Fact: A 20% Down Payment Is Not Needed for a California VA Loan

A new survey showed that there are many misconceptions regarding the VA loan program. For instance, many veterans and active-duty military in California believe they have to put down at least 20% when using a VA loan.

These misperceptions might actually prevent some would-be home buyers from entering the real estate market, over concerns that they might need to invest a lot of cash.

So let’s start with some important points all borrowers should know:

• In most cases, home buyers in California who use the VA loan program don’t need to make a 20% down payment.
• In fact, most borrowers who use this program either avoid the down payment altogether or make a relatively small investment.
• By design, the VA program allows home buyers to finance up to 100% of their purchases, thereby avoiding the upfront investment.

Confusion About a 20% Down Payment on VA Loans

Apparently, a lot of military folks don’t fully understand how VA loans work and what benefits they offer. That’s a serious problem, because the program was created to benefit our brave servicemembers and veterans.

Navy Federal Credit Union (NFCU) recently surveyed a large number of active-duty military members and veterans from California and around the U.S. The goal was to find out how much they knew about the VA loan program, from a borrower’s perspective.

Among other things, this survey showed that a significant portion of military folks believe the VA loan program requires at least 20% down. Here are some of the key findings…

• Down payments: Mortgage loans guaranteed by the VA loan do not require a down payment. But as this report showed, only “32% veteran respondents and just 12% of active-duty respondents know about this major financial benefit.” Even worse, 17% of veterans and 45% of active-duty military folks believe a down payment of more than 20% is necessary.
• Paperwork: Numerous reports have shown that VA loans have a similar processing and closing timeframe, when compared to conventional or “regular” mortgage loans. Even so, 58% of active-duty servicemembers and 40% of veterans think that VA loans commonly have delays due to paperwork. A significant portion of respondents said that “VA loans are more a hassle than what they’re worth.”
• Awareness: 29% of homeowners who were eligible for the VA loan program but didn’t use it said the main reason they opted not to “was either they did not know about VA loans or did not think to use one.”

Here at Bridgepoint Funding, we are doing out part to educate California’s military population on the requirements and benefits of the VA loan program. The main point we want to drive home (especially after seeing this survey) is that a down payment of 20% is not needed for a California VA loan.

One Scenario When a Down Payment Might Be Needed

Many (if not most) borrowers who use the VA loan program to buy a house qualify for the “no down payment” option that makes the program so popular. This is true for those with “full entitlement,” including people who have never used the program before.

But there are scenarios where a person who uses a VA loan in California might have to put some money down.

If you have an existing VA loan that you’re still repaying — or you paid it off but still own the home — you likely have ‘remaining’ entitlement. In this case, you could encounter a down payment requirement. If you purchase a home below your county’s conforming loan limits, you could finance 100% of the purchase price. But if you buy a house that exceeds those limits, you might have to make a down payment based on the difference.

This part of the program can be a bit confusing. So we’ve created an expanded article to help explain it. And again, feel free to contact our staff if you’re in California and considering the VA loan program.

Other Benefits of Using a California VA Loan

The ability to buy a house without putting any money down appeals to many home buyers, especially those with limited budgets. That’s the biggest benefit offered by the Department of Veterans Affairs home loan program for military members and veterans.

But it’s not the only benefit.

This program also allows borrowers to avoid mortgage insurance, in most cases. Typically, borrowers who make a relatively small down payment on a home purchase end up having to pay mortgage insurance. But that kind of insurance is usually not required for VA loans in California.

This program also has some of the most flexible and “forgiving” qualification criteria of any type of home loan. That’s because the federal government partially guarantees them.

And then there’s the fact that you can use the program more than once. That’s another big advantage for borrowers.

Summary of Key Points

This is an important subject for borrowers, especially due to the confusion and misconceptions mentioned earlier. So let’s revisit some of the key points covered thus far:

• Some military members and veterans in California believe they have to make a down payment of 20% or more when using a VA loan.
• The truth is, many borrowers who use this program can finance 100% of the purchase price, with no down payment whatsoever.
• A California VA loan offers other benefits as well, including flexible qualification criteria and the possibility of avoiding mortgage insurance.

Need mortgage financing to buy a house in California? Contact our staff to get started!