Purchasing a home is a financial goal for many individuals and families throughout the United States. For some, homeownership represents reaching a certain level of financial status, while others view buying a house as a means to build wealth over time. Regardless of the reason driving a home purchase, the process is no small feat.
Buyers must either have the cash on hand to buy a property outright or, as is the case with most homeowners, be qualified for a home loan to complete a purchase. In an effort to help ease this burden for certain military members, the VA home loan program was created.
Individuals who have served in the US military have several benefits available to them that others don’t, both during their active service and after they retire or leave service. One of the most commonly used benefits is the VA home loan program.
VA home loans are offered explicitly to eligible servicemembers, veterans, and surviving spouses of servicemembers wanting to purchase a primary residence. The VA home loan program has many moving parts, so veterans, servicemembers, and their families need to understand these components as they consider using a VA mortgage for buying a home.
Here is a complete guide to VA home loans to help you understand important details.
What is a VA Home Loan?
In the simplest terms, a VA home loan is a mortgage loan offered to eligible military service members to finance the purchase of a primary residence. Qualified military borrowers receive a loan from one of many top VA lenders and not directly from the Department of Veterans Affairs.
Instead, these loans are provided by private banks, credit unions, and other mortgage lenders that work with the VA home loan program.
In addition, the government guarantees VA loans, making it easier for private lenders to offer affordable mortgage options to servicemembers and veterans within less stringent underwriting requirements.
VA home loans come with various benefits for homebuyers, including no down payment requirement, affordable interest rates, no mortgage insurance, and less restrictive credit requirements. These features of VA mortgage loans are meant to make the process of home buying easier for qualified service members and veterans.
Eligibility Requirements for VA Home Loans
Although the VA home loan program is one of the most widely used veterans’ benefits, not every servicemember automatically qualifies for a VA home loan. There are specific eligibility criteria that must be met to use a VA mortgage from a private lender.
First, at least one of the following requirements must be met in order to be eligible for a VA loan:
- Served 181 days active service during peacetime
- Served 90 days of consecutive active service during wartime
- Served more than six years National Guard service or Reserve, or 90 days under Title 32 with at least 30 consecutive days during that period
- The spouse of a service member who died in the line of duty or as the result of a service-connected disability
Certificate of Eligibility (COE) Requirement
In addition to these service requirements, individuals must also acquire a Certificate of Eligibility or COE. The COE is requested by the borrower directly from the VA. The lender can work with the VA to retrieve the COE electronically in some cases.
If a borrower does not yet have their COE, proof of service is required as part of the request process. This typically includes one’s DD214, which details discharge or separation from military service. Once received, the COE provides VA mortgage lenders with the documentation needed to proceed with a VA home loan application.
Other VA Loan Eligibility Requirements
In addition to meeting time in service requirements and the COE documentation, homebuyers wanting to use a VA home loan must also meet specific lender criteria relating to creditworthiness.
While there is no stated minimum credit score to qualify for a VA home loan, a more than 41% debt-to-income ratio may require additional evaluation. Borrowers must also have verifiable income to qualify.
A lender is required to evaluate the complete profile of the borrower before approving a loan.
Purchase, Refinancing, and Construction Loan Options
The VA home loan program is limited to primary residence loans, meaning eligible borrowers cannot use a VA mortgage for a second property, a vacation property, or a commercial property. However, options exist for purchasing a home, refinancing a current mortgage loan, and financing the construction of a new home.
VA Home Loan for Purchases
The VA home loan program allows qualified borrowers to purchase a primary residence with no down payment required. There are no limits on property types so long as the borrower plans to use the home as their primary residence.
Condominiums, manufactured homes, multi-unit homes, and traditional single-family residences may qualify. Lenders may have more restrictive guidelines on the type of property a VA loan can be used to purchase.
VA Home Loan for Refinancing
Interest Rate Reduction Refinance Loan (IRRRL)
In addition to a purchase loan, VA mortgage loans can be used for refinancing a current home loan. The VA Interest Rate Reduction Refinancing Loan, or IRRRL, is a loan program offered to homeowners with a current VA loan who want to reduce their interest rate.
The IRRRL refinance loan is low-cost and, in most cases, does not require an appraisal of the property, income verification, or credit evaluation.
VA Cash-Out Refinance Loan
A VA cash-out refinance loan is another option for qualified homeowners, whether or not they have a current VA loan. A cash-out refinance allows borrowers to take out a new mortgage and receive cash from a portion of the home’s equity.
Although lenders have their own requirements for VA cash-out refinance transactions, homeowners may be able to refinance for up to 90% of the property’s loan-to-value ratio.
