Article Overview:
- VA Loan Benefits: VA loan benefits include a 0% down payment option, no private mortgage insurance (PMI) and lower average interest rates compared to conventional mortgages.
- Eligibility: Qualifying for a VA loan requires serving a minimum period and receiving an honorable discharge. In certain circumstances, surviving spouses may also be eligible for VA loans.
- VA Loan Types: The VA loan program includes loan options to finance everything from new construction to home improvement. Several popular refinance options are also available, including cash-out refinance and streamline refinancing (IRRRL).
- Choosing the Right Lender: Specialized VA lenders typically provide a smoother application process and are better equipped to handle specific needs related to VA loans, with various lenders offering tailored services for different borrower needs.
Table of Contents
- What is a VA Loan?
- VA Loan Benefits
- VA Loan Eligibility Requirements
- How VA Loans Compare to Other Loan Types
- Types of VA Loans
- VA Purchase Loans
- VA Streamline Refinance (IRRRL) Loans
- VA Cash-Out Refinance Loans
- Other VA Loan Types
- How to Apply for a VA Loan
- Is a VA Loan Right for Me?
- More Reading
- Frequently Asked Questions
What is a VA Loan?
A VA loan is a government-backed mortgage option available to servicemembers, veterans and eligible surviving spouses. VA loans are guaranteed by the U.S. Department of Veterans Affairs, allowing private lenders to offer VA mortgages with excellent benefits like a 0% down payment requirement, no PMI and lower interest rates than some other mortgage types. VA loans can be used to buy a single-family home, condominium, multi-unit property, manufactured homes or new construction.
How VA Loans Work
The VA loan process isn’t much different than any other mortgage product. But the benefit has some unique benefits and hallmarks.
The Department of Veterans Affairs backs VA loans by typically committing to pay up to 25% of the original loan amount to the lender if the borrower defaults on their home loan. Lenders often refer to this commitment as the “VA guarantee.”
The VA guarantee acts as an insurance policy, allowing lenders to offer veterans and servicemembers home financing with additional benefits that borrowers may not be able to get through a conventional mortgage.The VA home loan program is similar to other government-backed mortgage options such as the U.S. Department of Agriculture loan, Federal Housing Administration loan or other VA loan alternatives.
VA Loan Benefits
VA loans work similar to other mortgage loans, but come with significant benefits, including:
100% financing – Of all the benefits of VA loans, the most popular is that a VA loan does not require a down payment. Most loan types require a down payment of 3% or more. On top of that, most loans will require Private Mortgage Insurance (PMI) with any down payment lower than 20%. So, being able to purchase a home without the expectation of a down payment (and without PMI, as we’ll discuss below) offers veterans and servicemembers a significant advantage, as it can take time to save up enough money for a down payment.
Flexibility in Property Types – VA loans can be used just like other types of mortgages. Depending on your VA loan type, you can use one to purchase or refinance a single-family home, VA-approved condominium, farm residence or multi-family home (up to a four-plex).
Flexible Credit Requirements — VA loans usually have lower credit requirements than other loan types. The VA does not specify a credit score requirement, so private lenders set this. Lenders usually look for a credit score of 620, but this will vary.
Closing Costs Limits – VA lenders have closing cost limits, which can save the buyer a significant amount of money. VA loans also allow property sellers to pay up to 4% of the purchase price of a home toward closing costs.
No PMI – As mentioned above, there is no private mortgage insurance required on a VA loan, which can result in substantial savings over time. However, VA loans do require an upfront mortgage insurance premium: the VA loan funding fee. First-time users of the benefit pay a 2.15% funding fee, but it can range from 0.5% to 3.3% of your loan amount, and some veterans are exempt. It can be a one-time payment or added to your VA loan amount and financed over the term of the mortgage.
Multiple VA loans – VA loans are not a one-time benefit. Veterans can reuse what they’ve earned, and it’s also possible to have more than one VA loan at the same time.
