VA Home Loans Guide
A VA home loan is a mortgage available to veterans and military service members. Eligible borrowers can find this loan type highly advantageous, making home buying or refinancing more affordable.
VA home loans help military members, veterans and eligible surviving spouses purchase or refinance homes. Due to the many benefits this loan offers, it can be a powerful pathway toward homeownership.
VA home loan requirements are less stringent compared to other loan types. That said, not everyone can qualify. VA loans are open to military members, veterans and their families. Eligible borrowers should understand how this loan works to benefit fully from it.
VA loans are available to active-duty service members and veterans who have any discharge other than dishonorable.
It’s easier to qualify for a VA home loan due to the 0% down payment requirements and low credit score requirements.
VA home loan rates are competitive because the VA backs a portion of the loan, protecting lenders against loss.
What Is a VA Home Loan?
A VA home loan is a mortgage issued by private lenders but guaranteed by the U.S. Department of Veterans Affairs (VA). It is one of the most valuable financial benefits of military service. VA home loans are available to veterans, current military members and surviving spouses.
VA home loans offer many great features. One of the best is the ability of borrowers to take out a loan with as little as a $0 down payment. This is one reason VA loans can be considered a better mortgage option than traditional mortgages like conventional home loans.
How Does a VA Home Loan Work?
VA home loans are considered non-conforming because of their more lenient requirements. Non-conforming loans do not follow traditional criteria, such as credit score requirements and loan limits.
Typically, VA home loans have lower interest rates than conventional loans. VA loans also do not require monthly mortgage insurance.
While private lenders issue VA home loans, the VA is in charge of identifying which borrowers qualify. The VA also guarantees part of the loan against loss, which means private lenders face less risk and can offer more favorable terms.
Difference Between VA Home Loans and Conventional Home Loans
There are various types of home loans. One of the most popular alternatives to VA home loans is a conventional home loan.
Each loan type comes with benefits. There are also drawbacks on each side. The better option for you will depend on your needs and situation.
Below are some of the most common differences between the two types of home loans to help you understand how VA home loans work.
VA Home Loan vs. Conventional Home Loan
- FactorsVA Home LoanConventional Home Loan
0% down payment
Minimum is 3% (20% down payment
required to avoid PMI)
Does not require PMI but has a funding
fee of 1.4% – 3.6%
PMI is required if the down payment is
less than 20%
Depends on the requirements set by the
Minimum is 620
No maximum DTI ratio but the average is
Maximum is 43%
How To Get a VA Home Loan
The VA home loan process begins with a close look at your available resources. You will need to determine your eligibility, work with a lender to get the best option for your situation and put a successful bid on a home.
Determine your eligibility.
Before you can apply for a VA loan with a lender, you will have to establish your VA loan eligibility. The good news is if you have honorably served in any branch, you more than likely qualify for a VA loan.
Apply for Certificate of Eligibility.
You will need to apply for a Certificate of Eligibility (COE) from the Department of Veteran’s Affairs. Without a COE, your chosen lender cannot verify your service or eligibility for a loan. To get a COE, you will need to prepare documents about your service (such as your DD214, NGB Form 22, or papers signed by your current command) and apply online through the VA website.
Choose a lender.
Once you have a COE issued from the VA, you can begin shopping for your VA home loan lender. While many major banks, credit unions and other mortgage lenders offer VA loans, it's essential to do your homework on each of them. Check references and ratings with the Better Business Bureau and the Consumer Financial Protection Bureau. Then make sure your lender or loan officer is qualified to participate in the VA Lender Appraisal Processing Program (LAPP) and verify which category of VA lender they are.
Get preapproved for a loan.
Once you are satisfied with your lender, it’s time to get preapproved for a loan. During the pre-approval process, your loan officer will evaluate your credit to determine if you are “a satisfactory credit risk” and help you identify your maximum mortgage. You can use our mortgage calculator to determine how big a loan you can afford and what type of loan may serve you best.
Submit an offer once you find a home.
The hard work begins when you start hunting for a home. Working with a real estate agent, you may go through several showings and offers before your bid is accepted. Although a successful offer puts you one step closer to getting the keys to your next home, you will still have to go through appraisal, underwriting and closing.
Begin the appraisal and underwriting process and (possibly) obtain a termite report.
Once your bid is accepted, the appraisal and underwriting process begins. During this phase, your home will be inspected by an appraiser to determine if your mortgage amount matches the home value. Depending on the age of the home, you may also be required to submit a termite report. Meanwhile, underwriters will examine your financial paperwork, such as tax returns, pay stubs and bank statements, to make sure you can afford your home.
