened during your time with the National Guard that can increase your benefits as well.  I have been lucky enough to work with several VA house hackers in the Chicago market. VA loans are wonderful but you MUST MAKE SURE YOU HAVE A GREAT REALTOR FOR THIS. This loan product has a VA inspection during your appraisal (nothing scary). But if you're realtor is not pointing out issues that could get flagged during this inspection you might have some surprises on the deal. Sometimes owners are unable to fix or update these issues prior to close. It's ideal to know these in advance before pursing the property.

Nicholas Halterman · Answer

Super helpful.This community is always giving. Looking forward to paying it forward one day. Thanks a lot Jason.

Is it worth putting money down on a VA home loan?

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