No, VA loans do not necessarily require a down payment or an earnest money deposit. But, the seller might want this to consider you as a serious buyer. It’s not uncommon for sellers to request an earnest money deposit as part of the VA loan process.
Considering this, can you back out of a VA loan?
The Mandatory Escape Clause, Part 1
Put simply, it addresses a situation when a VA property appraisal determines a home value lower than the contract purchase price. In these situations, this clause states that buyers can back out of the deal without any penalty.
In this regard, can you waive escrow on VA loan?
VA loans are mortgage backed by the Department of Veterans Affairs. Though the VA doesn’t have a rule requiring these loans to have escrow accounts, lenders typically do. For lenders that do allow escrow waivers on VA loans, the requirements are often similar to the ones we already listed for conventional loans.
Do VA loans pay escrow?
While the VA does not insist on the establishment of an escrow account, most of the lenders who actually provide VA loans do. Therefore, anyone hoping to buy a home with a VA loan will likely be required to have an escrow account.
Once the real estate deal closes and you sign all the necessary paperwork and mortgage documents, the earnest money is released by the escrow company. Usually, buyers get the money back and apply it to their down payment and mortgage closing costs.
When buying a home with a VA-insured loan, borrowers learn that the Department of Veterans Affairs has a set of requirements which include “sufficient hazard insurance” and payment of all property tax. The VA loan program, like FHA loans, views non-payment of property taxes to be a violation of the loan agreement.
The Veterans Administration (VA) doesn’t require lenders to maintain escrow accounts on VA-guaranteed home mortgages. But the VA does require that lenders ensure that the property is covered by sufficient hazard insurance at all times and that property taxes are paid.
Simply put, an escrow is an account managed by an independent third party that is used to cover your property taxes and insurance. At your mortgage closing, you’ll make your first deposit to your escrow account, followed by additional payments every month as part of your regular monthly mortgage payment.
The earnest money deposit is held by a third party, typically the entity that will handle your settlement at the closing table. When you arrive at the closing your earnest money will be credited back to you and applied to your down payment or closing costs.
Once again, if you have a contingency in place that covers a loan falling through, you should get your earnest money back. But if the contingency isn’t there, you’ll lose that money.