Once the underwriters are satisfied and your home meets appraisal requirements, you will be cleared to close on your home. During closing, you will pay any remaining costs not paid by the seller, sign all the paperwork required by the local government and your lender and receive the keys to your new property.
What Types of VA Loans Are There?
While many associate VA loans with new home purchases, borrowers can use them in numerous real estate transactions. In fiscal year 2020, the VA guaranteed over 1.2 million home loans totaling over $363 billion, ranging from first mortgages to construction loans and even reverse mortgages.
- First mortgage on a primary residence:
VA home loans are popular for those taking out their first mortgage on a new home. The VA loan guaranty offers qualified veterans and active-duty service members an affordable path towards homeownership while also providing lenders assurance in case of a default.
- Second mortgage on a primary residence:
Every family runs into financial difficulties throughout their life. If unexpected bills or expenses come up, the VA loan program offers an option to take out a second mortgage on your home as a “junior lien,” meaning it can’t exceed the borrowed amount of the first loan.
- Mortgage on a secondary/rental property:
Secondary homes or rental properties may offer a strong investment option to build wealth or leave a legacy. Under the rules, qualified homeowners can use the VA home loan program to purchase a second property to use as a rental property or a second home.
Qualifying homeowners have two options to refinance VA home loans. Those seeking to reduce their interest rate can do an Interest Rate Reduction Refinance Loan streamline refinance without going through the usual process. And those seeking to get cash out or convert a conventional mortgage or FHA mortgage into a VA mortgage can do a rate-and-term VA home loan.
- Construction loans:
Although they aren’t as popular, VA home mortgages can be used to construct a new home or rebuild and renovate an existing home. Many lenders do not offer this option because of the challenges in managing builder budgets.
- Reverse mortgages:
Although the VA does not insure reverse mortgages, any VA home loan can be converted to a reverse mortgage through a qualified lender under the Home Equity Conversion Mortgage (HECM) program administered by the U.S. Department of Housing and Urban Development.
VA Home Loan Advantages
Without a doubt, the VA home loan program offers some of the most generous benefits to qualified cadets, service members and veterans buying a home. Between the loose credit requirements to the generally lower interest rates, there are many reasons to start your mortgage search with VA-qualified lenders.
- No down payment: VA mortgages allow first-time homebuyers to finance 100% of their loan, with no limits on the total loan amount. Under the right circumstances, homeowners can get into their homes quicker without having to save up tens of thousands of dollars for a down payment. If you're a second-time homebuyer, however, you may be subject to loan limits.
- No private mortgage insurance: While most mortgages require homeowners to purchase private mortgage insurance (PMI) until they have at least a 20% equity stake in their home, VA loans do not require PMI. This can save homeowners nearly $200 per month on their loan.
- No minimum credit score: Although the average credit score for VA homeowners is around 711, there is no minimum credit score requirement to take out a VA mortgage. Instead, the loan originator must determine the buyers are “a satisfactory credit risk.”
- Sellers can pay closing costs: In addition to allowing the seller to pay closing costs, the loan also enables them to offer concessions of up to 4% of the property sales price. This can include anything from vehicles to furniture to paying for discount points on the buyer’s behalf.
- Loans are assumable: If you want to sell your home or gift it to a family member, it’s easy to transfer the home over. VA loans are assumable by another party, allowing them to take on the full obligation of the loan from you under the original terms.
- Rates are generally lower than conventional loans: According to data from Ellie Mae, VA mortgage rates are usually lower compared to conventional mortgages and FHA mortgages — giving you more money in your pocket every month.
Disabled veterans can enjoy additional benefits when getting a VA home loan. They may qualify for the following benefits:
- Exemption from paying fund fees during closing.
- Access To Specially Adapted Housing (SAH) Grants which can be used to construct homes specifically designed to meet the needs of disabled veterans.
- Access to Temporary Residence Adaptation (TRA) grant which can be used to modify properties if the veteran resides with another person.
- Possible reduction or exemption from paying property taxes.
VA Home Loan Disadvantages
Although there’s a lot to love about VA home loans, they also come with a strict set of rules. If you owe back taxes or other federal liens, or if you are looking to buy a condominium, another type of loan may suit your needs better.
- Zero flexibility for defaults or federal debts: If you are behind on tax payments or student loans, you may not qualify for a VA home loan. To get a VA-guaranteed loan, you must have all your federal debt resolved.
- VA loans require an upfront funding fee: In addition to closing costs, VA home loan recipients must also pay a one-time funding fee in place of PMI. The fees can be included in the loan or paid during closing.
