VA Home Loan Guide
The VA loan benefit is designed to help qualifying active duty, Reserve, National Guard, veterans, and surviving spouses build, buy, renovate, or refinance a home. There are many options you can explore with a VA home loan and the Department of Veterans Affairs offers other housing assistance that can help you become or remain a homeowner.
READ MORE: VA Home Loan Basics
What Is a VA Mortgage?
A VA home loan is one that is guaranteed by the Department of Veterans Affairs. The VA loan guarantee reduces the risk for a lender to offer you credit, and because the government promises the lender to repay a certain percentage of the loan if you default, the lender can offer more flexible credit qualifying guidelines.
The VA itself does not loan money directly, except to those who qualify for the VA Native American Direct Loan. Instead, borrowers must shop around for a participating VA lender who has met VA requirements and has the VA’s approval to originate and close VA mortgages.
There are several government-backed mortgage loan programs. The FHA Loan program and the USDA loan program are two of the other options offered; because of the government guarantee, these loans may be easier to qualify for.
The difference with a VA home loan? No VA down payment requirements or mortgage insurance requirements in typical cases. There is also no penalty for early payoff of the loan when you decide it’s time to refinance or you decide to pay off the note ahead of schedule.
READ MORE: How to Apply for a VA Mortgage
What You Can Purchase with a VA Mortgage
VA home loans are typically used to purchase property types including, but not necessarily limited to the following:
- Suburban homes
- Mobile homes
- Manufactured homes
- Modular homes
- Farm residences
- Multi-unit residential properties up to four units
- Condo units
READ MORE: Buying a Condo Unit with a VA Mortgage
VA loans are not allowed for investment properties. Occupancy is required for all VA purchase loans and in the case of farm residences, the non-residential value of the property is not considered for appraisal and loan amount determination.
VA loans for mobile homes and manufactured housing require that the home be affixed to a permanent foundation that meets federal guidelines and lender requirements as well as state/local building code. The home may not start out on a permanent foundation but must be secured to one as a condition of loan approval.
VA Mortgage Loan Options
VA Loan options include purchase loans, cash-out refinance loans, the VA Interest Rate Reduction Refinance Loan also known as a VA IRRRL, and VA Native American Direct Loans. You can use a VA purchase loan to buy existing construction, build a home from the ground up, or to buy a fixer-upper you plan to renovate.
The No Down Payment Option
Around 90% of all VA loans are zero-down mortgages. However, there is an advantage to making a down payment; the VA Loan Funding Fee can be lower if you make a down payment of up to 10%. Making a down payment on a VA mortgage also reduces the principal balance of the loan, making a less expensive transaction overall.
You may not have a zero-down option if the price of the home exceeds the appraised value of the property and you choose to buy it anyway. You may also need to make a down payment if you buy a home with less than 100% VA loan entitlement (see below) and your loan exceeds the county loan limit for the area you are buying in.
No VA Loan Limits for Qualifying Borrowers
If you have never used your VA loan benefit before, or have paid off your first VA loan (and applied for restoration of your entitlement), you do not have a VA loan limit on loans or refis in excess of $144,000. Those who do not have full VA loan entitlement are subject to VA loan limits.
The VA official site says borrowers may be required to make a down payment on a VA loan in cases where full VA loan entitlement is not available and the loan amount is over $144,000. You may find lenders typically require VA loan entitlement and/or a down payment that covers at least 25% of the total loan amount.
READ MORE: VA Loan Limits
VA Loan Credit Score Requirements
The Department of Veterans Affairs does not set or enforce credit score guidelines for VA loan products. This is left up to the participating lender. Typically you should expect FICO score requirements in the mid-600s for loan approval for more competitive interest rates and terms, but borrowers with lower credit scores may still have a chance at VA loan approval if there are compensating factors.
These can include making a down payment and having cash reserves you can use to show the lender you can truly afford the monthly payments you commit to with your VA mortgage.
VA Purchase Loan
VA loans can be used to purchase a variety of properties including condo units, farm residences, townhouses, houses with up to four living units, and more. The common factor among all these options? The house you buy with your VA mortgage must be your primary residence. Occupancy is a condition of loan approval.
