VA loans help veterans, active-duty service members, and eligible surviving spouses buy homes with significant financial advantages. The U.S. Department of Veterans Affairs backs these mortgages, which means lenders take on less risk. That translates to better terms for borrowers, no down payment, no private mortgage insurance, and competitive interest rates.
Since the program launched in 1944, VA loans have helped more than 28 million veterans achieve homeownership. Whether someone is buying their first home or refinancing an existing mortgage, understanding how VA loans work can save thousands of dollars over the life of a loan.
Key Takeaways
- VA loans are government-backed mortgages that help veterans, active-duty service members, and eligible surviving spouses buy homes with no down payment and no private mortgage insurance.
- Borrowers must obtain a Certificate of Eligibility (COE) to prove they meet the military service requirements for VA loans.
- VA loans offer competitive interest rates that are typically 0.25% to 0.5% lower than conventional loans, saving thousands over the life of the mortgage.
- The VA funding fee ranges from 1.25% to 3.3% of the loan amount, though veterans with service-connected disabilities are exempt.
- Several VA loan types exist, including purchase loans, Interest Rate Reduction Refinance Loans (IRRRL), cash-out refinances, and specialized programs for Native American veterans.
- Most VA loans close within 30 to 45 days after completing the appraisal and underwriting process.
How VA Loans Work
VA loans function differently from conventional mortgages. The Department of Veterans Affairs doesn’t lend money directly. Instead, it guarantees a portion of each loan made by private lenders like banks, credit unions, and mortgage companies.
This guarantee protects lenders if a borrower defaults. Because lenders face less risk, they offer VA loans with better terms than most conventional options.
Here’s the basic process:
- Get a Certificate of Eligibility (COE) – This document proves a borrower meets service requirements.
- Find a VA-approved lender – Not all lenders offer VA loans, so borrowers should confirm this upfront.
- Get preapproved – The lender reviews income, credit, and debt to determine borrowing power.
- Find a home and make an offer – The property must meet VA minimum property requirements.
- Complete a VA appraisal – A VA-assigned appraiser evaluates the home’s value and condition.
- Close the loan – Sign final paperwork and receive the keys.
VA loans require a funding fee, which ranges from 1.25% to 3.3% of the loan amount. This fee helps sustain the program so future veterans can access the same benefits. Veterans with service-connected disabilities are exempt from this fee.
Key Benefits of VA Loans
VA loans offer several advantages that make homeownership more accessible for eligible borrowers.
No Down Payment Required
Most conventional loans require 5% to 20% down. VA loans allow qualified borrowers to finance 100% of the home’s value. For a $300,000 home, that’s $15,000 to $60,000 in savings at closing.
No Private Mortgage Insurance (PMI)
Conventional borrowers who put less than 20% down must pay PMI, which typically costs $100 to $300 per month. VA loans eliminate this expense entirely.
Competitive Interest Rates
Because the government backs VA loans, lenders offer rates that are often 0.25% to 0.5% lower than conventional loans. Over 30 years, even a small rate difference adds up to significant savings.
Flexible Credit Requirements
VA loans don’t set a minimum credit score at the federal level. Most lenders require scores around 620, but some accept lower scores. This flexibility helps veterans with less-than-perfect credit qualify for homeownership.
Limited Closing Costs
The VA limits which closing costs veterans can pay. Sellers can contribute up to 4% of the loan amount toward closing costs, making it easier to buy with minimal cash on hand.
No Prepayment Penalties
Borrowers can pay off their VA loan early without fees. This gives homeowners flexibility to refinance or sell whenever it makes financial sense.
VA Loan Eligibility Requirements
Not everyone qualifies for VA loans. The program serves specific groups who have earned this benefit through military service.
Service Requirements
Eligibility depends on when and how long someone served:
- Active-duty service members need 90 continuous days during wartime or 181 days during peacetime.
- National Guard and Reserve members typically need six years of service, though those called to active duty may qualify sooner.
- Veterans must have completed their service under conditions other than dishonorable discharge.
- Surviving spouses of service members who died in the line of duty or from a service-connected disability may qualify.
Income and Credit Factors
Lenders verify that borrowers can afford their mortgage payments. They examine:
- Debt-to-income ratio – Monthly debts compared to gross income. Most VA lenders prefer this ratio below 41%.
- Residual income – Money left over after paying major expenses. The VA sets minimum residual income requirements based on family size and location.
- Credit history – While no federal minimum exists, lenders set their own standards.
Certificate of Eligibility
Borrowers must obtain a COE to prove their eligibility. They can request this document through the VA’s eBenefits portal, by mail using VA Form 26-1880, or through their lender.
Types of VA Loans Available
The VA offers several loan types to meet different needs.
Purchase Loans
This is the most common VA loan type. It helps eligible borrowers buy a primary residence, single-family homes, condos, manufactured homes, or multi-unit properties (up to four units if the borrower lives in one).
Interest Rate Reduction Refinance Loan (IRRRL)
Also called a VA Streamline Refinance, this option lets current VA loan holders refinance to a lower interest rate with minimal paperwork. No appraisal or credit underwriting is required in most cases.
Cash-Out Refinance
Borrowers can tap into their home equity for cash while refinancing into a new VA loan. This option works for homeowners with existing VA loans or conventional mortgages.
Native American Direct Loan (NADL)
This program helps Native American veterans buy, build, or improve homes on Federal Trust Land. The VA lends directly rather than guaranteeing a private loan.
Adapted Housing Grants
Veterans with certain service-connected disabilities can receive grants to purchase or modify homes for accessibility. These include the Specially Adapted Housing (SAH) grant and Special Housing Adaptation (SHA) grant.
How to Apply for a VA Loan
Applying for a VA loan takes some preparation, but the process is straightforward.
Step 1: Confirm Eligibility
Request a Certificate of Eligibility through the VA’s eBenefits portal or ask a lender to pull it electronically. This step takes minutes online.
Step 2: Review Finances
Check credit reports for errors. Pay down existing debts if possible. Gather documents including pay stubs, tax returns, W-2s, and bank statements.
Step 3: Choose a Lender
Compare rates and fees from multiple VA-approved lenders. Even small differences in interest rates affect total loan costs. Ask about lender fees, processing times, and customer service.
Step 4: Get Preapproved
A preapproval letter shows sellers that a buyer is serious and financially qualified. It also clarifies the budget for house hunting.
Step 5: Find a Home
Work with a real estate agent familiar with VA loans. The property must meet VA minimum property requirements, which ensure the home is safe, sanitary, and structurally sound.
Step 6: Complete the Appraisal and Underwriting
The VA assigns an appraiser to verify the home’s value and condition. The lender’s underwriting team reviews all documentation before final approval.
Step 7: Close the Loan
Sign closing documents, pay any required fees, and receive the keys. Most VA loans close within 30 to 45 days.
