VA loans help veterans, active-duty service members, and eligible spouses buy homes with significant advantages over conventional mortgages. The U.S. Department of Veterans Affairs backs these loans, which private lenders issue. This backing allows lenders to offer better terms, no down payment, no private mortgage insurance, and competitive interest rates.
Since 1944, VA loans have helped millions of military families achieve homeownership. In 2023 alone, the VA guaranteed over 370,000 home loans worth more than $120 billion. Whether someone is buying their first home or refinancing an existing mortgage, understanding how VA loans work can save thousands of dollars over the life of a loan.
Key Takeaways
- VA loans allow eligible veterans, active-duty service members, and surviving spouses to buy homes with no down payment and no private mortgage insurance.
- The U.S. Department of Veterans Affairs guarantees VA loans issued by private lenders, enabling better terms and interest rates 0.25%–0.50% lower than conventional mortgages.
- To qualify for a VA loan, borrowers must meet military service requirements and obtain a Certificate of Eligibility (COE) proving their eligibility.
- VA loans can only finance primary residences—not investment properties or vacation homes—and may be used for purchasing, building, or refinancing.
- The VA funding fee supports the loan program (2.15% for first-time users with no down payment), though veterans with VA disability compensation are exempt.
- VA loan benefits are reusable, meaning eligible borrowers can use them multiple times throughout their lifetime.
How VA Loans Work
VA loans function differently from conventional mortgages in several important ways. The Department of Veterans Affairs doesn’t lend money directly. Instead, the VA guarantees a portion of each loan, which protects lenders if a borrower defaults. This guarantee typically covers 25% of the loan amount.
Because the VA backs these loans, lenders face less risk. They pass those savings to borrowers through better loan terms. Most VA loans don’t require a down payment, borrowers can finance 100% of the home’s purchase price. This feature alone sets VA loans apart from FHA loans (which require 3.5% down) and conventional loans (which typically require 5-20%).
The loan process starts when a borrower applies through a VA-approved lender. Banks, credit unions, and mortgage companies can issue VA loans if they meet VA requirements. The borrower must obtain a Certificate of Eligibility (COE) that proves their military service qualifies them for the program.
VA loans can be used for several purposes:
- Purchasing a primary residence
- Building a new home
- Refinancing an existing mortgage
- Making energy-efficient improvements
One thing VA loans cannot do is finance investment properties or vacation homes. The property must serve as the borrower’s primary residence.
Key Benefits of VA Loans
VA loans offer financial advantages that other mortgage types simply can’t match. These benefits make homeownership more accessible and affordable for those who’ve served.
No Down Payment Required
The zero-down-payment feature is the most significant VA loan benefit. Borrowers can purchase a home without saving tens of thousands of dollars first. For a $300,000 home, this means keeping $60,000 (a typical 20% down payment) in the bank or simply not needing to save it at all.
No Private Mortgage Insurance (PMI)
Conventional loans require PMI when borrowers put down less than 20%. PMI typically costs 0.5% to 1% of the loan amount annually. On a $300,000 loan, that’s $1,500 to $3,000 per year. VA loans eliminate this expense entirely, saving borrowers hundreds of dollars monthly.
Competitive Interest Rates
VA loan interest rates consistently run lower than conventional mortgage rates. According to recent data, VA loan rates average 0.25% to 0.50% lower than conventional rates. Over a 30-year mortgage, this difference can save borrowers $20,000 or more.
Limited Closing Costs
The VA restricts which closing costs lenders can charge borrowers. Certain fees are prohibited entirely. Sellers can also pay up to 4% of the loan amount toward closing costs, further reducing out-of-pocket expenses.
Reusable Benefit
VA loan eligibility doesn’t disappear after one use. Borrowers can use VA loans multiple times throughout their lives. Once they sell a home and pay off the loan, their full entitlement restores. Some borrowers can even have two VA loans simultaneously under certain conditions.
Who Is Eligible for a VA Loan
VA loan eligibility depends on military service history, duty status, and discharge conditions. The requirements vary based on when and how someone served.
Veterans
Veterans must meet minimum service requirements based on when they served:
- Before September 7, 1980: 90 consecutive days of active duty
- After September 7, 1980: 24 continuous months or the full period called to active duty (minimum 90 days)
- Gulf War Era (August 2, 1990 – present): 24 continuous months or 90 days if activated for war
Active-Duty Service Members
Those currently serving qualify after 90 continuous days of active duty. Service members can begin the loan process before completing this requirement but must meet it before closing.
National Guard and Reserve Members
Guard and Reserve members qualify through two paths:
- Six years of service in the Selected Reserve or National Guard
- 90 days of active-duty service under Title 10 orders
Surviving Spouses
Unremarried surviving spouses of service members who died in the line of duty or from service-connected disabilities may qualify for VA loans. Spouses of service members missing in action or prisoners of war also remain eligible.
Discharge Requirements
Most borrowers need an honorable discharge or discharge under honorable conditions. Those with other-than-honorable, bad conduct, or dishonorable discharges may still qualify in some cases but must request a determination from the VA.
VA Loan Requirements and How to Apply
Meeting VA loan requirements involves several steps. Borrowers must satisfy both VA guidelines and individual lender standards.
Credit Score Requirements
The VA doesn’t set a minimum credit score. But, most lenders require scores of 620 or higher. Some lenders work with borrowers who have lower scores, though these loans may carry higher interest rates.
Income and Employment
Borrowers must demonstrate stable income sufficient to cover mortgage payments. Lenders typically want two years of consistent employment history. The VA uses a debt-to-income ratio guideline of 41%, though many lenders approve higher ratios with compensating factors.
The VA Funding Fee
VA loans require a one-time funding fee that supports the program. First-time borrowers with no down payment pay 2.15% of the loan amount. This fee decreases with larger down payments and increases for subsequent uses. Veterans receiving VA disability compensation are exempt from this fee.
How to Apply for a VA Loan
Step 1: Obtain Your Certificate of Eligibility
Borrowers can request their COE through the VA’s eBenefits portal, by mail using VA Form 26-1880, or through their lender.
Step 2: Choose a VA-Approved Lender
Not all lenders offer VA loans. Borrowers should compare rates and fees from multiple VA-approved lenders.
Step 3: Get Pre-Approved
Pre-approval shows sellers that a buyer can secure financing. This step involves submitting financial documents and undergoing a credit check.
Step 4: Find a Home and Make an Offer
Once pre-approved, borrowers can shop for homes within their budget.
Step 5: Complete the VA Appraisal
The VA requires an appraisal to confirm the property’s value and ensure it meets minimum property requirements. This appraisal protects both the borrower and the VA.
Step 6: Close the Loan
Final paperwork, funding fee payment, and key handover happen at closing.
