What a VA loan is and who can use it

A VA loan is a mortgage backed by the U.S. Department of Veterans Affairs. It lets you borrow money to buy a home, build one, or refinance an existing mortgage. The VA does not lend the money itself — a bank or mortgage lender does — but the VA guarantees a portion of the loan, which means the lender takes less risk and can offer you better terms than a conventional mortgage.

You can use a VA loan if you served on active duty in the Army, Navy, Air Force, Marine Corps, or Coast Guard, or if you are a surviving spouse of a service member who died in service or from a service-connected condition. Reserve and National Guard members with at least 90 days of active duty also may have access to. You do not need to have been discharged yet — some active-duty service members can use VA loans while still serving.

The main advantage is that VA loans typically require no down payment, no private mortgage insurance, and have lower interest rates than conventional loans. You also pay a one-time funding fee (unless you are exempt) instead of ongoing insurance premiums.

Key Takeaways

  • A VA loan is a mortgage may provide by the Department of Veterans Affairs, offered by private lenders, that requires no down payment and no private mortgage insurance for most borrowers.
  • You must have served on active duty or be a surviving spouse of a service member to use a VA loan.
  • The VA guarantees only a portion of the loan; the lender still approves you based on income, credit, and debt, just as with any mortgage.
  • A one-time funding fee (usually 1.4 to 3.6 percent of the loan amount) replaces private mortgage insurance, though some veterans are exempt.
  • You can use a VA loan to purchase a home, build one, refinance an existing loan, or buy a manufactured home on land you own.

How the VA may provide works and what it means for you

The VA may provide is a promise to the lender that if you stop paying your mortgage, the VA will cover a portion of the loss. This may provide does not mean the VA pays your loan for you or forgives it — you still owe every dollar. It simply makes lenders willing to offer better terms because their risk is lower.

The amount the VA guarantees varies by the size of the loan. For loans up to $144,000 (the amount changes yearly), the VA guarantees up to 25 percent of the loan or $36,000, whichever is less. For loans above that amount, the may provide is 25 percent with no dollar cap, but the lender may require a down payment on the portion above the may provide. In practice, this means most VA loans under $500,000 require no down payment at all.

Because the lender's risk is lower, you typically get a lower interest rate than you would on a conventional mortgage. You also avoid private mortgage insurance, which conventional borrowers without a 20 percent down payment must pay. That can save you hundreds of dollars per month.

Entitlement, funding fees, and what you pay upfront

Your VA entitlement is the amount the VA will may provide on your behalf. Most veterans receive a basic entitlement of $36,000. If you use that entitlement to buy a home and later sell it and pay off the loan, your entitlement is restored and you can use it again. If you do not pay off the loan, your entitlement remains tied up until the loan is paid or the home is sold.

The funding fee is a one-time charge you pay when you close the loan. It is typically 1.4 to 3.6 percent of the loan amount, depending on whether this is your first VA loan and whether you are putting down any money. You can roll the funding fee into the loan amount, so you do not have to pay it out of pocket at closing. Some veterans are exempt from the funding fee, including those receiving VA disability compensation and surviving spouses of service members who died in service.

You still pay property taxes, homeowners insurance, and HOA fees if applicable, just as any homeowner does. You do not pay private mortgage insurance because the VA may provide replaces it.

Income and credit requirements

The VA does not set a minimum credit score or income level. Instead, each lender sets its own standards. Most lenders want a credit score of at least 620, though some will work with lower scores. You will need to show that your income is stable and sufficient to cover the mortgage payment plus your other debts.

Lenders use a debt-to-income ratio to decide whether to approve you. This is the total of all your monthly debt payments (car loans, credit cards, student loans, the new mortgage) divided by your gross monthly income. Most lenders want this ratio to be 41 percent or lower, though some will go higher if your credit and income history are strong.

You will need to provide recent pay stubs, tax returns (usually the last two years), and a list of your debts. If you are self-employed or have other income sources, bring documentation for those as well. The lender will also order a credit report and may verify your employment by contacting your employer directly.

