What is a VA Loan?

A VA loan is a government-backed mortgage for Veterans, active-duty service members, and certain surviving spouses. Unlike conventional loans, which are backed by private lenders, VA loans are partially guaranteed by the Department of Veterans Affairs (VA). This guaranty protects the lender, allowing them to offer more favorable terms, such as lower interest rates and no down payment, even to borrowers with less-than-perfect credit.

VA loans are provided by private lenders—such as banks and mortgage companies—but the VA’s involvement helps ensure that Veterans and service members get access to the best loan terms possible. VA loans can be used to buy a variety of properties, including:

• Single-family homes
• Condominiums
• Multi-unit properties (e.g., duplexes)
• Manufactured homes
• New construction

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VA Loan Benefits

Since its inception as part of the GI Bill of Rights in 1944, the VA loan program has guaranteed more than 28 million home loans. VA loans offer several key benefits that set them apart from other mortgage options, making them a popular choice for Veterans and their families.

Here’s an overview of the major benefits:

1. No Down Payment

The 0% down payment feature is perhaps the most well-known advantage of VA loans. Eligible borrowers can purchase a home without having to save for a down payment, regardless of the loan amount. This is a significant advantage over other loan types, which often require a minimum down payment of 3-20%.

For many Veterans, saving for a down payment can take years, delaying their ability to purchase a home. The VA loan eliminates that barrier, allowing Veterans to enter the housing market sooner. Veterans who do have cash available for a down payment can choose to invest it elsewhere or lower their loan amount, reducing interest paid over time.

2. Lower Interest Rates

Because VA loans are backed by the government, lenders are more willing to offer lower interest rates compared to conventional loans. This can result in thousands of dollars in savings over the life of the loan. Typically, VA loan interest rates are among the lowest in the market, even for borrowers with less-than-perfect credit.

3. No Private Mortgage Insurance (PMI)

Unlike most loans that require a PMI if the borrower puts down less than 20%, VA loans do not require PMI—even with a 0% down payment. This can result in significant monthly savings for homeowners, as PMI typically adds hundreds of dollars to mortgage payments.

4. Flexible Credit Requirements

VA loans have more forgiving credit guidelines than conventional loans. While each lender sets its own minimum credit score requirements, they tend to be more flexible with VA loans, making it easier for Veterans with less-than-perfect credit to qualify.

5. Limits on Closing Costs

The VA limits the amount Veterans can be charged for closing costs, helping to reduce the upfront expenses associated with buying a home. Additionally, sellers can contribute to paying these costs, further reducing out-of-pocket expenses for Veterans.

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VA Loan Eligibility Requirements

To qualify for a VA loan, borrowers must meet specific service and eligibility requirements set by the Department of Veterans Affairs. These requirements are based on the borrower’s time in service, type of service, and the nature of their discharge.

Eligible groups include:

• Veterans: Those who have completed the required time in active duty and were discharged under conditions other than dishonorable.
• Active-duty service members: Current active-duty military personnel may also qualify.
• National Guard and Reserve members: Must have completed six years of service or at least 90 days of active-duty service during wartime.
• Surviving spouses: Spouses of service members who died in the line of duty or as a result of a service-related injury may qualify for VA loan benefits.

Here are the general service requirements for VA loan eligibility:

• 90 consecutive days of active duty during wartime
• 181 consecutive days of active duty during peacetime
• 6 years in the National Guard or Reserves, or 90 days under Title 32 orders (with at least 30 consecutive days served)

How to Obtain a Certificate of Eligibility (COE)

One of the first steps in obtaining a VA loan is getting a Certificate of Eligibility (COE). This document proves to the lender that you meet the VA’s eligibility requirements for the loan. While many lenders can help you obtain your COE, you can also apply for it directly through the VA.

Steps to Obtain a COE:

• Online through eBenefits: You can apply for a COE online through the VA’s eBenefits portal. This is the fastest method, and if all the necessary documents are in place, you can receive your COE instantly.
• Via a Lender: Most VA-approved lenders, such as mortgage companies or banks, have access to a system called Web LGY, which allows them to pull your COE on your behalf. If you’re unsure how to obtain one, your lender can assist you in this process.
• By Mail: If you prefer, you can complete VA Form 26-1880, the Request for Certificate of Eligibility, and mail it to the VA Regional Loan Center. While this method takes longer, it’s an option for those who do not wish to apply online.

Documents Needed for a COE:

• Veterans: You’ll need a copy of your DD Form 214, which shows your military service history and discharge status.
• Active-duty service members: You may need a statement of service signed by your commanding officer or personnel office.
• National Guard/Reserve members: If you’ve never been activated, you may need copies of your point statements and proof of service.
• Surviving spouses: You may need a copy of the Veteran’s death certificate and a copy of your marriage license.

