Financial Advice Q&A

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Question
How much cash do I need with a VA loan?
[ Edited ]

I am looking to buy a house in the next couple months or a year.I dont not have money to put down for the down payment so planning on using the VA loan.How much money do i need to have to cover other expenses and the closing costs?

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Community Manager
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As you know, using a VA loan allows you to buy your home with no down payment.  However, that probably doesn’t mean with no cash.  You still may have an earnest money deposit and closing costs.  You may get the seller to cover some of the closing costs, but for planning purposes, I think you should plan to build up a “home fund” of at least 5%-10% of the home’s purchase price.  Among other things, this approach may allow you to:

 

Cover closing costs.  Depending on the housing market and your negotiating skills, there’s a real possibility that you may be required to come to the table with cash for closing costs.  I think 3% is a reasonable estimate of what you might see for this expense.  Closing costs cannot be rolled into the VA loan.

 

Pay the VA Funding Fee in cash.  Unlike closing costs, the VA Funding Fee is an expense that can be rolled into the loan.  For a first time buyer who is not receiving VA disability compensation nor making a down payment, it’s a 2.15%-2.4% fee.  If you’ve got the cash you can pay this deductible expense out-of-pocket and help avoid a situation where you’re living in a home with a mortgage that’s bigger than the home’s value.

 

Be prepared for move-in expenses.  One thing that can surprise new homeowners is all the “make it mine” expenses that are part of the deal.  Whether its curtains, lawnmowers, a refrigerator or old fixtures that have got to go, having cash on hand is necessary to avoid headaches and debt while you’re moving into your new home.

 

Create some cushion.  At our house in the last month we’ve had an electrician in for a broken stove and a plumber in for bath tub issues.  The point is not my woes, but that home ownership involves maintenance and upkeep and sometimes that comes with a big price tag.  Here again, having some cash can keep you out of trouble.

 

Don’t get me wrong, I love and have used VA loans, but I strongly believe you should have some significant cash on hand even when you’re using this great program.  It’s all part of setting the table for a good experience! Good luck.

 

JJ

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