VA Loan Eligibility Requirements
VA loans are mostly restricted to veterans, servicemembers and eligible surviving spouses. It’s generally easier to qualify for a VA loan based on income and credit than with a conventional mortgage.
To be eligible for a VA loan, you have to meet one or more of the following service criteria:
- You’ve served at least 90 consecutive days of active service during wartime.
- You’ve served at least 181 days of active service during peacetime.
- You have at least six years of service in either the National Guard or the Reserves, or you served at least 90 days under Title 32 orders, 30 of which were consecutive
- You are the spouse of a servicemember who died in the line of duty or as a result of a service-related disability.
To prove your eligibility during the VA loan process, you’ll need to obtain your Certificate of Eligibility (COE), which is issued by the VA and confirms you meet the guidelines. Lenders will typically get this for veterans later in the process.
Outside of service criteria, you must also meet the requirements of VA and lender guidelines regarding credit score, debt-to-income ratio and other factors, which we cover in depth in this guide: How to Qualify for a VA Loan.
How VA Loans Compare to Other Loan Types
VA loans differ from conventional loans and other loan programs in several ways, the biggest being that VA loans don’t require a down payment. This typically makes VA loans a great option for people who are short on cash or don’t want to trade their savings to achieve homeownership.
However, understanding your options is important for making the best decision for you, and just because you’re a veteran doesn’t mean that the VA loan will always be your best bet. Let’s take a look at how the VA loan differs from other loan types below:
| VA Loans | Conventional Loans | FHA Loans | USDA Loans |
| Open to eligible veterans, servicemembers and surviving spouses | Open to anyone | Open to anyone | Eligibility is primarily based on location and income |
| No down payment required | Minimum of 3% down, but often up to 20% | Minimum of 3.5% down | No down payment required |
| No PMI | Mandatory PMI for more than 80% financing | Both upfront and annual mortgage insurance fees | Both upfront and annual mortgage insurance fees |
Lower average interest rates | Lower rates often require great credit | Generally higher than conventional loans | Comparable to VA loans, often lower than conventional loans |
| VA funding fee | No funding fee | Upfront and annual MIP | Upfront Guarantee Fee and annual fee |
| Stricter appraisal requirements | Typical appraisal process | Stricter than conventional loans | Stricter than conventional loans |
Types of VA Loans
There are various VA loan types to choose from, depending on your situation. Whether you want to buy a new home or extract equity for a home project, there are plenty of options with the VA loan:
VA Purchase Loans
VA purchase loans allow you to purchase a home with no down payment and at lower rates on average. VA loans have relaxed credit qualifications and no PMI, making them an attractive option to eligible veterans and servicemembers.
VA Streamline Refinance (IRRRL) Loans
Interest Rate Reduction Refinance Loans (IRRRL or “earl”) are an efficient way to refinance your existing VA mortgage. Also called a streamline refinance, this loan type is ideal for those wanting to take advantage of lower interest rates. This is a convenient option to have when you purchase a home during a period of higher interest rates. Once the interest rates drop, you can refinance your home at a lower interest rate and reduce your mortgage payment.
VA Cash-Out Refinance Loans
Cash-out refinance loans allow you to take “cash out” from your home’s existing equity. You don’t need to have an existing VA loan to qualify for this refinance, and the funds can be used for several purposes.
Other VA Loan Types
Other less common VA loan types include the following:
- VA Energy Efficient Mortgage – The VA energy-efficient mortgage allows eligible veterans and servicemembers to finance qualified energy-efficient improvements to their existing VA-backed property.
- VA Rehab and Renovation Loans – The VA renovation loan is for eligible veterans who want to purchase and repair a property with a VA mortgage.
- Native American Direct Loan (NADL) – The Native American Direct Loan is for Native American veterans who wish to purchase, build or improve a property on Federal Trust land. Refinancing is also available through the NADL program.
How to Apply for a VA Loan
Applying for a VA loan is really no more complicated than applying for any other mortgage type.
