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Important points
VA loans are home loans guaranteed by the U.S. Department of Veterans Affairs and are available to eligible veterans, active duty military personnel, and surviving spouses.
VA loans can be used to purchase or build a primary residence, refinance your current mortgage, or cover renovation costs.
VA loans have several benefits, including no down payment, no mortgage insurance, and competitive interest rates.
If you are an eligible member of the military, a VA loan allows you to purchase a home with no down payment. This type of mortgage has less basic requirements and sometimes better interest rates than traditional loans. Here is a comprehensive guide.
What is a VA loan?
VA loans are home loans guaranteed by the U.S. Department of Veterans Affairs (VA) specifically for eligible active duty military members, veterans, and surviving spouses. If you qualify, you can use the VA loan program to buy a home, build or renovate a home, or refinance into a new mortgage.
How do VA loans work?
VA does not provide VA loans directly to borrowers. Instead, you will receive your loan through a mortgage lender approved by the Department of Veterans Affairs. Many national banks offer VA loans, and some lenders specialize in VA loans.
In most cases, you don’t need to make a down payment to get a VA loan. You also don’t have to pay mortgage insurance. This is the main difference between VA loans and conventional and FHA loans. The latter requires borrowers to pay mortgage insurance if they put down less than 20%.
However, you will have to pay a VA funding fee. Together, these fees allow the Veterans Administration to guarantee VA loans up to a certain amount. This guarantee reduces the risk lenders take when offering a no-down payment mortgage. Funding fees range from 1.25% to 3.3% of the loan amount and apply to either home purchases or refinances (with some exceptions).
VA loan eligibility
To qualify for a VA loan, you must meet minimum service requirements. These vary depending on your status as active duty or a veteran. There are also specific requirements for National Guard or Reserve officers.
If your spouse has served time in prison, you may also be eligible in certain circumstances. The criteria are:
Before you can apply for a VA loan, you need a Certificate of Eligibility (COE) that proves you meet the service requirements to qualify for the loan.
How to request a COE
You can request a COE online through the VA eBenefits portal, by mail to your local VA Loan Center, or through your mortgage lender. Active military personnel, or current National Guard or Reserve officers who have not yet been activated, must have a statement of service signed by their commander, lieutenant, or human resources representative. Veterans and current or former active National Guard or Reserve members must submit from DD214. There are separate requirements for discharged National Guard or Reserve officers who were never activated and surviving spouses. For more information, please visit the VA website.
If you have full title, there is no limit to the size of your VA loan. However, lenders will evaluate your eligibility based on your financial situation, including your income and other debts, and may impose their own loan limits. Your rights are still locked in to the conforming loan limit.
You do not have full rights if one or more of the following apply:
- I have an active VA loan and am still repaying it.
- Paid off your previous VA loan in full and still own your home
- If you refinance your VA loan to a non-VA loan, you still own your home.
- If you experienced a short sale, deed in lieu of foreclosure, or foreclosure on a previous VA loan and did not repay it in full.
In these cases, borrowing is limited to the county’s loan limit.
The 2024 cap is $766,550 for most counties. In more expensive regions, that limit can reach up to $1,149,825.
Finally, VA loans can only be used in your primary residence. Investment properties and vacation homes are not permitted. The property must also meet certain safety and structural standards.
Advantages and disadvantages of VA home loans
For those who qualify, VA loans have many benefits, but there are also drawbacks to consider.
Advantages of VA loans
- No down payment: With a VA loan, you can buy a home with zero down payment. In contrast, conventional mortgages require at least a 3% down payment, and FHA loans require at least 3.5%.
- No mortgage insurance: Unlike conventional and FHA loans, VA loans don’t require you to pay mortgage insurance, even if you haven’t made a down payment.
- Capped lender fees: VA limits lender fees (such as loan origination fees) to 1% of the loan amount. This can mean lower closing costs compared to other loan types.
Disadvantages of VA loans
- Funding fee: VA loans have financing fees that vary depending on whether you are buying or refinancing a home, your down payment (and its amount), and whether you have previously taken out a VA loan.
- Limited to primary residence: VA loans can only be used to purchase a primary residence, not a rental property or vacation home property. (However, you can purchase up to four-unit properties with a VA loan, as long as one unit is your primary residence.) Additionally, not all properties meet VA’s Minimum Real Estate Requirements (MPR).
Types of VA home loans
Whether you’re buying or building a home or refinancing your mortgage, there are a variety of options for VA loans.
| VA Purchase Mortgage Loan | for buying a house |
| VA construction loan | Including the purchase of land, land, labor, and materials to build a house |
Interest Rate Reduction Refinance Loan (IRRRL) or VA Streamline Refinance | Refinance to a new loan with new interest rates and terms without the need for an appraisal or credit check. |
| VA Refinance Rates and Term | In the case of refinancing to a new loan with new interest rates and terms |
| VA Cash Out Refinance | For refinancing into a new larger loan with new interest rates and/or terms, cashed out based on the equity in your home. |
| VA Rehab/Renovation Loan | About purchasing and repairing houses |
| Native American Direct Loan (NADL) | A Native American veteran purchases, builds, or repairs (or refinances) a home on federal trust land. |
How to apply for a VA loan
The application process for a VA loan is similar to the application process for other types of home loans. This includes comparing offers from lenders, providing proof of employment and income, and responding quickly to underwriting requests. The basic steps for a VA purchase home loan are:
- Get your COE.
- Organize a file of financial information, such as recent pay stubs, bank and brokerage statements, and tax returns.
- Compare interest rate offers from at least three VA lenders.
- Apply for pre-approval and start your home search.
- If your offer is accepted, complete your mortgage application.
- Be prepared to provide additional credit or financial information as needed during the underwriting process.
