VA home loans—a benefit created by the Servicemen’s Readjustment Act of 1944—enable qualified borrowers with smaller down payments, more flexible credit terms, and lower interest rates, making it easier to access homeownership.
The zero down payment option and lower down payments in general are a key advantage that VA loans offer. Specifically, a VA borrower is more than twice as likely as a conventional borrower to have made a low down payment.
Over the past 12 months, nearly 3 in 4 (74.5%) home sales with VA loans had a 0% down payment and more than 8 in 10 (85.3%) VA loan home sales had a down payment below 10%.
In contrast, the share of lower down payment conforming loan home sales was less than half. Just 2 in 5 (39.9%) home sales backed by conforming loans featured down payment rates below 10%.
VA loans exhibit flexibility in their credit criteria.
23.2% of recent VA loan borrowers had Fair credit scores (vs. 4.5% for conforming loan borrowers).
For every credit score grouping, recent VA borrowers had lower down payments than conforming loan borrowers, as a percentage of the purchase price.
Lower VA mortgage rates and the absence of private mortgage insurance can save homebuyers money.
Using a no-down-payment VA loan, a first-time buyer would save $69 per month (more than $800 annually) compared with an 8% down payment conforming loan on a typically priced U.S. home for sale in the past 12 months.
Scenarios where VA and conforming loans with the same down payment shares are considered (under 20%) result in even greater payment savings.
Footnotes
We focus only on 30-year fixed-rate loans that are used to purchase primary residences between October 2023 and September 2024.
We follow standard credit score classification by considering a score in the range of 300–579 as Poor, 580–669 as Fair, 670–739 as Good, 740–799 as Very Good, and 800-plus as Exceptional.
According to the NAR 2023 Profile of Home Buyers and Sellers, the average down payment for first-time homebuyers in 2023 was 8% of the purchase price
A down payment of less than 20% will likely cause homeowners to pay private mortgage insurance (PMI). It benefits the lender in case of default and often can cost 0.03% and 1.2% of the loan amount. It is a monthly fee rolled into mortgage payments. In this research, we assume a PMI rate of 0.51%. Note that this monthly cost can be canceled once homeowners have built equity of 20% in the home.
The VA funding fee can range from 0.5% to 3.3% depending on various factors such as military status, loan purposes, and down payment. A typical first-time VA loan borrower with a 0% down payment faces an average rate of 2.15%. In other words, first-time homebuyers using VA loans who are presumably using this benefit for the first time will also face an average rate of 2.15%.
