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VA Loans Let You Buy a Home With No Money Down — but Is That a Good Idea? – The Motley Fool

Image source: Getty Images

There are benefits to making a down payment on a home.


Image source: Getty Images

There are benefits to making a down payment on a home.

Key points

  • VA loans can make it easier for qualified applicants to purchase a home.
  • While not having to put money down at closing can seem like a good thing, it can also backfire.

Those who serve in the U.S. military tend to sacrifice a lot. For some people, that means relocating frequently and uprooting their families in the process. For others, it means forgoing higher wages.

As such, it’s a good thing that the Veterans Affairs (VA) loan program exists. VA loans allow borrowers to secure a mortgage with no money down. Most other mortgage programs require some type of down payment, so VA loans are a good option for applicants who can afford their monthly housing costs but don’t have much in the way of savings.

But while the option to avoid a down payment might seem like a good thing, there’s a danger in going this route. So if you’re considering taking out a VA loan to buy a home, you may want to keep these points in mind.

A mixed bag

VA loans offer home buyers more flexibility than conventional mortgages. But not having to come up with funds for a down payment isn’t necessarily the good thing you might think it is.

First, the less money you put down when you purchase a home, the more of a mortgage you’ll have to take out. And that means not only grappling with higher monthly payments, but spending more money on interest in the course of paying off your home.

This especially applies today. Although VA lenders tend to offer competitive interest rates, right now, borrowing rates are up across the board. If you take out a larger mortgage, it will mean paying more interest on your loan, and that’s money you could be using for other purposes.

Plus, the less money you put down when you buy a home, the less equity you have in that property. Equity is measured as the value of your home minus your mortgage balance.

Having less equity could be especially problematic these days given that home prices are sky high. If those prices then drop in the coming years (which is likely given how inflated they are at present), and you find that you need to sell …….


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