What Is a VA Home Loan?
A VA home loan is a mortgage loan option available to eligible military personnel, veterans, and certain surviving spouses. Instead of lending money directly, the VA guarantees a portion of each loan issued by VA-approved lenders. This guarantee reduces the lender’s risk, making it easier for qualified borrowers to secure a mortgage with favorable terms, often without the need for a down payment.
Key Benefits of VA Loans:
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No Down Payment Required: In most cases, you won’t need to put any money down.
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No Private Mortgage Insurance (PMI): Unlike many conventional loans that require PMI if you put less than 20% down, VA loans typically have no PMI, saving you money each month.
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Competitive Interest Rates: Thanks to the VA’s backing, interest rates can be lower than those of conventional loans, potentially reducing your long-term costs.
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Flexible Credit Requirements: While individual lenders have credit score guidelines, VA loans are generally more lenient, making homeownership accessible to a wider range of borrowers.
Who Is Eligible?
To qualify for a VA home loan, you must meet at least one of the following service criteria:
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Active-Duty Service Members: Typically after at least 90 continuous days of service.
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Veterans: Service requirements vary based on the period served, but generally veterans with an honorable discharge who completed their required active-duty service may qualify.
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National Guard and Reserve Members: Must meet specific length-of-service requirements, often at least six years in the Selected Reserve or National Guard, or 90 consecutive days under Title 10 orders.
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Surviving Spouses: Certain spouses of deceased service members or veterans who died in the line of duty or as a result of service-related injuries may be eligible.
Before applying, you’ll need to obtain a Certificate of Eligibility (COE) from the VA to verify your eligibility. This can be done online through the VA’s eBenefits portal, by mail, or with the help of your lender.
Understanding the Costs and Fees
While VA loans are known for their cost-saving advantages, there are still certain fees and expenses to consider:
- VA Funding Fee:
Most borrowers are required to pay a one-time VA funding fee, which helps offset the program’s cost to taxpayers. This fee can often be rolled into the loan amount rather than paid upfront. The amount depends on factors like:-
Down Payment Amount: Making a down payment, if you choose to, can reduce the funding fee.
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First-Time or Subsequent Use: First-time VA loan users typically pay a lower funding fee than those who have used the benefit before.
Below is a general chart reflecting recent VA funding fee percentages for purchase and construction loans. These rates are effective for loans closing between April 7, 2023, and April 7, 2025. Keep in mind that these fees are subject to change, and certain exceptions may apply (for example, for veterans with service-related disabilities who may be exempt from the funding fee):
Down Payment Amount First-Time Use Funding Fee Subsequent Use Funding Fee Less than 5% 2.15% 3.30% 5% or More (but <10%) 1.50% 1.50% 10% or More 1.25% 1.25% Note:
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This fee is typically financed into the loan amount, so you don’t have to pay it out-of-pocket upfront.
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Veterans who receive VA disability compensation may be exempt from paying the funding fee.
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These percentages can be affected by legislative changes, so it’s best to consult with a VA-approved lender or check the VA’s official website for the most up-to-date information.
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Appraisal Fees:
A VA-certified appraiser will determine the fair market value of the home you want to purchase. The cost of the appraisal varies by region. -
Closing Costs:
You’ll encounter some standard closing costs, such as title fees, recording fees, and potential discount points if you opt to reduce your interest rate. Although the VA limits certain fees that lenders can charge, borrowers should still budget for these expenses. The good news is sellers are often allowed to contribute to a portion of these closing costs, and some closing fees can be negotiated. -
Other Ongoing Costs:
Keep in mind that as a homeowner, you’ll be responsible for property taxes, homeowners insurance, and any homeowners association (HOA) fees if applicable. These are not unique to VA loans, but it’s important to consider the full scope of homeownership costs.
Types of Homes You Can Purchase With a VA Loan
VA home loans are versatile and can be used to purchase various property types, as long as the home meets the VA’s minimum property requirements (MPRs) and will serve as your primary residence. Eligible properties include:
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Single-Family Homes: Traditional houses are the most common type of VA-financed property.
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Condominiums and Townhomes: The VA maintains a list of approved condo complexes. If the one you’re interested in isn’t approved, your lender can request approval, though the process may take time.
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Multi-Unit Properties (Up to Four Units): You can purchase a duplex, triplex, or fourplex, as long as you live in one of the units as your primary residence.
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New Construction Homes: VA loans can sometimes be used for new builds, though the builder must meet VA standards, and there may be additional approval steps.
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Manufactured and Modular Homes: Financing these types of homes with a VA loan is possible, provided they meet certain foundation and structural guidelines set by the VA and the lender.
The VA Loan Process, Step-by-Step
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Confirm Your Eligibility:
Obtain your COE through the VA. Your lender can often assist with this step. -
Pre-Approval:
Work with a VA-approved lender to get pre-approved. They will review your credit history, income, and assets to determine how much you can borrow. Pre-approval strengthens your position as a serious buyer when you start house hunting. -
House Hunting:
With your pre-approval in hand, you can begin your home search. Look for properties that fit your needs and align with VA requirements. A knowledgeable real estate agent with VA loan experience can be invaluable during this stage. -
Making an Offer:
Once you find a home you love, make an offer. Include a VA financing addendum if required by your lender. Negotiating terms with the seller could result in them covering some closing costs. -
VA Appraisal and Inspection:
After your offer is accepted, your lender will order a VA appraisal. While not the same as a home inspection, the appraisal ensures the property meets the VA’s MPRs. It’s also wise to arrange a separate home inspection to identify any potential issues before closing. -
Underwriting and Approval:
Your lender’s underwriting team reviews all documentation—such as your income verification, credit reports, and property information—to approve your loan. They’ll verify that everything meets VA and lender guidelines. -
Closing:
On closing day, you’ll sign the final paperwork, pay any remaining closing costs, and become the official owner of the home. The VA funding fee (if not financed) and any other closing costs are settled at this time.
Important Considerations
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Primary Residence Requirement:
VA loans must be used for your primary residence. You cannot use a VA loan to purchase a vacation home, rental property (unless you live in one unit), or investment property without residing there. -
Occupancy Rules:
Generally, you should plan to move into the home within 60 days of closing. Certain exceptions apply for active-duty service members on deployment. -
Refinancing Options:
The VA offers refinance options, such as the Interest Rate Reduction Refinance Loan (IRRRL), which can help you secure a lower interest rate, reduce monthly payments, or change your loan terms if it benefits you financially. -
Avoiding Foreclosure Risks:
If you ever face financial hardship, the VA and your lender may have options to help avoid foreclosure. The VA’s loan technicians can assist with repayment plans, loan modifications, and other solutions.
Work With a Knowledgeable Professional
Navigating the VA loan process can feel complex, but you don’t have to go it alone. Working with a knowledgeable real estate agent and a VA-experienced lender ensures you’re fully informed every step of the way. They can help you maximize your VA benefits, find the right property, negotiate favorable terms, and streamline the home-buying journey.