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VA Funding Fee

The VA funding fee is a one-time fee applied to most VA loans. It helps reduce the cost of the loan program for taxpayers by covering some of the expenses related to the program.

The funding fee is required by law and is a critical part of the VA home loan program, ensuring that it remains available to future veterans without requiring appropriations from taxpayers.

The fee amount depends on several factors, including the loan type, whether the borrower is using the VA loan benefit for the first time or has used it previously, and whether they make a down payment. Veterans with service-connected disabilities are exempt from paying the funding fee.

VA Funding Fee Chart

Loan Type	First-Time Use	Subsequent Use
Purchase Loan (No Down Payment)	2.15%	3.3%
VA IRRRL (Streamline Refinance)	0.5%	0.5%
VA Cash-Out Refinance	2.15%	3.3%

• First-Time Use: The fee is lower for first-time VA loan users.
• Subsequent Use: The fee increases when reusing your VA loan benefit.
• Exemptions: Veterans receiving disability compensation for a service-connected disability are exempt from the VA funding fee.

How VA Loans Compare to Other Mortgage Options

When choosing a mortgage, it’s important to compare different options to determine which one best fits your financial situation. Below is a comparison between VA loans, conventional loans, and FHA loans:

Loan Type	Down Payment	Private Mortgage Insurance (PMI)	Interest Rates	Origination Costs	Credit Requirements
VA Loans	0% (for qualified borrowers)	No PMI	Typically lower than other loans	Lowest origination costs	More flexible credit guidelines
Conventional Loans	Up to 20% (3% minimum)	PMI required for down payments under 20%	Low rates for top-tier credit scores	Average origination costs	Stricter credit requirements
FHA Loans	3.5% minimum	Upfront and annual mortgage insurance	Middle of the road rates	Highest origination costs	Easier to qualify than conventional loans

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Types of VA Loans

There are multiple types of VA loans available to Veterans, each catering to different needs. Here are the main types:

1. VA Purchase Loan

The VA purchase loan allows Veterans to buy a home with $0 down. It can be used to purchase a variety of properties, including single-family homes, multi-unit properties, and manufactured homes. Some lenders may also allow VA loans to be used for new construction.

2. VA Interest Rate Reduction Refinance Loan (IRRRL)

Commonly known as the VA Streamline Refinance, the VA IRRRL allows Veterans with an existing VA loan to refinance at a lower interest rate. This loan is designed to be fast and easy, with minimal documentation required.

3. VA Cash-Out Refinance

A VA Cash-Out refinance allows Veterans to refinance their mortgage and take cash out of their home’s equity. This option is available to Veterans with or without an existing VA loan.

4. VA Energy Efficient Mortgage (EEM)

The VA Energy Efficient Mortgage (EEM) allows Veterans to finance energy-efficient improvements to their home, such as solar panels, thermal windows, or heating and cooling systems. Veterans can borrow up to an additional $6,000 to cover these costs.

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VA Appraisal and Minimum Property Requirements (MPRs)

The VA appraisal ensures that the property you’re buying is worth the price and meets the VA’s Minimum Property Requirements (MPRs). The goal is to protect the Veteran by ensuring the home is safe, sanitary, and structurally sound.

• Key MPRs:
  • The home must have safe access from a public or private road.
  • Functional utilities, including electricity, heating, and water.
  • No health hazards, such as mold or pest infestations.
  • The roof must be in good condition, with no leaks.
  • Foundation stability must be sound.
• Common Appraisal Issues:
  • Peeling paint in homes built before 1978 (due to lead-based paint concerns).
  • Water damage or plumbing problems.
  • Homes with outdated electrical systems or missing safety features like smoke detectors.

If the property fails to meet these standards, the Veteran may need to negotiate repairs with the seller or look for another property. Once the home passes the appraisal, the loan can proceed to closing.

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VA Loan Limits

As of 2020, VA loan limits no longer apply to borrowers with full entitlement. This means eligible Veterans can borrow as much as their lender will approve without a down payment. However, if a borrower already has a VA loan or has previously defaulted on a VA loan, they may face loan limits depending on the county loan limit set by the Federal Housing Finance Agency (FHFA).

• No Loan Limit: Veterans with full entitlement (those who do not have an existing VA loan or have repaid previous VA loans) can borrow without a cap.
• Partial Entitlement: Borrowers with an active VA loan may need to make a down payment if their loan exceeds their remaining entitlement.

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VA Loan Entitlement

VA loan entitlement refers to the amount of the loan the VA will guarantee. There are two types of entitlement:

• Basic Entitlement: Typically $36,000, or 25% of the loan amount, whichever is lower.
• Bonus Entitlement: Also called second-tier entitlement, this allows Veterans to buy homes above conforming loan limits without a large down payment.
• How it Affects Borrowing: If a Veteran has already used part of their entitlement for another loan, they may have limited entitlement left. In such cases, they may need to make a down payment if they exceed the remaining entitlement amount.

