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What is a VA Loan?

A VA loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs (VA) specifically for members of the military to buy and refinance homes. Eligible veterans, active-duty service members, reservists and their spouses may be able to finance a home with no down payment and flexible credit requirements.

VA entitlement is linked to the VA guaranty, which works like mortgage insurance and protects a lender against losses if you default, much like mortgage insurance charged on conventional and FHA loans. However, the VA guaranty isn’t added to your monthly payment or charged as a lump sum, resulting in a lower VA monthly payment compared to a low down payment conventional or FHA loan.

How does a VA loan work?

VA loans work like any other mortgage type with one major exception: VA borrowers must verify they’ve served in the military. This is called “VA loan entitlement” and it represents the dollar amount the VA will repay a lender if you default on your loan.

You can request an online certificate of eligibility to see how much entitlement you have. The VA offers two types of entitlement: basic and bonus.

Basic entitlement

  • Repays the lender the lesser of $36,000 or 25% of your VA loan amount if you default
  • Allows you to borrow up to four times that amount ($144,000) without a down payment

Bonus entitlement

  • Allows you to borrow more than the basic $144,000 entitlement limit
  • Allows you to buy a more expensive home
  • Allows you to buy more than one home with VA financing
  • Allows you to purchase a home with a VA foreclosure in your past

VA loan limits no longer exist. VA borrowers can now take out a VA loan with no down payment to buy a home that exceeds the upper conforming loan limit for high-cost areas.

What are the VA home loan requirements?

The minimum mortgage requirements for a VA loan are more flexible than most other loan types.

Credit score. The VA doesn’t set a minimum credit score, but VA-approved lenders typically have a 620 minimum requirement.

Closing cost cap. To help minimize borrowing costs, the VA imposes a 1% cap on the percentage of VA loan closing costs a lender can charge. 

Down payment. No down payment is required, as long as you have enough VA entitlement. 

DTI ratio. Although the recommended debt-to-income (DTI) ratio is 41%, VA-approved lenders may approve a higher DTI ratio if you have enough residual income. Residual income measures how much extra money is left over after deducting taxes, expenses and monthly maintenance fees from your gross monthly income. The minimum amount needed varies based on your family size and where you live. 

Funding fee. The VA funding fee is a one-time charge that offsets the taxpayer cost of the VA loan program. Calculated as a percentage of the total VA loan amount, the fee varies based on the down payment amount, the purpose of the loan and how often the VA entitlement has been used. Military veterans with a service-connected disability may be eligible for a VA funding fee exemption.

Employment and income. There are no income limits, but VA borrowers typically must prove they have two years of steady income and employment history.

Minimum property requirements. VA lenders must select a VA appraiser who verifies the home’s value and confirms the home is safe, sound and sanitary. Minimum property standards are more stringent on VA loans. 

Mortgage insurance. Because the VA guarantees loans made by VA-approved lenders, private mortgage insurance (PMI) is not required. 

Occupancy. VA mortgages are for primary homes only. 

VA escape clause. If the appraised value is less than the sales price, a VA escape clause allows the buyer to back out of the contract without losing their earnest money.

Types of VA loans

VA loans allow borrowers to buy, refinance and even build homes. Here’s a look at some VA loan offerings.

VA purchases with no down payment

The VA loan is the only government-backed loan program that requires no money down with no income or loan limits.

VA cash-out refinances

Eligible borrowers can tap equity up to 90% of their home’s value with a VA cash-out refinance, which is 10% higher than conventional or FHA cash-out refinances allow. 

VA interest rate reduction refinance loans (IRRRLs)

Homeowners with a current VA loan may be able to lower their interest rate and roll in closing costs with a VA interest rate reduction refinance loan (IRRRL). An added bonus: No appraisal or income verification is required. 

VA renovation loans

Military borrowers can take out a VA renovation loan to purchase or refinance a fixer-upper home and roll repair or remodeling costs into the loan. You can finance up to 100% of the home’s value, which is more than most renovation programs allow. 

VA construction loans

The VA offers one-time and two-time close construction loans to finance the cost of building a new home with no down payment. With the one-time close option, one loan covers the construction costs automatically converts to the permanent loan once the home is complete. The two-time close involves one dedicated construction loan, followed by a new loan taken out to pay off the construction loan.  

VA supplemental loans

Current VA borrowers can finance smaller home maintenance projects with a supplemental VA loan. Repair costs are added to the balance of your current loan or taken out as a separate loan. 

Other VA loan programs

The VA offers special housing grant programs for veterans with service-related disabilities and for Native American service members.  

Housing grants for disabled veterans. Disabled veterans can use a Specially Adapted Housing (SAH) grant up to $90,364 to make changes to a home they’re buying or refinancing to upgrade it so it meets their independent living needs. A veteran who lives with family members can use a Temporary Residence Adaptation (TRA) grant of up to $39,669 to alter a home they live in but don’t own. 

Native American Direct Loans. Native American veterans, or military borrowers with Native American spouses, may be eligible for the Native American Direct Loan (NADL). Borrowers can use the loan to buy, build or improve a home on federal trust land with no down payment.

Choose the type of VA loan that’s right for you

VA purchase loan
Buy a home with no down payment, no loan limits and no mortgage insurance.

VA cash-out refinance
Tap up to 90% of the value of your home, and use the extra cash for home improvements or debt consolidation.

VA interest rate reduction refinance loan
Reduce your rate without the hassle of income documentation or an appraisal.

How to apply for a VA loan

To apply for a VA loan, start by comparing the rates offered by three to five VA-approved lenders until you find a company that best suits your needs. 

You’ll provide documentation of your income, assets, debts, employment and income. You’ll also need to: 

    • Verify your VA entitlement
    • Use a VA-approved appraiser
    • Pay a VA funding fee if you aren’t exempt
    • Document your family size to meet the residual income requirement

VA loan FAQs

You can use your VA loan benefit as often as you want – as long as you have enough bonus entitlement and qualify based on your income, credit score and current debt.

No. PMI is charged only to borrowers who make less than a 20% down payment on a conventional loan.

You’ll typically pay 2% to 6% in closing costs for a VA mortgage, depending on your loan amount. If you’re buying a home, you can ask the seller to pay up to 4% of your loan amount toward your costs, including the funding fee.

Your loan officer will review your certificate of eligibility, income, assets and credit to determine how much you can qualify for.

Yes. But VA loans for manufactured homes require a 5% down payment, and a maximum term of 25 years and 32 days for a double-wide home permanently attached to land you own.

*If you do not meet the minimum service requirements, you may still be eligible if you were discharged due to (1) hardship, (2) the convenience of the government, (3) reduction-in-force, (4) certain medical conditions, or (5) a service-connected disability.

Pros and Cons of VA Loans

  • No down payment is required in most cases
  • No mortgage insurance is charged
  • More home equity can be tapped than other loan programs allow
  • Lender closing costs are capped at 1% of the loan amount
  • VAS funding fees may be expensive
  • Need enough military service history or entitled to qualify
  • Only primary residences can be financed
  • Property standards are stricter than other loans