In our previous articles, we explored Pillar One (Credit) and Pillar Two (Income). The third pillar of VA mortgage qualification is Assets—the funds needed to complete your home purchase.
One of the greatest advantages of VA financing is that eligible borrowers can often purchase a home with no down payment, making it one of the most affordable mortgage programs available. However, “no down payment” does not necessarily mean “no money needed at closing.” This can be confusing because your CO or Commanding Officer probably exited you saying to use your VA Entitlement to buy a home with no down + no closing costs. This can be a little vague because market-conditions drive the no closing costs part. It typically requires a workable seller and strong buyers agent to get these items paid. For instance, during 2020 C19, seller credits were few and far between because folks were paying $10k, $25k, and even $90k over asking price. The market condition drives the no closing costs part. As of today, many sellers are paying large closing cost concessions — June 2026.
Understanding how VA evaluates assets can help you prepare for a smooth homebuying experience.
What Funds Are Needed to Close?
Although most eligible VA borrowers can finance 100% of the purchase price, buyers are typically responsible for certain closing expenses, including:
- Closing costs
- Prepaid expenses
- VA funding fee (unless exempt)
- Earnest money deposit, if applicable
The total amount needed varies depending on the purchase price, negotiated seller concessions, and whether the borrower is exempt from the VA funding fee due to a service-connected disability or other qualifying status. Most of the time, the VA Funding Fee is financed on top of the base loan amount.
What Are Prepaids?
Prepaid items are not lender fees. Instead, they are future housing expenses collected at closing to establish your escrow account and ensure certain bills are paid when due.
Common prepaid expenses include:
- Homeowners insurance premium
- Property tax reserves
- Daily prepaid interest
- Initial escrow account deposits
Because these items vary based on the property and closing date, they are estimated early in the transaction and finalized before closing. This is also known as your impound or escrow account driving your PITI Payment. The VA requires an impound account, your payment will include P&I + Property Tax + Homeowners Insurance + any applicable HOA. You make this payment total monthly and servicing lender pays everything for you, when it comes due throughout the year.
Seller Credits and VA Financing
One of the strengths of VA financing is the flexibility surrounding seller contributions.
A seller may pay all of a veteran’s ordinary closing costs without being subject to the VA’s seller concession limit. In addition, the seller may provide up to 4% of the purchase price in VA concessions for certain additional buyer costs.
Examples of VA concessions include:
- Paying off collections or judgments on behalf of the borrower
- Prepayment of taxes and insurance
- Funding the VA funding fee
- Temporary interest rate buydowns
- Other allowable concessions under VA guidelines
These concessions can significantly reduce a veteran’s out-of-pocket expenses.
Understanding VA Non-Allowable Fees
Another unique feature of VA financing is the limitation on certain fees charged to veterans.
The VA prohibits borrowers from paying specific “non-allowable” fees, including certain attorney fees, settlement charges, and other costs identified by VA regulations.
When these fees are applicable, they are typically paid by the seller, lender, or another permitted party through a closing cost credit. These protections help keep homeownership more affordable for eligible veterans.
No Reserve Requirement
Unlike some conventional mortgage programs, VA loans generally do not require reserve funds for a standard owner-occupied purchase.
This means borrowers are typically not required to show several months’ worth of future mortgage payments remaining in their bank account after closing.
While having additional savings is always beneficial, VA’s standard purchase guidelines generally do not require post-closing reserves.
Gift Funds
VA loans allow gift funds from eligible donors to help cover closing costs or other required funds.
Common acceptable donors include:
- Family members
- Close personal relationships with a documented connection
- Certain organizations or assistance programs
Lenders typically require:
- A signed gift letter by giftor and recipient
- Documentation showing the donor’s ability to provide the funds, form of a giftor bank statement. This can get a little testy requesting this. See why below.
- Evidence of the transfer into the borrower’s account or direct wire to escrow
Proper documentation ensures the funds are truly a gift and not an undisclosed loan.
Anti-Money Laundering Requirements
Every VA lender must comply with federal Anti-Money Laundering (AML) laws and Suspicious Activity Report (SAR) regulations.
This is why lenders request recent bank statements, explanations for large deposits, and documentation supporting transferred funds. These requirements are designed to verify that all money used in the transaction comes from legitimate, documented sources and to help protect both borrowers and the financial system. They are not an over-bearing lender, underwriter, or loan officer. We are just following the government guidelines.
Cash deposits are not allowed. Borrowed funds off of a credit card, loan from family, or installment loan are not allowed for funds to close either.
Final Thoughts
VA financing offers one of the most flexible asset requirements of any mortgage program. With no down payment requirement for most eligible borrowers, no reserve requirement for standard purchases, flexible seller contributions, and the ability to use properly documented gift funds, VA loans continue to make homeownership more attainable for military families throughout Temecula Valley.
By understanding how assets are reviewed before applying, you’ll be better prepared for a smooth closing and can take full advantage of the home loan benefit you’ve earned through your service.