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Restoring VA Loan Entitlement

Veterans can restore their full VA loan entitlement by:

• Selling their home and paying off the VA loan in full.
• Refinancing the loan into a non-VA loan, freeing up entitlement for future use.
• Utilizing a one-time restoration to restore entitlement without selling the home, but this option can only be used once.

Restoring entitlement allows Veterans to buy another home with full VA benefits, even after using the benefit previously.

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VA Loan for Second Homes and Investment Properties

VA loans are primarily intended for primary residences. However, there are scenarios where a VA loan can be used for a second home:

• Second Home: If a Veteran moves to a new area for work or other reasons, they can use any remaining entitlement to buy another primary residence. The first home may be rented out, but the new home must be the primary residence.
• Investment Properties: VA loans cannot be used to purchase investment properties directly. However, Veterans can buy a multi-unit property (up to 4 units) as long as they live in one of the units as their primary residence.

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Surviving Spouse Eligibility

Certain surviving spouses of Veterans may be eligible for VA loan benefits:

• Eligibility Requirements:
  • The Veteran died in service or from a service-related injury.
  • The spouse has not remarried (remarriage before age 57 may disqualify them).
  • Some spouses of Veterans missing in action (MIA) or prisoners of war (POW) may also qualify.

To apply, surviving spouses must obtain a Certificate of Eligibility (COE) from the VA and submit proof of the Veteran’s service and cause of death.

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VA Loan Refinancing Options

Veterans have two primary refinance options through the VA:

• VA Interest Rate Reduction Refinance Loan (IRRRL):
  • Also known as the VA Streamline Refinance, this option allows Veterans with existing VA loans to refinance to a lower interest rate with minimal documentation and no appraisal.
  • Benefits: Lower interest rate, reduced monthly payments, and no out-of-pocket costs (fees can be rolled into the loan).
• VA Cash-Out Refinance:
  • Veterans can refinance their mortgage and take cash out based on their home’s equity. This option is available to Veterans with or without an existing VA loan.
  • Benefits: Access to cash for home improvements, debt consolidation, or other expenses.

Both refinancing options help Veterans manage their loans and potentially lower costs.

 

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The Bottom Line

Getting a VA loan can be a game-changer for Veterans, active-duty service members, and surviving spouses looking to buy a home. With no down payment, lower interest rates, and no PMI, it’s one of the best mortgage options out there.

Whether you’re buying a home, refinancing, or making energy upgrades, a VA loan offers real flexibility and can save you money in the long run.

Understanding how the program works—like eligibility requirements and the loan process—can help you take full advantage of this great benefit. It’s a valuable tool to help secure your future and build a place to call home.

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VA Loan FAQ

Here are the most frequently asked questions about VA loans:

Who is eligible for a VA loan?

Veterans, active-duty service members, National Guard or Reserve members, and certain surviving spouses may qualify for VA loans. Eligibility depends on time served, service type, and discharge status.

What is the minimum credit score needed for a VA loan?

While the VA does not set a minimum credit score, most lenders require a FICO score of at least 620 for approval.

What can VA loans be used for?

VA loans can be used for purchasing or building a primary residence, refinancing an existing loan, making energy-efficient improvements, or purchasing certain types of manufactured homes.

What is the VA funding fee?

The VA funding fee is a one-time fee that helps fund the VA loan program. The amount ranges from 0.5% to 3.6% of the loan, depending on your service history and whether it’s your first VA loan.

Can I use a VA loan more than once?

Yes, VA loans are a lifetime benefit. You can reuse the benefit multiple times as long as you meet the eligibility criteria and have remaining entitlement.

How do I obtain a Certificate of Eligibility (COE)?

A COE is required to confirm eligibility for a VA loan. It can be obtained online through the VA’s eBenefits portal, through your lender, or by submitting VA Form 26-1880 by mail.

What are the VA’s minimum property requirements (MPRs)?

Homes purchased with a VA loan must meet certain minimum property requirements, including being safe, sanitary, and structurally sound. Issues like pest infestations or water damage could cause a property to fail the VA appraisal.

Can I buy a second home with a VA loan?

VA loans are meant for primary residences, but in some cases, you can use remaining entitlement to purchase a second home if it’s also a primary residence.

How long does it take to close a VA loan?

The VA loan process typically takes 30 to 45 days, though refinances may close more quickly in some cases, depending on the lender’s workload.

Can a VA loan be used to refinance?

Yes, veterans with VA loans can refinance to lower their interest rates with a VA Interest Rate Reduction Refinance Loan (IRRRL) or opt for a cash-out refinance to access home equity.