- Condos may not be VA approved: Not all condominiums are VA-approved. If you are considering purchasing a condo instead of a traditional home, you will have to make sure it meets the VA home loan program requirements.
- VA loans require clear termite reports: In most of the United States, your future home will need a termite inspection before purchase. This fee can’t be rolled into the loan and must be paid by either the buyer or seller.
VA Home Loan Eligibility Requirements
Depending on the lender, requirements for certain aspects of a VA home loan may vary. There are general VA home loan requirements you should meet to be eligible for this type of loan. There are also documents you will need to submit to apply.
If you meet all requirements and submit all documents, you can expect the process to move seamlessly.
General Eligibility Criteria
Individuals who fall under any of the following categories may be eligible for a VA home loan:
- Military Members: A candidate qualifies for a VA home loan if they meet at least one of the following criteria:
- 90 consecutive days of active service during wartime
- 181 days of continuous active service during peacetime
- More than six years of service with the National Guard or Reserves OR 90 days of service under Title 32 (at least 30 of those days must be consecutive)
- Veterans: Other candidates who may qualify include veterans discharged for a:
- service-connected disability
- service-connected compensable disability
- pre-existing condition unrelated to service
- Select Surviving Spouses: A veteran’s spouse may be eligible for this type of loan if:
- the military member was killed in action,
- the military member was listed as missing in action, or
- the military member was listed as a prisoner of war for more than 90 days, and
- the surviving spouse has not remarried
Similar to other mortgage, candidates must meet other loan eligibility requirements including:
- Credit score (may vary per lender)
- Debt-to-income (DTI) ratio
- Type of property (Lenders will only finance certain property types)
- Down payment (Lenders may offer a no-down-payment VA loan with specific requirements)
- Loan limit
It is best to clarify specific requirements as these may vary per lender.
To complete the application process, borrowers must submit the necessary documents. The most crucial document is the Certificate of Eligibility (COE). It proves that the candidate is eligible for a VA home loan.
You can find out if you are qualified for a COE by submitting a Request for Certificate of Eligibility to the VA. Make sure you prepare the following:
- Completed VA Form 26-1880 and
- DD Form 214 - Discharge or separation papers (original or certified copies) or
- Proof of status or current military ID card, or both (for active-duty service members)
There are three ways to submit a request. You can send the completed form and supporting documents via mail or directly through a VA lender. You can also complete the application online through the VA portal.
Learn more about VA loan requirements and eligibility.
VA Home Loan Rates
The VA does not set VA home loan rates. Private lenders set interest rates based on the market and a borrower’s profile. Generally, VA home loan interest rates are generally lower than conventional mortgages.
However, it is important to remember that rates for VA home loans are not constant. Rates can change multiple times a day depending on current market conditions.
Candidates should focus on personal factors that could affect their interest rates. These include credit score, loan duration, type of loan and previous loan repayment history.
Candidates who plan to own their home for a longer period can take advantage of discount points. Buying discount points means paying interest up front. When this happens, the individual will receive a lower interest rate over the loan’s life.
Other Key Things To Note for Borrowers
Here are other essential things to help you better understand how VA home loans work:
- Borrowers can only use VA home loans for primary residences and certain properties. VA loans can be used for single-family homes, modular housing or condos. However, there may be private lenders who only finance family homes. You cannot use the loan for a condo in such a case. This is why it is also wise to find out lender-specific standards.
- Candidates can get a VA home loan even if they have a history of foreclosure or bankruptcy, as long as they meet the qualification requirements.
- VA home loans are reusable. Borrowers can use their VA entitlement repeatedly as long as they pay off the loan. Additionally, borrowers who have had a foreclosed on a VA loan can still get another one or use their VA loan benefit.
- VA home loans do not have prepayment penalties. Borrowers can make payments at their most convenient time. They can schedule automatic monthly payments, potentially saving on interest.
Frequently Asked Questions About VA Mortgages
You may still have questions regarding VA home loans and whether you should apply for one when buying your home. Here are some of the most common.
Learn More About Home Loans
About the Author
- Urban Institute. "The Impacts of US Military Service on Homeownership and Income." Accessed February 12, 2021.
- U.S. Department of Veterans Affairs. "VA guarantees more than 1 million home loans in record year." Accessed February 12, 2021.
- Veterans Benefits Administration. "Lenders Handbook - VA Pamphlet 26-7, Chapter 4: Credit Underwriting." Accessed February 15, 2021.
- Ellie Mae. "Origination Insight Report: December 2020." Accessed February 15, 2021.