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- A VA loan is a type of mortgage for military families who meet certain criteria.
- You apply for a VA loan through a private lender, and it's guaranteed by the Department of Veterans Affairs.
- You typically don't need a minimum down payment to get a VA loan, but each lender has its own guidelines.
When you buy a house, you have many loan options to choose from. The most common is a conventional loan, but FHA loans are popular, too.
If you or your spouse has served in the U.S. military, you may be eligible for another type of mortgage: the VA loan. These loans have unique benefits and can reduce the costs of your home purchase significantly.
Understanding VA loans
VA loans help you buy a home with no minimum down payment. And if your finances are in good shape, you can often lock in a lower interest rate than what you'd pay on other types of mortgage loans.
Here's what to know about VA loans:
Definition and overview
VA loans are guaranteed by the U.S. Department of Veterans Affairs. You won't apply directly through the VA — you'll apply through a private lender, just as you would with most other mortgages. The VA is in charge of compensating the lender should you fail to make mortgage payments. This makes giving a loan less risky for VA mortgage lenders, so they can offer mortgages with no down payment and better interest rates.
You aren't limited to getting just one VA loan in your lifetime. If you either a) sell your home and pay off the loan, or b) sell your home to another veteran who takes on the VA loan, you can get another VA loan.
If you completely pay off your mortgage and move later, you are limited to one more VA loan to buy another home, as long as the new home will be your primary residence.
History and purpose
The U.S. government created VA loans in 1944 to help soldiers returning from World War II buy a home. Today, a VA loan is still a type of mortgage for military members to purchase a primary residence, and it includes benefits such as low interest rates and no minimum down payment on a house.
Benefits of VA loans
VA loans have some serious benefits if you can qualify for one. VA loan benefits include:
No down payment requirement
A VA loan is one of the only types of mortgages that doesn't require a down payment. You would need at least 3% upfront for a conventional mortgage, and at least 3.5% for an FHA loan. (But keep in mind that if you do have some money for a down payment, you can get a lower mortgage rate.)
Competitive interest rates
VA loans and USDA loans typically come with the most affordable interest rates. Conventional mortgages have higher rates, and FHA loans often charge even more than conventional loans.
No Private Mortgage Insurance (PMI)
You don't have to pay for mortgage insurance when you have a VA loan. With a conventional mortgage, you have to pay private mortgage insurance (PMI) until you gain at least 20% equity in your home. FHA and USDA loans charge you a mortgage premium at closing, plus an annual mortgage premium.
Flexible credit requirements
The VA doesn't have hard-and-fast credit score requirements on VA loans. Lenders are free to set their own thresholds and have the leeway to be much more flexible on qualifying borrowers.
Eligibility requirements
Only a small subset of borrowers qualifies for a VA loan. To get one, you'll need to meet the following VA loan requirements:
Service requirements
You must be associated with the military to receive a VA loan, but there are a few restrictions. You may be eligible if you meet one of the following criteria:
- You're an active-duty member
- You're a wartime veteran who has served at least 90 days in active duty, OR a peacetime veteran who has served at least 180 days in active duty, OR a member of the National Guard or Reserves who has served for at least six years
You can find the full details of the VA's service requirements at VA.gov.
Certificate of Eligibility (COE)
To prove you're eligible for a VA loan, you'll need an official Certificate of Eligibility from the VA. You can get this through your VA.gov account, via mailed request to the VA, or your lender can usually look it up electronically.
Spousal eligibility
If you're married to a military member or veteran or your military spouse died in service or due to a service-related injury, you may also qualify for a VA loan. Spouses of prisoners of war or missing-in-action servicemembers can also apply.
Types of VA loans
The Department of Veterans Affairs guarantees several VA loan types, including the following:
VA purchase loan
This is what most people refer to when they say "VA loan." You receive a mortgage for your primary residence.
VA streamline refinance (IRRRL)
The IRRRL is also known as a VA streamline refinance. If you already have a VA loan, you can refinance into another VA loan.
VA cash-out refinance
With a cash-out refinance, you may refinance from a VA loan or conventional mortgage into a VA loan, and you can tap into your home equity by taking out cash.
How to apply for a VA loan
Applying for a VA loan isn't much different than it is with other mortgage loans, though there are a few extra steps you'll need to tackle.
Step-by-step application process
To apply for a VA loan, you'll need to:
- Find a VA lender. Only certain lenders are authorized to offer these loans.
- Get your COE. Your lender can typically help with this if you haven't already requested yours.
- Shop for a home and put in an offer. Once your offer is accepted, you'll need to fill out your lender's full application and get the mortgage process moving.
- Await your VA appraisal. Your lender will have the home appraised to ensure it meets the VA's minimum property requirements.
- Attend closing and pay your closing costs. You'll then get the keys to your new house.
Your loan officer will guide you through the entire process, so stay in close contact along the way.
Required documentation
The COE is the most important document you'll need with a VA loan, but there are others you'll need to submit, too. These might include tax returns, W-2s, bank statements, asset statements, Social Security and disability award letters, and your statement of service.
Costs and fees associated with VA loans
As with any mortgage loan, you'll have some upfront costs to contend with when you take out a VA loan. Here are some VA loan costs you can expect:
Funding fee
The VA loan funding fee is a fee that goes to support the VA loan program and it's required for most VA borrowers. The amount varies based on your loan type, your down payment amount, what you're using the loan for, and how many times you've used your VA loan entitlement, but it ranges from 0.50% to 3.3% of the loan amount.
You may be exempt from the fee if you are getting payments from the VA (or are eligible to) for a service-connected disability, you're receiving Dependency and Indemnity Compensation as the surviving spouse of a veteran, or you have a Purple Heart.
Other potential costs
You'll have other costs, too, including things like agent commissions, origination fees, credit report fees, appraisal fees, the cost of title insurance and other title services, recording fees, taxes, insurance, and more. Your lender will give you a full estimate of these before closing.
Common myths about VA loans
A lot of rumors surround VA loans, and some of them may discourage buyers or sellers from interacting with the program. See below for these VA loan myths — and the real truth behind them.
Myth: VA loans take too long to process.
There's a lot of chatter about how much longer VA loans take to process than other loans. While there are a few extra hoops to jump through and the VA appraisal is more stringent than most, it typically doesn't take much longer to close a VA loan than a comparable mortgage (maybe a few days at most).
Myth: VA loans are only for first-time buyers
While VA loans can be a great choice for first-timers, they're not limited to this cohort by any means. In fact, you can use your VA loan entitlement over and over again, as long as you qualify. There are even some scenarios when you could have multiple VA loans at once.
FAQs on VA loans
A VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs (VA). Only military members, veterans, and their spouse can use them.
VA loan eligibility requires serving in the U.S. military or reserves and meeting certain service requirements. Some military spouses qualify, too.
VA loans require no down payment, have competitive interest rates, and require no PMI, among other benefits.
To apply for a VA loan, obtain a Certificate of Eligibility (COE), find a VA-approved lender, and complete the VA loan application process.
