What Is a VA Loan?
A VA loan is a mortgage loan available through a program established by the U.S. Department of Veterans Affairs (VA) (previously the Veterans Administration). With VA loans, veterans, service members, and their surviving spouses can purchase homes with little to no down payment and no private mortgage insurance and generally get a competitive interest rate.
Key Takeaways
- A VA loan is a mortgage offered through a U.S. Department of Veterans Affairs program.
- VA loans are available to active and veteran service personnel and their surviving spouses, and are backed by the federal government but issued through private lenders.
- VA loans have generous terms, such as no down payment, no mortgage insurance, and no prepayment penalties.
How a VA Loan Works
VA loans help active service members, veterans, and their surviving spouses become homeowners. They provide up to 100% financing on the value of a home. Eligible borrowers can use a VA loan to purchase or build a home, improve and repair a home, or refinance a mortgage.
The VA sets the qualifying standards, dictates the terms of the mortgages offered, and backs the loan, but doesn’t actually offer the financing. Instead, VA home loans are provided by private lenders, such as banks and mortgage companies.
When borrowers apply for a loan, they need to provide the lender with a certificate of eligibility from the VA. To get the certificate, you’ll have to produce service-related documentation, which can vary based on whether you are active duty or a veteran. The certificate can be obtained from the VA website. Although some of the lender’s own underwriting requirements still must be met, in most cases, VA loans are easier to qualify for than conventional loans.
VA loans, Federal Housing Administration (FHA) loans, and other loans insured by departments of the United States government have securitization throughthe Government National Mortgage Association(GNMA), also known as Ginnie Mae. These securities carry the guarantee of the U.S. government against default.
Borrowers can apply for a VA loan more than once, but the funding fee increases when using a VA loan after your first time if the down payment is less than 5%. Fees range from 1.4% to 3.6% of the loan amount.
VA Loan Terms
The terms of VA loans are quite generous compared to other mortgages and even to other federal loan programs. Among the benefits:
- No down payment is mandated unless required by the lender, or if the residence’s purchase price is above the established property value.
- There is no private mortgage insurance requirement.
- Closing costs are limited and may be paid by the seller.
- There is no prepayment penalty if the borrower pays off the loan early.
- Assistance is available from the VAto help borrowers avoid default.
Credit score minimum requirements differ slightly from lender to lender. The VA’s only credit requirement is for the borrower to be considered a satisfactory credit risk by a lender. The benefits of a VA loan are the same no matter which lender you choose.
Types of VA Loans
The VA offers several types of mortgage loans:
Home Purchase Loans
VA home purchase loans help veterans to buy a home at a competitive interest rate. These purchase loans often do not require a down payment or private mortgage insurance.
Cash-Out Refinance Loans
Cash-out refinance loans allow mortgage holders to borrow against home equity to pay off debt, fund school, or make home improvements. This refinancing option offers a new mortgagefor a larger amount than the existing note andconverts home equity into cash.
The VA also offers adapted housing grants. These grants help veterans with a permanent and total service-connected disability to purchase or build an adapted home or modify an existing home for their disability.
Interest Rate Reduction Refinance Loan
Interest rate reduction refinance loans (IRRRLs), also known as VA streamline refinance loans, help borrowers obtain a lower interest rate by refinancing an existing VA loan. Thisis a VA-loan-to-VA-loan process thatallows homeowners with an existing VA loan to refinance a fixed-rate loan at a lower interest rate or convert an adjustable-rate mortgage (ARM) into a fixed-rate mortgage.
Native American Direct Loan
The Native American Direct Loan program helps eligible Native American veterans finance the purchase, construction, or improvement of homes on federal trust land. Reductions in interest rates also comewith these loans.
FAQs
VA loan eligibility
You are on active duty and have served 90 continuous days. You are a veteran who meets length-of-service requirements, which generally are 90 days in wartime and 181 days in peacetime. You completed 90 days of active-duty service or six creditable years in the Selected Reserve or National Guard.
How does VA determine eligibility? ›
Eligibility for VA health care requires that you served on active duty by a Federal order and completed the full period for which you were called or ordered.
