VA Loan

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VA Loan

Key takeaways

  • A VA loan is a mortgage option backed by the U.S. Department of Veterans Affairs and issued by private lenders for eligible veterans, service members, and some surviving spouses.
  • VA loans typically allow up to 100% financing, require no private mortgage insurance (PMI), and have competitive interest rates.
  • Borrowers must obtain a Certificate of Eligibility (COE) and meet lender underwriting standards; a VA funding fee usually applies.

What is a VA loan?

A VA loan is a mortgage program that helps eligible veterans, active-duty service members, National Guard and Reserve members, and certain surviving spouses buy, build, improve, or refinance a home. The VA guarantees a portion of the loan, which encourages private lenders to offer favorable terms such as low or no down payment and reduced interest rates.

How it works

  • Lenders (banks and mortgage companies) underwrite and fund VA loans; the VA sets qualifying rules and backs the loans.
  • Borrowers must obtain a Certificate of Eligibility (COE) to show service-related entitlement. The COE is provided by the VA and is required by lenders during the application.
  • Lenders may apply their own credit and income requirements, but VA loans are generally easier to qualify for than conventional mortgages.
  • VA-backed mortgages are often included in government mortgage securitization programs, which helps support liquidity and favorable pricing.

Common loan terms and borrower benefits

  • No mandatory down payment (unless the lender requires one or the purchase price exceeds the appraised value).
  • No private mortgage insurance (PMI) requirement.
  • Closing costs are limited; sellers are allowed to pay certain closing costs.
  • No prepayment penalty for paying off the loan early.
  • VA offers counseling and assistance programs to help borrowers avoid default.
  • Credit-score minimums vary by lender; the VA’s requirement is that the borrower be considered a satisfactory credit risk.
  • Funding fee: Most borrowers pay a one-time VA funding fee to help offset program costs. The fee varies by circumstance (typically ranging from about 1.4% to 3.6% of the loan amount) and increases for subsequent uses of VA entitlement when a down payment is less than 5%.

Types of VA loans

  • Home Purchase Loans: For buying a primary residence, often with no down payment and no PMI.
  • Cash-Out Refinance Loans: Replace an existing mortgage with a larger VA loan to tap home equity for cash (debt consolidation, education, home improvements).
  • Interest Rate Reduction Refinance Loan (IRRRL): A streamlined VA-to-VA refinance to obtain a lower interest rate or switch an adjustable-rate mortgage (ARM) to a fixed rate.
  • Native American Direct Loan (NADL): Helps eligible Native American veterans purchase, build, or improve a home on federal trust land, often with reduced interest rates.
  • Adapted Housing Grants: Financial assistance for veterans with permanent and total service-connected disabilities to buy, build, or adapt a home for accessibility.

Using VA benefits more than once

Borrowers may use VA loan benefits multiple times. However, if you reuse entitlement and make a down payment of less than 5%, the funding fee will typically be higher on subsequent uses.

How to apply

  1. Confirm eligibility for VA home loan benefits.
  2. Request a Certificate of Eligibility (COE) from the VA (online, by mail, or through a lender).
  3. Shop lenders that offer VA loans and compare interest rates and underwriting requirements.
  4. Submit required documentation (income, credit, COE) to the chosen lender for approval.

Bottom line

VA loans provide powerful homebuying advantages for eligible veterans, service members, and certain surviving spouses, including low-to-no down payment options, no PMI, competitive rates, and flexible terms. Borrowers should obtain a COE, compare lenders’ requirements, and account for the VA funding fee when planning their mortgage.