Apache is functioning normally

Of the many varieties of mortgage loans out there, the VA loan—a type of mortgage backed by the Department of Veterans Affairs—just might be the one with the most advantages. There’s no down payment required or mortgage insurance premium to pay. Plus, VA lenders are more flexible than conventional lenders when it comes to credit scores and loan limits, too. 

Of course, not just anyone has access. VA loans are available only to active-duty service members and veterans who meet service requirements. In some cases, spouses can also qualify.

“They’re a major benefit—earned by people who have served our country,” says Rob Posner, CEO of mortgage lender NewDay USA.

If you are of the estimated 14.1 million living veterans or million-plus current service members who might qualify, here’s what you need to know to get started.

What is a VA home loan? 

A VA loan is a mortgage guaranteed by the Department of Veterans Affairs. VA loans are typically issued by private mortgage lenders (we’ll go into the one exception later on) but the VA assumes some of the risk. This means if a VA borrower fails to make payments on their loan and defaults, the VA will repay the lender a portion of its losses.

Because of this added protection from the government, lenders (those who are approved to offer VA loans, at least) can be more lenient on credit score and down payment requirements when making these loans and lend out larger amounts. 

Created in 1944 as part of the GI Bill of Rights, the VA loan program was intended to help service members returning from war more easily purchase homes and reintegrate into society. Today, VA loans account for about 11% of all mortgage activity, according to the Mortgage Bankers Association.

Types of VA loans

VA loans can be used for the purchase, refinance or renovation of a home (with some stipulations), and there are several types to choose from. Just keep in mind: Not all lenders can issue VA loans, and even among those that do, the loan options can vary. 

VA purchase loan

The most common type of VA loan is the VA purchase loan, which allows you to purchase a property to live in as your primary residence. According to the Consumer Financial Protection Bureau, 57% of all VA loans originated in 2022 were used to purchase a home.

VA construction loan

Some lenders offer purchase loans that can be used to build a home from the ground up. These are sometimes referred to as VA construction loans. You’ll need to submit your building plans when applying for your loan and use a VA-approved builder. There are also certain appraisal and inspection requirements you will have to meet.

VA renovation loan

If you’re buying a home that requires some updating, a VA renovation loan allows you to finance the purchase price of the home—plus the costs of eligible repairs and improvements and ultimately roll it all into one balance. “These are great for buying a home that needs work that the seller doesn’t want to do,” says Garrett Puckett, CEO of lender Security America Mortgage.

Take note, though: You can’t use your renovation loans for just any project (sorry, no luxury upgrades such as a new swimming pool allowed). To qualify for VA funding, the updates must improve the safety or livability of the home—things such as fixing the stairs or improving accessibility. You’ll also need to complete the renovations within 120 days of closing on your loan.

VA Native American Direct Loan (NADL)

NADL loans are for Native American veterans or veterans married to a Native American person. They can only be used to buy, build or renovate a home that’s located on federal trust land—land that’s owned by the government but is set aside for a specific Native American tribe’s use. 

These VA loans are issued directly by the VA and offer some of the lowest rates around. Currently, interest rates for NADLs issued after March 13, 2023, start at just 2.5%. (The VA sets the base rate for this loan type, and then lenders can adjust based on the borrower’s credit, loan term and other factors.) For reference, the average rate on 30-year conventional loans is currently 7.23%. 

VA Interest Rate Reduction Refinance Loan 

The VA’s IRRRL program is often referred to as a “streamline refinance,” as it’s designed to make refinancing quick and easy for existing VA borrowers. It requires no credit check, there’s no appraisal, and the whole point is to reduce the borrower’s interest rate and monthly payment. 

VA IRRRLs “are much faster to get underwritten and closed because we need very little information,” says Mason Whitehead, who manages VA-approved lender Churchill Mortgage in Dallas. “We just refinance the loan and drop the interest rate.” 

VA cash-out refinance

The other VA refinancing option is a cash-out refinance, which lets you borrow from your home’s equity. With these, you take out a new VA loan that’s bigger than your current mortgage, pay off your old loan balance, and get the difference back in cash.

Unlike the streamline refinance, you don’t need to have a current VA loan to use this program. So if you want to refinance from a conventional loan to a VA loan, for example, this is the program you’ll use.

How are VA loans different from other mortgages? 

Once you have the loan, VA mortgages function much like other loan programs, allowing you to pay off the cost of purchasing a house over time. However, many of the upfront fees, qualifying requirements and application processes are quite different.

Down payments

Perhaps the biggest and best known benefit of a VA loan is that VA borrowers don’t need to make a down payment. Considering other loan programs require at least 3% down—or about $12,500 on a median-priced house—this can make it significantly easier for VA-eligible consumers to become homeowners.

There may be cases when borrowers want to make down payments anyway, pros say. If you have extra cash and want a lower monthly payment or to reduce your long-term interest costs, for example, you may want to put some money down. You can also lower your funding fee (more on these below) by making a down payment. As Whitehead explains, “It’s a sliding scale. The more down payment, the lower the VA funding fee.”

Funding fees

Most VA borrowers pay a funding fee—a one-time charge that’s designed to keep the VA loan program afloat. The fee ranges from 0.5% to 3.3% of the loan amount depending on the type of loan you use, how many times you’ve used your VA loan benefit (VA loan benefits can be used multiple times) and your down payment amount. 

With a first-time VA loan with no down payment, the funding fee would be 2.15%—so $8,600 on a $400,000 loan, for example. And that’s only if you owed the fee. Some borrowers are exempt from funding fees if they have a disability due to their military service or if they meet other requirements. 