You can build a new home, purchase existing construction, or buy a fixer-upper. Features of the VA Purchase Loan program include, but may not be limited to the following:
- Competitive terms and interest rates thanks to the government guarantee to the lender.
- You can borrow up to the Fannie Mae/Freddie Mac conforming loan limit with no money down. If you want to apply for a loan that is higher than this limit you may be required to make a down payment. There are nuances in this area which we will address below.
- VA mortgages have no VA-required Private Mortgage Insurance or PMI.
- VA loans have certain costs the lender is required to pay and which cannot be passed onto you.
- VA loans have restrictions that prevent the lender from charging more than the actual cost of services such as pulling credit reports, survey fees, etc. The lender is also not allowed to charge you twice for the same service rendered.
- VA loans allow a servicemember and spouse to apply together for the loan, but VA loans do not allow other family members to use this benefit.
- In most cases, you will apply through a VA lender. Those applying through the VA Native American Direct Loan program will get a mortgage loan directly through the VA.
READ MORE: VA Loan Questions and Answers
VA Cash-Out Refinancing
VA Cash-Out Refinance loans can be used to refinance any mortgage, current or delinquent, whether VA or non-VA. Cash-Out Refinance loans require a new appraisal, a new credit check, and the borrower must certify they intend to use the home as their primary residence. You cannot refinance investment properties with this VA loan option.
When refinancing with a VA mortgage, it is important to remember that VA loan rules do not allow you to skip a payment as part of the refinance transaction. That means that the final month’s payment on the original loan must be paid whether before the refi transaction or as part of it. Skipped payments are never permitted with VA mortgages.
READ MORE: What to Know About VA Home Loan Refinancing
Cash-Out Refinancing allows you to apply for a larger loan than the amount you currently owe and take the remainder in cash at closing once the original loan and other costs have been settled. This is the only type of VA loan that allows unrestricted cash back. All others are limited to the specific loan purpose for which they are intended (purchase, construction, etc.)
VA Interest Rate Reduction Refinance Loans (VA IRRRL)
The VA IRRRL, also known as VA Streamline Refinancing, offers the ability to refinance an existing VA mortgage. This type of refinance offers no cash back at closing time and must typically result in a benefit for the borrower such as a lower mortgage payment, a lower interest rate, or getting out of an adjustable rate mortgage into a fixed-rate loan.
VA IRRRLs do not permit cash at closing time, and no skipped mortgage payments are allowed. The benefit of this refinance option? There is no VA-required credit check or appraisal needed. Your lender may require one or both, but doesn’t have to according to VA loan rules.
READ MORE: What Is a VA Streamline Refinance?
VA Native American Direct Loans
VA Native American Direct Loans (NADL) are offered, as the name implies, directly from the VA and not from a participating lender. These loans cannot be offered to all VA applicants, only to qualifying Native Americans or those married to one. All NADLs must meet the following requirements:
- You must intend to occupy the home purchased with a NADL and;
- Your tribal government has a Memorandum of Understanding (MOU) with the Department of Veterans Affairs and;
- You have a VA Certificate of Eligibility
All applicants must meet credit requirements and other typical mortgage loan guidelines.
READ MORE: VA Native American Direct Loans
VA Loan Eligibility
Your ability to apply for a VA loan depends on how long you have served. Typically those in uniform today have to serve 90 days or more on active duty before they can apply for a VA COE.
The clock on those 90 days will not start ticking until the basic training and career field training phase of a new recruit’s first term of service has ended and the service member is serving at their first duty station.
The full criteria for those who served on or after August 2nd, 1990 to the present day must meet one of the below:
- 24 continuous months of military service OR;
- The full period (at least 90 days) for which you were called or ordered to active duty OR;
- At least 90 days if you were discharged for hardship, a reduction in force, or for convenience of the government OR;
- Less than 90 days if you were discharged for a service-connected disability.
