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VA Loans: The Complete Guide

Get the most out of your hard-earned benefit with the necessary tools to navigate your VA home purchase or refinance.

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  • Reviewed by
  • Glenn C.
Updated on September 30, 2024
If you’re a veteran, active-duty service member, or a surviving spouse, a VA loan could be the key to owning a home with little to no upfront costs. VA loans are one of the best benefits available to those who have served our country, offering competitive interest rates, no down payment requirements, and more. This comprehensive guide will walk you through everything you need to know about VA loans, from eligibility to the application process and beyond. Whether you’re looking to buy your first home or refinance your current mortgage, this guide will help you make the best decision.

What is a VA Loan?

A VA loan is a mortgage option available to veterans, service members, and select military spouses, backed by the U.S. Department of Veterans Affairs (VA). Established in 1944 as part of the GI Bill, the VA loan program was designed to help returning service members achieve the dream of homeownership. Unlike conventional loans, VA loans offer favorable terms, including no down payment and no private mortgage insurance (PMI).

VA Loan Benefits

One of the biggest advantages of VA loans is that they require no down payment, allowing you to buy a home without needing to save for years. Additionally, VA loans offer competitive interest rates, which can help you save thousands over the life of the loan. Other key benefits include:
One of the most significant advantages of VA loans is that they allow eligible borrowers to purchase a home without needing to make a down payment. This benefit alone can make homeownership accessible to veterans and active service members who might not have saved enough for a down payment, which is often required for conventional loans.
Unlike conventional loans, VA loans don’t require private mortgage insurance (PMI). Typically, if you put down less than 20% with a conventional loan, you’re required to pay PMI, which can add significant costs to your monthly payment. With VA loans, this requirement is eliminated, saving you money over time.
VA loans usually offer lower interest rates compared to conventional loans. Since the loan is guaranteed by the Department of Veterans Affairs, lenders take on less risk, and they can pass on savings to borrowers in the form of better interest rates. Over the life of the loan, this can result in substantial savings.
The VA places limits on the amount lenders can charge veterans for closing costs, helping to reduce the upfront fees required to close on the loan. This makes it even more affordable for those eligible, as closing costs can sometimes be a financial hurdle in the home-buying process.
With a VA loan, borrowers are not penalized for paying off their loan early. This is a great benefit for veterans who may come into extra money and want to pay off their mortgage faster, avoiding future interest charges.
If you face difficulties in making your mortgage payments, the VA offers various resources and assistance programs to help veterans avoid foreclosure. This includes financial counseling and working with lenders on a solution to keep veterans in their homes.
Another huge benefit is that VA loans are not a one-time deal. You can use your VA loan benefit multiple times throughout your life, as long as you meet eligibility requirements and pay off the previous loan or restore your entitlement.
As of January 2020, veterans with full entitlement no longer have VA loan limits, meaning they can borrow as much as their lender is willing to approve them for without having to worry about caps set by the VA. This offers more flexibility when purchasing higher-priced homes.

VA Loan Eligibility

To qualify for a VA loan, you must meet certain service requirements. These include:
  • 90 consecutive days of active service during wartime.
  • 181 days of active service during peacetime.
  • 6 years of service in the National Guard or Reserves.
  • Surviving spouses of veterans may also be eligible.
Additionally, while there’s no specific credit score requirement from the VA, most lenders look for a credit score of at least 620. It’s also important to have a stable income and a debt-to-income ratio that’s manageable.

Types of VA Loans

There are several types of VA loans available, each designed to meet different needs:
VA Purchase Loan
This is the most common type, used to buy a home.
VA Cash-Out Refinance
This allows you to refinance your existing mortgage and take out cash from your home’s equity.
VA IRRRL (Interest Rate Reduction Refinance Loan)
Also known as a VA streamline refinance, this helps you refinance to a lower interest rate.
Native American Direct Loan (NADL)
This is a VA-backed loan specifically for Native American veterans.

How VA Loans Compare to Other Loan Types

When considering the best mortgage option, it’s essential to compare VA loans with other common loan types like conventional loans, FHA loans, and USDA loans. Below is a comparison of how VA loans stack up against these options:
VA Loans
Conventional Loans
FHA Loans
0% Down
Qualified borrowers can buy a home without a down payment, one of the last no-down-payment options available.
Up to 20% Down
Some programs offer as low as 3% down, but larger down payments (closer to 20%) are common to avoid PMI.
3.5% Down
FHA loans require a minimum 3.5% down payment.
No PMI
VA loans do not require private mortgage insurance, even with 0% down.
PMI Required
PMI is typically required unless you make a 20% down payment.
Upfront + Annual MIP
FHA loans require both upfront mortgage insurance premiums and annual premiums (MIP).
Low Interest Rates
VA loans generally have the lowest average rates, as per market data from Optimal Blue.
Low Rates (with High Credit)
Buyers need excellent credit to access the best conventional rates.
Moderate Rates
FHA loan rates are usually lower than conventional rates but higher than VA loans, according to market data.
Lowest Costs
VA loans typically have the lowest origination fees compared to other loan types, according to HMDA data.
Moderate Costs
Origination costs for conventional loans are about 22% higher than VA loans, based on HMDA data.
Higher Costs
FHA loans come with the highest origination costs, around 27% higher than VA loans, according to HMDA.
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What is the VA Guaranty?

The VA guaranty is a key feature of VA loans, where the U.S. Department of Veterans Affairs (VA) guarantees a portion of the loan provided to eligible veterans, active-duty service members, and certain military spouses. This guaranty acts as a form of insurance for the lender, reducing their risk when offering loans to qualified borrowers.

VA Loan Limits and Entitlement

While VA loans don’t have a specific dollar limit, there are limits on how much you can borrow without a down payment. In most cases, full entitlement means you can borrow up to $726,200 in most counties without needing a down payment. If you’ve used your entitlement before, the amount may be less.

How to Apply for a VA Loan

The process for applying for a VA loan is straightforward but involves a few steps:
  • Obtain Your Certificate of Eligibility (COE): This proves you meet the service requirements for a VA loan.
  • Find a VA-Approved Lender: Not all lenders offer VA loans, so be sure to choose one that does.
  • Get Pre-Approved: Pre-approval will help you understand how much you can borrow.
  • Start House Hunting: Once you’re pre-approved, you can begin looking for a home.
  • Complete the VA Appraisal and Underwriting: The VA will require an appraisal to ensure the property meets their requirements.
  • Close on Your Home: After all approvals, you’ll be ready to sign the paperwork and close on your home.
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Frequently Asked Questions About VA Loans

Yes, you can use a VA loan for a second home, but it must be your primary residence.
Yes, VA loans can be assumed by another buyer, provided they qualify.
No, you do not need to be on active duty to qualify for a VA loan. Veterans, reservists, members of the National Guard, and some surviving spouses may also qualify based on their service history. You’ll need to meet the minimum service requirements set by the VA.
One of the fees unique to VA loans is the VA funding fee, which helps cover the costs of the loan program for taxpayers. This fee varies depending on factors such as whether you’re a first-time or repeat borrower and the size of your down payment. The funding fee is typically between 1.4% to 3.6% of the loan amount. Some veterans with service-related disabilities are exempt from the funding fee.
Yes, VA loans can be used to build a home, but the process is more complex compared to purchasing an existing home. You’ll need to work with a lender who offers VA construction loans, and the home will need to meet the VA’s property standards and requirements. It may also involve a separate loan for the construction phase that is later converted into a permanent VA loan.
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