How Much Down on a $475,000, $500,000 or $550,000 House With a VA Loan Still Open
Judith is a fictional veteran, used here to illustrate a situation that comes up often. She bought her first home with a VA loan, kept it as a rental, and that loan is still open. Now she wants to buy again. She looks at three homes: $475,000, $500,000 and $550,000. Her down payments come out to $51,308, $57,558 and $70,058. Nobody guesses those numbers, because they do not come from a percent of price. Here is where they come from.
The 25 percent coverage test
VA does not set a down payment requirement as such. The down payment shows up because of coverage. Lenders sell these loans to investors, and in practice those investors look for 25 percent coverage on the loan. Coverage means the guaranty from your entitlement plus any cash you put down.
When your full entitlement is available, the guaranty can do all of that work, which is why many veterans buy with nothing down. When part of your entitlement is still tied up in an open VA loan, the guaranty covers less than 25 percent of the price. Your down payment has to cover the difference.
The formula
Down payment = 25 percent of the price, minus remaining entitlement.
It is not a fixed percent of the price. It is a gap, and the gap changes with the price.
Working backward from Judith's three numbers, her remaining entitlement comes out to $67,442 in this illustration. Here is the math:
$475,000 x 25 percent = $118,750. Minus $67,442 = $51,308 down.
$500,000 x 25 percent = $125,000. Minus $67,442 = $57,558 down.
$550,000 x 25 percent = $137,500. Minus $67,442 = $70,058 down.
Why the number moves the way it does
Judith's remaining entitlement is the same on every house. Only the price changes. So each time the price goes up, the coverage target goes up by 25 percent of that increase, and her down payment absorbs all of it. Going from $475,000 to $500,000 adds $25,000 of price and $6,250 of down payment. Going from $500,000 to $550,000 adds $50,000 of price and $12,500 of down payment.
That is why a quick rule like "put down 10 percent" misses. The entitlement is a fixed dollar amount, the target is a percent of price, and the down payment is whatever sits between them.
What to do today
Step one: pull your certificate of eligibility and find your remaining entitlement. Step two: multiply your target price by 25 percent. Step three: subtract the remaining entitlement. That is the down payment the coverage test points to at that price. Run it at two or three prices so you know where your budget really stops.
If your remaining entitlement is large enough, the number can shrink a lot. If it is small, the number grows quickly with price. Either way, you want to know before you make an offer, not after.
What else still matters
The coverage test is one piece. You still have to qualify on credit, income and the property, and individual lenders can have their own requirements. The figures here are an illustration, not a quote, and your numbers depend on your own entitlement. Remember too that your old VA loan can affect your entitlement in different ways depending on whether the loan is paid off, the home is sold, or you keep it, so it is worth confirming where yours stands.
Shopping around Charleston with a prior VA loan open?
Run the formula before you tour a single house. Price drives your down payment more than most buyers expect, so set your ceiling first. If you want help finding your remaining entitlement and running the numbers at your price points, I am Jason Sharon with Home Loans Inc. Call me at 843-LOW-RATE and I will find the path.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
Learn more about this loan program: How Much Down on a $475,000, $500,000 or $550,000 House With a VA Loan Still Open