VA loan eligibility requirements for those who served before August 2nd, 1990 vary depending on the service era. The dates and details vary depending on the service era; learn what specific requirements are needed for your era of service or contact the VA directly for more information.
Some may be eligible for a VA mortgage even if they have not met time time-in-service requirements, or who have not served as an active duty, Guard, or Reserve member, and are not surviving spouses. These are typically those who have worked in the “Unformed Services” of federal agencies like the Public Health Service.
READ MORE: VA Loan Eligibility Exceptions
The VA Loan Certificate Of Eligibility
To start the VA home loan process, you must be eligible to apply for a VA Certificate of Eligibility (COE). You can request help from the lender to obtain this document, or you can apply online at VA.gov to get one. You also have options to apply by mail or in person.
Applying online, you can use eBenefits or the VA Web LGY portal if you are asking your lender to help you. You can also apply by mail using a VA Request for a Certificate of Eligibility (VA Form 26-1880) and mail it to the address listed on the form. This is the slowest way to obtain a COE.
As mentioned above, the VA loan program is for Guard and Reserve members, too. Minimum service requirements apply to both, as we’ll examine below.
READ MORE: The VA Loan Certificate of Eligibility
VA Loan Eligibility for National Guard members
If you joined any time after August 2, 1990, you must serve 90 days of active duty service. If you served during any other area besides the present Gulf War era from August 2, 1990, to the present day, eligibility depends on the following requirements:
- 90 days or more of non-training active-duty service, or
- 90 days or more of active-duty service including at least 30 consecutive days (your DD214 must show 32 USC sections 316, 502, 503, 504, or 505 activations), or
- Six years in the National Guard, and you received an Honorable discharge or
- Six years in the National Guard and placed on the retired list
VA Loan Eligibility for Reserve Members
Those serving today typically must have 90 days of service. You may also have six years in the Selected Reserve and one of the following must apply:
- You have an Honorable discharge or
- You were placed on the retired list, or
- You were transferred to the Standby Reserve or
- You were transferred to an element of the Ready Reserve other than the Selected Reserve or
- You continue to serve in the Selected Reserve
Applying for a VA COE in these cases is the same procedure as for active duty and veterans. You can ask the lender to help you get your COE, or you can apply online at VA.gov.
You can apply online using eBenefits, or the VA Web LGY portal if you are asking your lender to help you. Apply by mail using a VA Request for a Certificate of Eligibility (VA Form 26-1880) and mail it to the address listed on the form.
Read More: Who Qualifies For A VA Loan?
VA Loans for Surviving Spouses
Surviving spouses of military members who have died may be eligible for the VA home loan benefit. One of the following must apply:
- Veteran is missing in action, or
- Veteran is a prisoner of war (POW), or
- Veteran died while in service or from a service-connected disability and you didn’t remarry, or
- Veteran died while in service or from a service-connected disability and you didn’t remarry before you were 57 years old or before December 16, 2003, or
- Veteran had been totally disabled and then died (conditions may apply)
According to VA.gov, a surviving spouse who remarried before December 16, 2003, and on or after their 57th birthday, “must have applied no later than December 15, 2004, to establish home loan eligibility.”
The VA states it will deny applications after December 15, 2004 from surviving spouses who remarried before December 16, 2003.
To apply for a VA Certificate of Eligibility as a surviving spouse, you will need to provide the veteran’s proof of service and discharge papers where applicable. You will also need a death certificate.
There are two basic circumstances a surviving spouse applies under. One is when you are receiving the VA benefit known as Dependency & Indemnity Compensation (DIC). If you currently receive this benefit, fill out a VA Request for Determination of Loan Guaranty Eligibility—Unmarried Surviving Spouses (VA Form 26-1817) and submit it to the Department of Veterans Affairs using the address listed on the form.
If you do not receive DIC, you will need to apply for it. Send the VA the following paperwork:
- A completed Application for DIC, Death Pension and/or Accrued Benefits (VA Form 21P-534EZ), and
- A copy of your marriage license, and
- The Veteran’s death certificate
You can also get assistance from a participating lender to obtain your COE.