How is eligibility for VA entitlement determined? ›
You are currently on active duty in the U.S. armed forces and have at least 90 consecutive days of military service. You are a veteran who met the active duty requirements when you served. You are a member of the National Guard or Reserves who meets the active duty eligibility requirements.
What is a key requirement for a borrower to obtain a VA loan? ›
You must have served at least 90 days on active duty and been discharged or released under other than dishonorable conditions. If you served less than 90 days, you may be eligible if discharged because of a service-connected disability.
What will fail a VA home inspection? ›
There are many reasons why a home may fail the VA appraisal. Common reasons include major issues with the foundation, roof, electrical systems, plumbing, and heating systems. Missing handrails and chipping paint can also cause appraisal issues.
How much proof of income do I need for a VA loan? ›
Acceptable verification consists of VA Form 26-8497, Request for Verification of Employment (VOE) or any format which furnishes the same information as VA Form 26-8497, plus: paystub(s) covering the most recent 30-day period with year-to-date information, if the employer normally provides a pay stub(s) to the borrower.
What disqualifies you from VA benefits? ›
absence without official leave (AWOL) for a continuous period of 180 days or more, without compelling circ*mstances to warrant such prolonged unauthorized absence (as determined by VA). This means that if an individual is discharged for any of the above reasons, the law prohibits VA from providing any benefits.
What are the 20 new presumptive conditions? ›
The 20+ new presumptive conditions for veterans:
- Brain cancer.
- Gastrointestinal cancer of any type.
- Glioblastoma.
- Head cancer of any type.
- Kidney cancer.
- Lymphoma of any type.
- Melanoma.
- Neck cancer of any type.
Some Veterans are eligible for VA health care no matter their income. You may be eligible based on your VA disability rating, service history, or other factors. If you think you may be eligible, we encourage you to apply anytime. Review health care eligibility factors.
What is the VA minimum credit score? ›
VA lenders typically require a FICO score of at least 620. High loan amounts, such as those exceeding $1 million, may require a higher credit score. Some lenders may approve lower scores, but it's common for these borrowers to face additional financial scrutiny and requirements.
Key Insights on VA Loan Assumption for Veterans
These criteria include a proven record of timely mortgage payments, a debt-to-income ratio under 41%, sufficient residual income, and the capability to assume all associated mortgage liabilities, including the payment of funding fees.
How does the VA check your income? ›
VA verifies income by matching Veterans' gross household income information obtained from IRS and SSA. VA has a matching agreement with IRS and SSA that enables the VA to receive earned and unearned income information reported by employers, financial institutions and includes self- employment.
How do I get a VA eligibility letter? ›
Servicemembers, Veterans, and National Guard and Reserve Members
- Apply online. To get your Certificate of Eligibility (COE) online, please go to the eBenefits portal. ...
- Apply through CalVet Home Loans. Most lenders have access to the Web LGY system. ...
- Apply by mail. Use VA Form 26-1880, Request for Certificate of Eligibility.
The government guarantees these loans, so it's typically easier to qualify since there's less risk for lenders. In fact, it's possible to get a VA loan with no down payment — and you may qualify if your credit isn't strong or you've had a history of foreclosures.
What does a certificate of eligibility mean for a VA loan? ›
Learn how to request a VA home loan Certificate of Eligibility (COE). This is the first step in getting a VA-backed home loan or Native American Direct Loan. It confirms for your lender that you qualify for the VA home loan benefit. Then, choose your loan type and learn about the rest of the loan application process.
What are the criteria for Veterans to be eligible for a VA guaranteed loan? ›
Who is eligible for a VA Home Loan? Active-duty servicemembers and Veterans with discharges other than dishonorable, National Guard and Reserve service members and Veterans with an honorable discharge, certain eligible spouses, and other uniformed service personnel may be eligible for VA home loan guaranty benefits.
Do VA loans have income requirements? ›
While the VA doesn't set any income requirements or debt thresholds, it does care about how those two factors interplay. Generally speaking, the VA requires borrowers to have a debt-to-income ratio of 41 percent or less.
