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We are in the process of purchasing a home using a VA loan. While we have the ability to put $0 down with the loan, we have the capacity to make a down payment. Due to our move cycle, we know there is a high likelihood of selling the house in 3 years. Are there good resources to help determine the most efficient use of our liquid assets?

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Answers (1)

 

 

Thanks for the question, and I think I'm with your line of thinking...just because you CAN put more than 0% down, should you?  The answer, like so many financial matters, is "it depends".  You mention you have the capacity to make a payment, so lets look at your overall financial picture and a few other factors to consider on how much to put down.

 

1.  Emergency savings - we recommend keeping 3-6 months of living expenses set aside for emergencies.  This cushion helps you be prepared not only for the financial curveballs that home ownership brings, but also keeping a cushion for the next PCS move that you know is likely.  If you have to dip into the emergency fund for the home down payment, you open yourself up to more risk and going into debt when problems come up.

 

2. Cost of the loan - putting more money down means you borrow less, saving you on the interest you pay.  This is a bigger cost savings the longer you are in the loan.

 

3. You mentioned a high likelihood for a move in three years.  I know that buying a home is more than just about the financial numbers, but with a quick buy and sell, you may not have the time to recoup the cost of purchasing the home.  If you told me you were selling in 1 or 2 years, I'd steer you towards waiting on a purchase.  At 3 years, you are a bit on the bubble depending on #4 below.

 

4. Putting more money down helps create equity.  Let's say you buy a 100,000 home, with 0 down.  3 years later, let's assume you've paid the mortgage down to 96,000.  But, in those three years, the value of the home fell to 90,000, giving you "negative equity" of 6,000.  If orders come to move and you want to sell the home, you'd need to bring $6,000, plus any other agent commissions or transaction costs,  just to walk away.  This hurts even more as you'll need cash for the PCS and getting set up in the new place.  Other options include becoming a "reluctant landlord" renting the home out from a distance, that also has its own set of headaches and money requirements.  Either way, putting more money down now helps avoid this need later.

 

5. 20% down - If you plan on putting a larger down payment of 20% or more down, you need to run the numbers if the VA or a Conventional loan makes more sense.  I'd point you to call USAA's Loan officers within the Mortgage area at (800)-531-0341, they can help make sure it is the best option based on your specific situation.

 

Bottom line, if you do decide to buy, it may be helpful to put more than 0% down as long as it doesn't deeply drain your emergency savings or leave you unable to meet other short-term goals.

 

Resources - Let me point you to USAA's Home Learning Center, which provides articles and content on VA loans, preparing to purchase, and other home related advice.