For the most part, you won’t be dealing with the VA itself but with the mortgage lender, which can be both an advantage and a disadvantage of using a VA loan, depending on the lender.
You’ll need to complete the application paperwork and supply certain documents, including recent pay stubs, W-2s and bank statements.
You’ll also need your VA Certificate of Eligibility before you can ultimately close on a loan. This is a document mortgage lenders can often get for you.
You might also need to provide a copy of your discharge papers showing that you are honorably discharged or a copy of your DD Form 214.
Is a VA Loan Right for Me?
If you’re an eligible veteran, the VA loan is a great option that has many benefits. Of course, everyone has a different situation, so the best way to start is by getting preapproved and seeing if you’re eligible for the VA loan.
Thank you for your service!
More Reading
How to Get a VA Loan Certificate of Eligibility
VA Loan Appraisal and Inspection Requirements
Guide to VA Appraisal Fees and Process
VA Loans and Divorce: Reviewing Your Options
Frequently Asked Questions
The VA does not set a cap on how much you can borrow to finance your home. Qualified veterans can borrow as much as they can afford and that a lender is willing to lend. In cases where veterans have diminished VA loan entitlement, the VA loan limits come into play. These limits don’t reflect a cap on borrowing. Rather, they help determine how much a veteran can borrow before needing to make a down payment.
Getting a VA loan is generally easier than a conventional loan due to more lenient credit requirements and no down payment or private mortgage insurance requirements. VA loans also typically have shorter waiting periods after a negative event such as a foreclosure or bankruptcy. However, borrowers must still meet lender-specific credit and income criteria, and the home must pass a VA appraisal.
While VA loans offer significant benefits, there are some downsides, including a mandatory VA funding fee, which can be rolled into the loan but increases the overall loan balance. Additionally, the VA loan is only available for primary residences, and not all properties qualify due to VA appraisal standards.
Closing costs on a VA loan can be paid by the buyer, the seller or even the lender. The VA allows sellers to pay up to 4% of the loan amount towards the buyer’s closing costs, which can enable veterans to purchase a home with little to no out-of-pocket expenses.
VA loan entitlement is the guarantee from the Department of Veterans Affairs to the lender that promises the VA will cover a specific amount of the loan if the borrower defaults. There are two types of entitlements: basic and bonus (or secondary). Basic entitlement guarantees up to $36,000, or 25% of a loan up to $144,000. Bonus entitlement can cover the loan up to 25% of the conforming loan limit, which significantly increases the maximum loan amount without a down payment for eligible veterans.
Equal Housing Opportunity. The Department of Veterans Affairs affirmatively administers the VA Home Loan Program by assuring that all Veterans are given an equal opportunity to buy homes with VA assistance. Federal law requires all VA Home Loan Program participants – builders, brokers and lenders offering housing for sale with VA financing – must comply with Fair Housing Laws and may not discriminate based on the race, color, religion, sex, handicap, familial status, or national origin of the Veteran.
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Jon Anthony says
We’re being forced to leave Leave the neighborhood we’ve been living sets 2011 so that they can use the lot for-profit. We’ve been told if we don’t leave in 60 days. We’ll be evicted and we haven’t done anything wrong. We need to find land to put our mobile home on.
Ryan Guina says
Jon, I’m sorry to hear about this. I recommend checking your lease agreement to ensure the owners have the legal authority to do this. If you are unsure of the terms or legalities, you can contact a real estate attorney to have them review your contract. I recommend contacting local mobile home communities to see if there are available lots that may work for your situation. They may also know reputable movers who can move your mobile home. You can also consider buying land, but you can only use a VA Loan to buy land if it includes the purchase of a home (usually when you are building a home on the land you buy). I wish you and your family the best!
Ray Baughn says
I am a us army reserve veteran and can prove it with discharge papers. can i use my significant others income with mine to prequalify for a va loan. we have lived together for 9 years. she is not a veteran.our credit is over 800