You also have the option to roll the VA funding fee into your loan balance. Just be careful if you do this. Not only will it add to your long-term interest costs, but it could pose a challenge if you want to sell. 

With this strategy, Whitehead says, “You end up owing more on the house than you paid for it. So, you need to be prepared to live in the house for quite a while to build up equity, so that when you do sell the house, there is sufficient equity to pay off the mortgage and closing costs.”

Loan limits

With VA mortgages, there are no loan limits, and technically you can borrow as much as you need. (Before 2020, down payments were required for loans above certain limits.) This is different from other government-backed loan programs, which have set thresholds for how much you can borrow. On FHA loans, for example, you can’t borrow more than $472,030 in most parts of the country. 

That’s not to say that the sky’s the limit with VA loans. VA lenders will still look at your down payment, monthly income and debt to determine how large a loan you can afford to comfortably repay. 

Credit score requirements

Unlike other government-backed mortgage programs, the VA doesn’t have any set credit score requirements. Instead, it lets lenders set their own standards. Because of this, credit score minimums can vary quite a bit from one lender to the next—ranging anywhere from 580 to 640, depending on which company you go with.

VA loans also aren’t subject to a VA debt-to-income ratio maximum, so lenders have leeway here, as well. This can make them “more flexible and easier to qualify for than conventional loans,” says Jennifer Beeston, a lending executive and branch manager with Guaranteed Rate.

Interest rates

Interest rates charged on VA loans tend to be lower than on other mortgage types, since the VA assumes some of their risk. Currently, the average rate on a 30-year VA mortgage is 6.908%, according to mortgage pricing engine Optimal Blue. 

With VA loans, borrowers can choose a fixed interest rate, which remains consistent for the entire loan term, or an adjustable rate. These are interest rates that start low and fixed, but eventually adjust annually or every six months.

Property requirements

VA loans can only be used on properties that meet certain “Minimum Property Requirements”—a list of basic must-haves that ensure the place is safe, sound and free of health hazards. These include having working electric and HVAC systems, being absent of lead-based paint and wood-destroying insects and having a leak-free roof. 

To confirm a property you’re trying to buy meets these requirements, you’ll need to get a VA appraisal before you can close on a VA mortgage. These can only be done by VA approved appraisers and typically cost between a few hundred dollars to over $1,000 depending on the size of the home and where it’s located. You’ll pay for this as part of your closing costs. If you are buying a condominium, the VA must also approve the condo complex.

Who can get a VA loan? 

VA loans are only available to active members of the U.S. military and veterans who meet military service requirements, as well as some National Guard and Reserve members. Some spouses can qualify, too. This is the case if a veteran spouse is missing in action, a prisoner of war or died while in military service or from a service-related disability. 

Here’s a look at exactly who can use VA loans and the unique requirements they need to meet:

How to apply for a VA loan

Not all mortgage companies offer—or are even allowed to offer—VA loans, so your first step is to find a VA-approved lender. 

Once you’ve found one, the application process looks like this: 

1. Apply for your Certificate of Eligibility 

Your Certificate of Eligibility is a document that confirms you meet the eligibility requirements of the VA loan program. 

You can request one online (within your VA.gov account), via mail or through your mortgage lender. Depending on what type of service member you are, you may need to show a copy of your discharge papers, service record, annual point statement, active duty report or a statement of service signed by your commander, adjutant or personnel officer. The VA has a full list of COE requirements, but if you choose to go through your lender, your loan officer will let you know what documents you need.

 2. Get preapproved

After you’ve received your COE, you’ll need to apply with your lender for preapproval. This requires filling out a loan application (usually online) and providing some financial documents, such as your tax returns, pay stubs and bank statements. The lender will also pull your credit score and report and consider your debt-to-income ratio in the process. Again, VA loans are more flexible when it comes to these financial details, so if you’re worried about qualifying, talk to a loan officer. You may be surprised.

Once they’ve evaluated your application and finances, they’ll give you a preapproval letter stating how much you can qualify to borrow and at what interest rate. Be aware, though: This doesn’t mean your loan has been approved. Your lender will need to do a final approval after you’ve found a home and it’s been appraised. 

3. Find a home 

The house hunt is next. When you find one you’re ready to buy, you’ll include your preapproval letter in your offer. If the seller accepts, you’ll sign a purchase agreement, let your loan officer know and begin the full loan process. 

Make sure your real-estate agent knows you’re using a VA loan before you make an offer. VA loans allow the seller to pay certain fees and closing costs, so they may want to negotiate for some of these on your behalf.

4. Have the home appraised

Your lender will order the VA appraisal next to ensure the property meets the VA’s Minimum Property Standards and that the amount you’re looking to borrow matches the home’s actual value. If the home is appraised at a lower amount than what you’ve offered to pay, you may need to renegotiate with the seller or make up the difference in cash. 

5. Go through underwriting

After your home has been appraised, your loan will move into underwriting, which is when your lender gives everything a final look. They may request updated documents at this step, especially if it’s been a while since your initial application. 

You will also need to secure homeowner’s insurance at this point, as it is required before you can close on your loan.

6. Close on your VA loan

Finally, it’s closing time. You’ll meet with your loan officer, closing agent and, sometimes, real-estate agent to go over the final paperwork. 

Once you sign, pay your closing costs and any down payment you’ve decided to make, you’ll officially be a homeowner. You should get your keys and be free to move in shortly.