READ MORE: VA Dependency and Indemnity Compensation
The VA Loan Funding Fee
The VA loan funding fee is a standard cost of getting a VA loan. This fee is used to relieve the taxpayer burden of the VA loan program and is typically a percentage of the loan between 1% and 3.6% depending on the transaction.
The VA loan funding fee is a closing cost and may be paid in cash at closing or included in the loan amount. You must pay the fee in full, no partial payments in cash are allowed. Some borrowers are exempt from the VA loan funding fee. The VA official site says this is true for those who are:
- Receiving or being eligible to receive VA compensation for a service-connected disability, or
- The surviving spouse of a Veteran who died in service or from a service-connected disability, or who was totally disabled, and you’re receiving Dependency and Indemnity Compensation (DIC), or
- A service member with a “proposed” or “memorandum” rating, before the loan closing date, saying you’re eligible to get compensation because of a pre-discharge claim, or
- A service member on active duty who before or on the loan closing date provides evidence of having received the Purple Heart.
Some may be eligible for a refund of the VA funding fee–if you are not awarded a VA disability rating in time to have the fee waived you can apply for a refund once the VA has officially given you the award letter. Call your VA regional loan center at 877-827-3702 if you believe you are entitled to a refund.
VA Housing Grants
The Department of Veterans Affairs offers housing grants to veterans with qualifying disabilities. These grants are used to modify a home to make it more accessible and adaptable; there are grants for permanent residences as well as temporary ones.
VA Specially Adapted Housing Grants (SAH)
The VA SAH is meant to help you buy, build, or change a permanent home. You may qualify for this grant, offered for up to $101,754 in fiscal year 2022. That figure is provided as an example only, successive years may feature different funding. These grants are approved for those with a qualifying service-connected disability such as:
- The loss (or loss of use) of more than one limb
- The loss (or loss of use) of a lower leg along with lasting effects of an organic disease or injury
- Blindness in both eyes (20/200 or less)
- Qualifying severe burns
- The loss (or loss of use) of one foot or leg after September 11, 2001 requiring braces, crutches, canes, or use of a wheelchair
A limited number of qualifying applicants are approved for a grant based on the loss of one extremity after September 11, 2001.
VA Special Home Adaptation Grant (SHA)
The VA SHA grant is intended to help buy, build, or change a permanent home. These grants, offered for $20,387 in 2022 (future grants may feature different funding amounts) for those with qualifying service-connected injuries:
- The loss or loss of use of both hands
- Certain severe burns
- Certain respiratory or breathing injuries
Once awarded, the grant funds are there to be used as needed. If you do not use the full grant you can save the remainder for future improvements.
VA Temporary Residence Adaptation Grant (TRA)
A TRA is meant to make a home you temporarily live in more accessible. To use a TRA grant you do not need to own the property you live in, but you must qualify for one of the two grant programs listed above. The amount of TRA funding you receive will depend on which program you are approved for:
- If you qualify for an SAH grant (see above) you may qualify for $40,983 (in FY 2022);
- If you qualify for an SHA grant (see above) you may qualify for up to $7,318 (in FY 2022)
You can apply for all of these grant options via the eBenefits portal.
Things to Know About VA Loans
VA mortgages require credit qualification the way any major line of credit does. Being eligible for a VA mortgage does not equal loan approval. You can be eligible to apply for the loan but ineligible for loan approval if your credit does not meet participating lender requirements.
VA loan rules are not the only guidelines for VA mortgages; other federal laws, state laws, lender requirements, and other factors may also play a part. Borrowers should know that it is not possible to apply for a larger VA loan than is needed to purchase the house with the goal of getting cash back at closing time.
VA loans, like most government-backed mortgages, do not allow unrestricted cash back at closing time except in the form of a refund for money paid up front and later financed into the loan.
If you need assistance with a VA loan, you can contact a VA Regional Loan Center for assistance. Be advised that at press time, these centers are closed to the public. The VA official site directs VA borrowers or applicants to contact a VA Home Loan Representative by calling 1-877-827-3702 during normal business hours.