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With lower interest rates than conventional loans, no down payment and a little red tape, VA home loans can help veterans, military members and some military spouses purchase or update a home.
What is a VA loan?
A VA loan is a type of mortgage that’s guaranteed by the United States Department of Veterans affairs. VA loans provide eligible US military service members, veterans and surviving spouses with a range of programs to help them purchase, build or repair a home.
How do VA loans work?
The maximum conforming VA loan limit for one-unit properties in most counties was $647,200 in 2022 — up from $548,250 in 2021. VA lenders are able to offer borrowers more favorable finance terms, such as a competitive interest rate, comparable closing costs and the ability to refinance the funding fee. The loan itself is provided by qualified lenders such as banks and mortgage companies, and you still have to meet credit and income requirements to qualify.
All VA loans involve a feature called an entitlement. An entitlement is the dollar amount that the VA will guarantee to the lender in the event you default on your loan. While it varies by lender, many are willing to loan up to four times the amount of your entitlement.
What VA programs are available?
VA loan programs include:
- Purchase loans and cash-out refinance. A purchase loan helps you buy a home without making a down payment, and a cash-out refinance enables you to take cash out of your existing home equity — similar to a home equity line of credit (HELOC) — to pay for things such as debt or home repairs. To qualify for these programs, you must have good credit, enough income to service the loan and a valid Certificate of Eligibility (COE).
- Loan refinancing. An interest rate reduction refinance loan (IRRRL) can help you lower your interest rate and monthly mortgage payments by refinancing your existing VA loan.
- Native American Direct Loan (NADL) Program. The NADL is available to Native American veterans, which helps them purchase, construct, repair or refinance a property on Native American trust lands. You must have a valid COE to qualify.
- Housing grants. If you have certain disabilities associated with your military service, you may be able to buy or modify accessible housing with a Specially Adapted Housing (SAH) or Special Housing Adaptation (SHA) grant offered by the VA. Read more about disability requirements on the VA website.
VA loan eligibility and requirements
To be eligible for a VA loan, you must have sufficient credit and income and a valid COE. You must have served a minimum of 90 consecutive days during wartime, 181 consecutive days during peacetime, or six years in the National Guard or Reserves. The property you want to buy must be for your own personal occupancy.
VA mortgages are available for:
- Active-duty military personnel
- National Guard or Reserves members
- Surviving spouses of service members who died while on active duty or from the result of a disability during service
Credit score requirements
While the VA doesn’t set an official minimum credit score, most lenders who offer VA loans will. It varies by lender, but you’ll generally need a credit score of at least 620 to qualify.
Costs and fees
Costs associated with a VA loan include:
- VA funding fee. The VA funding fee helps to fund the VA loan program. The fee varies based on loan type and down payment. If you’re taking out your first VA loan, the funding fee is 2.3% of the borrowed amount as of 2020. If you’ve purchased another home through the VA before, the fee increases to 3.6%. It’s possible to reduce this amount by putting at least 5% down on the home, and those with a service-connected disability are not required to pay the fee at all.
- Origination fee. The origination fee for VA loans is capped at 1% of the loan amount.
- Appraisal fee. You’ll need to have the home appraised by a VA appraiser. Rates vary by state, but generally cost between $400 and $700.
- Discount points. Some lenders will let you pay money upfront in order to reduce the interest rate on your loan.
- Other lender and third-party fees. Before you close on your loan, you’ll receive a closing disclosure that goes over all of the additional fees associated with the loan.
Pros and cons
- No down payment. Assuming the sale price does not exceed the appraised value, you won’t be required to make a down payment for the loan, which helps you minimize upfront costs. This is a plus for first-time homebuyers.
- No mortgage insurance. VA home loans don’t require you to take out private mortgage insurance (PMI) — a fee added to mortgages with down payments of less than 20% as extra insurance to protect lenders. The government backs your VA loan, so you don’t need to pay for extra insurance.
- Prepay without penalty. The participating lender can’t charge you a penalty fee if you decide to pay off the loan early, which gives you extra flexibility and lets you make more than the minimum payment on your mortgage. Pay down your home early and save on interest fees.
- Easier qualification. The department of veterans affairs allows higher debt-to-income ratios than many traditional lenders, which makes it easier to qualify even if you have a lower credit score.
- VA support. The VA provides support to veteran borrowers who experience financial difficulty, which means you can benefit from VA assistance if you default on your payments.
- Fees. Although the cost of a VA mortgage is generally lower than other types of mortgage products, you’ll still need to pay fees such as the VA funding fee, which goes to support the program for other veterans. Surviving spouses and veterans receiving disability or retirement compensation are exempt from the VA funding fee.
