The VA No-No Mortgage for Veterans: What You Need to Know

When a veteran or active duty serviceman in California is using their VA loan Guaranty Benefit to purchase a home, they need to know it’s possible to secure a VA No-No mortgage loan.

What is a VA Mortgage? (click to expand & read)

The Department of Veterans Affairs offers  a government insured 100% financing zero down payment home loan for eligible veterans and active duty service members that requires no monthly paid mortgage insurance.  When a veterans uses their VA loan benefit more than than once (subsequent use), a down payment payment may or may not be required so always check with your local VA loan specialist.

What is a VA No-No Mortgage?

A VA No-No mortgage is when a person using their VA home loan benefit literally pays $0 down payment (that’s No #1) and $0 closing or settlement costs (No #2).

A VA no-no mortgage is really just a slang term to describe that someone other than the VA borrower is paying their closing and settlement costs….and that they paid no down payment.

The term VA no-no is not mentioned anywhere in the VA’s underwriting handbook/guidelines.


How to Qualify for a VA No-No Mortgage

Borrowers cannot qualify for a VA No-No Mortgage because it’s not a super secret or different type of loan than any other VA loan.  There are no special criteria or guidelines to secure a VA no-no mortgage.  Everyone is eligible for a VA no no loan!

VA Closing Costs 

Many people think a VA no no mortgage is achieved when the Department of Veteran Affairs pays for their closing or settlement costs.  Unfortunately, this is a misconception and the VA never pays the buyers closing costs.

However, the VA does define certain fees and costs that can (allowable) and cannot (non-allowable) be paid by the VA borrower.

Important: just because the VA lists certain fees that cannot be paid for by the veteran does not mean those fees aren’t real or that they just magically go away.  People and service providers are not going to work for free.

How to Get a VA No No Mortgage

To get a VA no no home loan in California, buyers simply need to negotiate to have someone pay their closing and settlement costs.  This will require the help of a skilled and experienced real estate agent who understands the nuances and special needs of buyers using VA financing.

If you would like my opinion on who you should be hiring (at no cost) to represent you when buying or selling, call me.

Getting a seller to pay all closing costs is easier said than done in a sellers market because a sellers goal is net the most money from the sale of their  home.  If they pay your closing/settlements costs, they net less…..unless you know how to negotiate it the right way.

Five ways to get closing & settlements costs paid for:

  1. Ask for seller’s concession to cover the costs for a VA mortgage is with a seller’s concession. The rules of the VA mortgage state that a seller is allowed to pay up to 4% of the home’s selling price in closing costs, which should be more than enough to cover closing and settlement costs depending on the property tax rates and when  you close (spring vs fall).  This may even help you buy down the interest rate even lower if there is money left over.  Sellers will sometimes increase the sales price by 2-4% and then turn around and give a credit back in the same amount to help pay the buyers closing costs.
  2. Ask a VA mortgage specialist about a Lender’s Credit to help pay some of the closing/settlement costs. In the mortgage industry, people do not qualify for a certain interest rate, they actually get to choose the rate they want.  To receive a lender credit simply choose a rate that yields enough rebate for you.
  3. Ask your real estate agent for a credit to help pay some of the closing costs.  This is more likely to happen if the sales price is large and dependent on how much they are being paid by the seller to sell the home.
  4. Apply for a closing cost assistance program.  We are one of the few lenders who are approved and able to offer multiple closing cost assistance programs to veterans.
  5. Combination of all four strategies above.

Advantages/Disadvantages of a VA No No Mortgage

The advantages of a VA No No is obvious…..literally $0 money out of pocket.  The disadvantages are not always as obvious and should be discussed when strategizing with your real estate agent.

  • Seller may have to increase the cost of the home in order to give you a seller credit.
  • Sellers may have multiple offers and toss yours in the garbage if having to give you a closing cost credit nets them less money than other offers.  This can make getting an offer more difficult…but you never know.  We could use a closing cost assistance program to pay those costs if needed.
  • Asking a lender to give you a credit can result in a higher rate than if not asking for a credit.
QUESTION: How much of a concession or credit do I  need to pay closing and settlement costs?

The answer to this depends on many different variables like:

  • Price of the home
  • Property tax rate, special assessments & mellow roos
  • Amount of your home owners insurance premium
  • Charges and fees by the unknown title and escrow company
  • Time of year you close (spring vs fall)
If you would like to discuss qualifying, how to structure a VA no no mortgage, and consider all options to reduce you out of pocket expenses when getting a VA mortgage, contact me or call (951) 215-6119.

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