What you can buy with a VA loan

You can use a VA loan to purchase a single-family home, a condo, a townhouse, or a manufactured home on land you own. The property must be your primary residence — you cannot use a VA loan to buy an investment property or a vacation home. The home must meet VA minimum property requirements, which means it must be safe, structurally sound, and sanitary. The lender will order an appraisal to confirm this.

You can also use a VA loan to build a new home from the ground up, to refinance an existing VA loan (called an IRRRL, or Interest Rate Reduction Refinancing Loan), or to refinance a conventional loan into a VA loan if you have remaining entitlement. Some lenders also allow VA loans for manufactured homes on land you own, though the rules vary.

The VA loan process from start to finish

The first step is to get a Certificate of may be able to access from the VA. This document proves you served and are may have access to to use the loan. You can request one online through VA.gov, by mail, or through your lender — many lenders can pull it for you as part of the application. Processing usually takes a few days to a few weeks.

Once you have your certificate, you shop for a lender and a home. The lender will pre-may have access to you based on your income and credit, which tells you roughly how much you can borrow. This is not a formal approval — it is an estimate. When you find a home and make an offer, you submit a formal loan application. The lender orders an appraisal and a title search, verifies your employment and income, and pulls your credit report.

The VA then reviews the appraisal to make sure the home meets its standards. This usually takes one to two weeks. If the appraisal comes back lower than the purchase price, you have options: renegotiate the price, pay the difference out of pocket, or walk away. Once the VA approves the appraisal and the lender approves your application, you move to closing. The whole process typically takes 30 to 45 days from application to closing.

VA loans versus conventional mortgages and other options

The main differences between a VA loan and a conventional mortgage are down payment, insurance, and interest rate. A conventional loan usually requires 3 to 20 percent down and includes private mortgage insurance if you put down less than 20 percent. A VA loan requires no down payment and no mortgage insurance. Interest rates on VA loans are typically 0.5 to 1 percent lower than conventional rates, though this varies by lender and market.

An FHA loan (Federal Housing Administration) also requires no down payment and has lower credit requirements than conventional loans, but it includes mortgage insurance that you pay for the life of the loan. A VA loan does not. USDA loans (for rural properties) also require no down payment but are limited to certain areas and borrowers.

If you are a first-time homebuyer without military service, a conventional or FHA loan may be your only option. If you have VA may be able to access, a VA loan is almost always the better choice because of the lower costs and no down payment requirement.

Frequently Asked Questions

Can I use a VA loan if I am still on active duty?

Yes. You can use a VA loan while still serving if you have completed at least 90 days of active duty. You will need a Certificate of may be able to access from the VA, which you can request through VA.gov or ask your lender to pull for you. Your lender will verify your active-duty status with your branch of service.

What happens if I sell my home before paying off the VA loan?

When you sell and pay off the loan, your VA entitlement is restored in full and you can use it again to buy another home. If you sell but do not pay off the loan (the buyer assumes it), your entitlement remains tied up until that loan is paid off. You can request a one-time restoration of entitlement in some cases, but this is uncommon.

Do I have to use a VA lender, or can any bank give me a VA loan?

Any bank or mortgage lender can offer VA loans — they do not have to be a "VA lender." However, some lenders specialize in VA loans and may have faster processing or more flexible terms. Shop around and compare rates and fees from at least three lenders before choosing one.

Can I use a VA loan to buy a second home or investment property?

No. VA loans are for primary residences only. You cannot use a VA loan to buy a vacation home, rental property, or any home you do not plan to live in. If you want to buy an investment property, you will need a conventional loan or another financing option.

What if my credit score is below 620?

The VA does not set a minimum credit score, so some lenders will work with scores below 620. However, you may face higher interest rates or additional requirements. Contact several lenders to find one willing to work with your credit profile. A credit counselor can also help you understand what is affecting your score.