How to apply for a VA loan
For purchase loans, cash-out refinances and NADL programs, you can apply through the participating lender. For interest-rate reduction refinance loans, you don’t have to access a COE and can use the VA email confirmation process instead. Finally, for adapted housing grants, you can apply either through the VA website or by completing the application form and lodging it at your local Regional Loan Center.
To apply for a VA mortgage through a participating lender:
- Contact the lender. You’ll need to contact a lender that participates in the VA program to get prequalified. During this stage, you can discuss your borrowing needs with the lender and get an estimate of how much you can afford to borrow.
- Request a Certificate of Eligibility (COE). The COE verifies that you satisfy the eligibility criteria for the VA loan. To obtain a COE, you can apply with your lender by mail or online through the VA benefits portal.
- Purchase agreement. After you’ve obtained the COE, contact a real estate professional to obtain a purchase agreement. You must ensure that the purchase sales agreement contains a unique VA Option Clause. You may want to include a clause that allows you to cancel the contract without penalty. For adapted housing grants, you can apply through the VA website or by completing the application form and sending it to your local VA Regional Loan Center.
- Apply for the VA loan. Your lender will be able to help you complete the loan application and gather the required documents, such as bank statements, to complete the application. Once you’ve completed the application, the lender will set up a VA appraisal and review all the documentation to decide if the loan should be offered.
- Close on your new property. The lender will select an attorney to organize the closing and transfer the property to you.
What documents do I need to provide?
If you’d like to apply to get a VA loan, you’ll typically need proof of your veteran status and:
- W-2 forms. Recent copies of your W-2 statements confirming your gross household income.
- Assets. Documentation of any assets you have, such as checking or savings accounts. You might also need to catalog your liabilities.
- Certificate of Guarantee. Evidence of your DD Form 214, also known as your Certificate of Release or Discharge from Active Duty, Report of Separation, or Certificate of Guarantee form. Service members receive this form after being discharged from duty.
How do I compare VA loan lenders?
Compare VA mortgage lenders based on:
- Rates. Like conventional loans, VA loans have interest rates that will vary from lender to lender.
- Closing costs. Compare all of the closing costs. While VA guidelines put a cap on some closing costs, they’ll still vary from one lender to the next.
- Reviews. Check customer reviews on sites like the Better Business Bureau (BBB) and Trustpilot to learn more about how current and past customers feel.
VA loans vs. Conventional loans
While VA loans are government-backed to protect lenders if you can’t repay your loan, conventional loans require borrowers to purchase private mortgage insurance (PMI) if the down payment is less than 20%. PMI can cost hundreds per month and offers you no protection. Instead, it protects the lender if you default on your loan.
Some other differences include:
|Interest Rates||Generally higher than for VA loans||Generally lower than for conventional loans|
|Maximum loan amounts||$510,400||Can vary by region, but for 2020, the limit is $510,400 in most counties|
|Mortgage insurance||Private mortgage insurance (PMI) required if down payment is less than 20%||Not required|
|Fees||No loan origination fee, but lender fees may apply||Requires upfront loan origination fee|
|Down payment||Some programs offer 3% or lower down payment, but you’ll need PMI if less than 20%||None required|
|Credit score||Most lenders look for a FICO score of at least 620||FICO score of 620 or higher usually required|
|Restricted uses||Can be used for primary and secondary residences, as well as investment properties||Must meet VA loan eligibility requirements and can only be used for a primary residence|
Learn more about conventional loans
VA loans can help qualifying veterans, military service members and spouses get a home with a competitive interest rate and no down payment. But if you don’t qualify or if you need a loan with a higher limit, compare other mortgage types.
Frequently asked questions
Can I use a VA loan to buy a duplex?
Yes. The only time a VA loan can be used to purchase rental property is for a duplex, triplex or fourplex/quadplex, as long as you will also be living on the property. Alternative housing types, such as houseboats and recreational vehicles, don’t qualify for a VA loan.
When can I be denied a VA mortgage loan?
There are a few reasons your VA loan could be denied: changing your employment in the middle of the application process, errors in your application and sudden changes with your credit.
How do I use a VA loan more than once?
Yes, a veteran’s entitlement can be restored once the veteran has disposed of the property and paid the loan in full. This will allow the veteran to use his or her VA home loan benefit again. Veterans who have lost a previous VA loan to foreclosure or bankruptcy may also be able to apply for another after a two-year waiting period.
How can I get extra cash at closing to make improvements on my home?
If the improvements make the home more energy-efficient, request an energy-efficient mortgage (EEM), which can allow you to finance up to an additional $6,000 on your mortgage. You also have the option of taking a cash-out refinance to take out additional funds for home improvements.
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