A Comprehensive Guide to the VA Loan
The VA Loan does not have to be complicated.
Read the guide below to arm yourself with the right knowledge for a successful home purchase using the VA Loan.
What is the VA Loan?
VA Loans are a mortgage benefit offered to veterans, active duty military, and eligible surviving spouses by the U.S. Department of Veterans Affairs (VA). These loans are designed to help you purchase a home with favorable terms, including no down payment and competitive interest rates.
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VA Loans are a mortgage benefit offered to veterans, active duty military, and eligible surviving spouses by the U.S. Department of Veterans Affairs (VA). These loans are designed to help you purchase a home with favorable terms, including no down payment and competitive interest rates.
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One of the most appealing aspects of VA loans is the ability to secure 100 percent financing, meaning no down payment is required. Furthermore, VA loan borrowers are exempt from monthly insurance premiums like private mortgage insurance (PMI) or mortgage insurance premium (MIP). Additionally, veterans may qualify for more competitive interest rates compared to conventional loans.
| 0% Down Payment | No Private Mortgage Insurance |
| Competitive Interest Rates | Streamlined Refinance |
VA Loans are a mortgage benefit offered to veterans, active duty military, and eligible surviving spouses by the U.S. Department of Veterans Affairs (VA). These loans are designed to help you purchase a home with favorable terms, including no down payment and competitive interest rates.
VA Eligibility Requirements
To qualify for a VA loan, you have to meet one or more of the following:
- You served 90 consecutive days of active service during wartime
- You served 180 days of active service during peacetime
- You have 6 years of service in the National Guard or Reserve, or served 90 days under Title 10 or Title 32 orders
- You are a spouse of a service member who died while serving or due to a service-related disability
| Can you use a VA loan multiple times, even simultaneously? | Yes |
| Is there an expiration date on VA loan benefits? | No |
| Are there size limits for VA loans? | No |
| Can service-connected disabilities affect VA home loan terms? | Yes |
| Can active-duty military personnel use VA loans? | Yes |
| Are National Guard and Reserve members eligible for VA loans? | Yes |
The VA imposes a funding fee on every VA loan, with rates determined by your Certificate of Eligibility (COE). This fee can be paid in different ways: by the buyer at closing, by the seller at closing, or by rolling it into the loan. Notably, the funding fee is waived for veterans with a service-connected disability of 10 percent or greater.
For first-time users without a disability, the fee is 2.15%, while subsequent use loans carry a 3.3% fee. A 5% down payment reduces the fee to 1.5%, and a 10% down payment further reduces it to 1.25%. Active-duty military can apply to have the funding fee waived before separation or retirement.
| VA Purchase or Construction Loans |
||
| Down Payment | Funding Fee | |
| First Use | Less than 5% | 2.15% |
| 5% or more | 1.5% | |
| 10% or more | 1.25% | |
| Subsequent Use | Less than 5% | 3.3% |
| 5% or more | 1.5% | |
| 10% or more | 1.25% | |
| VA Cash-Out Refinance | ||
| First Use | - | 2.15% |
| Subsequent Use | - | 3.3% |
| VA Interest Rate Reduction Refinance Loan (IRRRL) | ||
| First Use | - | 0.5% |
| Subsequent Use | - | 0.5% |
| VA Loan Assumption | ||
| First Use | - | 0.5% |
| Subsequent Use | - | 0.5% |
While the VA loan appraisal process includes a habitability check, it doesn’t replace a comprehensive home inspection. VA loans require an inspection for wood-destroying organisms (termite inspections). If your home is going to have a well as the primary source of water, that will also need to be inspected.
The good news is that these inspections can now be paid for by either the buyer or seller, eliminating the previous requirement for sellers to cover the cost.
VA loans are exclusively for primary residence purchases. The veteran or spouse must move into the home within 60 days of closing and reside there for at least one year before considering renting or selling it.
However, valid changes in circumstances, such as deployments or job changes, can provide flexibility in meeting the one-year occupancy requirement.
VA loans can be used for various property types, including single-family homes, condos, townhomes, duplexes, triplexes, quads, mobile/manufactured homes (when owned with the land), and new construction.
However, VA loans cannot be used for commercial property, raw land, undeveloped lots, or investment homes.
| VA Eligible Properties | NOT VA Eligible |
| Single Family Home |
Commercial Property |
| Condominium | Raw Land |
| Townhouse | Undeveloped Lots |
| Multi-Unit (2-4 units) |
Investment Homes |
| Mobile/Manufactured Home | |
| New Construction |
The VA IRRRLÂ (pronounced like your favorite Uncle Earl), also known as a VA Streamlined Refinance, offers veterans a streamlined way to reduce their VA loan interest rate by at least half a percent or more without the need for an appraisal, income verification, equity requirements, or a specific credit score.
This streamlined refinance option is a valuable tool for veterans to lower their monthly mortgage payments, especially during periods of declining interest rates.
The VA IRRRL serves as a powerful financial tool for veterans to save money on their mortgage payments without the typical requirements associated with traditional refinancing.
The two most commonly compared loans for military is the VA loan and the conventional loan. Both loan products can be the right choice based on the specific circumstances, however, the VA loan often has clear advantages when compared side by side in a standard home purchase.
VA Loan vs Conventional Loan
| VA |
Conventional |
|
| Credit Score | As low as 500 | Typically 620+ |
| Down Payment | 0% | 3% or more |
| Eligibility | Veteran, active-duty military, surviving spouses | No restrictions |
| Interest Rates | VA guarantees part of the loan, rates are usually lower than conventional | Can be fixed or adjustable; rates usually higher than VA |
| Funding Fee | Fee can be reduced with a down payment or, in some cases, waived | N/A |
| Private Mortgage Insurance | N/A | Required if down payment is less than 20% |
| Property Requirements | Must be a primary residence and pass VA appraisal standards | Residential dwelling with no more than 4-units |
| Assumability | If buyer meets VA eligibility requirements, loan can be assumed | Most are not assumable |
Loan Comparison Example
| EXAMPLE |
||
| VA |
Conventional |
|
| Purchase Price | $500,000 | $500,000 |
| Term | 30 Years | 30 Years |
| Rate | 5.63% | 6.50% |
| Down Payment | $0 or 0% | $25,000 or 5% |
| Loan Amount | $500,000 | $475,000 |
| Principal & Interest | $2,878 | $3,117 |
| Mortgage Insurance | $0 | $114 |
| COSTS over 10 Years |
||
| Mortgage Insurance | $16,644 | |
| Additional Interest | $44,640 | |
| Down Payment | $25,000 | |
| TOTAL Additional COST |
$86,284 | |
Qualification for a VA loan can vary among lenders and may be influenced by factors such as credit score requirements, the ability to use gift funds, and how different types of military income are treated. It’s essential to work with a lender who understands these nuances.
The first step in obtaining a VA loan is to speak with a military specialized lender to get pre-qualified. From there, you will submit specific documents to verify your income, debt-to-income ratio, prove eligibility and other requirements. Once you have a pre-qualification letter, then you can start house shopping!
Helpful Resources
A straight-forward guide to the VA Loan. Download and print for a resource on the go.
Home buying is a journey. Use this roadmap to plan your next steps into home ownership.
A mortgage calculator made for active duty military. Compare your BAH rate right alongside your potential mortgage payment.