Unlike the IRRRL program, VA cash-out refinancing often requires an appraisal and underwriting from a credit perspective.
VA Home Loan for New Construction
Prospective homebuyers interested in building a home instead of buying an existing property also have options through VA home loans. Some lenders make available VA construction loans with similar parameters to a traditional VA purchase loan.
The same less stringent credit requirements apply to construction loans, as do benefits like no down payment and affordable rates.
VA Home Loan Limits
No Borrowing Limit for Full-Entitlement Members
Recent changes to the VA home loan program have made it more attractive to homebuyers, particularly those looking at a higher cost of living area. VA mortgage loans no longer limit borrowers who have full entitlement to the benefit, meaning borrowers are not up against maximum loan amounts when purchasing or refinancing a home.
Full entitlement for a VA home loan benefit is available when a borrower has not used their benefit in the past, or a previous VA loan was paid in full, and the property sold. However, this does not mean that a borrower qualifies for any priced home.
Lenders offering VA home loans only approve a loan for as much as the home is worth. Additionally, lenders must qualify borrowers based on their ability to repay the loan. This is done by evaluating credit history, debt-to-income, and other financial factors.
Borrowers should work with their lender to understand the loan size they qualify for with a VA home loan.
Remaining Entitlement Limitations
Some borrowers may not have a full entitlement left on their VA home loan benefit. This happens when there is an outstanding VA loan balance, a home financed with a VA loan is still owned, or a short sale or foreclosure resulted in the VA not being repaid in full. The COE details what level of entitlement a borrower has to a new VA home loan.
When entitlement is reduced to less than full, a loan limit does exist for a VA home loan. The loan limit is based on the county where the property is being purchased. Throughout most counties, the loan limit is $647,200. Some higher cost of living areas may have a loan limit of up to $970,800. Jumbo VA loans may also be available depending on the lender.
Costs Associated with VA Home Loans
One of the main features of VA home loans revolves around the costs associated with getting a mortgage.
Zero Down Payment Required
VA borrowers do not have a down payment requirement, making the up-front expense of buying a home significantly less than other home loan options such as FHA and conventional loans.
Additionally, interest rates are generally lower and very competitive when compared to other mortgage lending types such as FHA and Conventional loans.
Funding Fee Requirements
The VA does charge a funding fee of either 2.3 or 3.6% of the loan amount. Borrowers using their VA home loan benefit for the first time have a lower funding fee, while those with more frequent use pay a higher fee. This fee goes directly to the VA to help sustain the program for future borrowers.
The funding fee may be rolled into the mortgage loan instead of being paid upfront. Also, some veterans and surviving spouses do not pay the funding fee because they are exempt. The VA determines when the funding fee is waived.
Comparing VA, FHA, Conventional, and USDA Loans
The VA home loan program can be an excellent choice for veterans and service members purchasing or refinancing a home. However, other loan options exist, including conventional mortgages, FHA loans, and USDA loans. Each comes with its own set of eligibility criteria, down payment requirements, and costs.
The comparison table below details the differences between these types of home mortgage loans and VA home loans.
| Conv. Loan | FHA Loan | VA Loan | USDA Loan | |
|---|---|---|---|---|
| Down Payment | 3% | 3.5% | $0 | $0 |
| Credit Rqmts. | 620 minimum credit score | 580 minimum credit score | No minimum credit score | 640 minimum credit score |
| Loan Limits | $647,200; adjusts annually | $420,680 – $970,800; adjusts annually | None with full ent. Same as county limits for partial ent. | $336,500 in most areas and income limits apply |
| Private Mortgage Ins. | Yes, if less than 20% down | Yes, 0.45 – 1.05% annually; 1.75% upfront | None | No, but guarantee fee of 0.35% annually; 1% upfront |
| Borrower Eligibility | High credit score and low debt-to-income ratio | Less stringent rqmts. than conv. loans | Military service-member, veteran, or eligible spouse | Income & location limits; higher credit score |
3 Top VA Home Mortgage Lenders
Several lenders work with the VA to offer home loans to eligible servicemembers and veterans. The top three include Freedom Mortgage, Veterans United, and PenFed Credit Union. Here are the highlights of each lender.
1. Freedom Mortgage
For more than 30 years, Freedom Mortgage has been offering affordable home loan solutions to homebuyers, particularly in the veteran and servicemember community. Freedom Mortgage offers both purchase and refinance VA mortgages to active-duty military members and veterans throughout the country.
The lender prides itself on offering affordable rates, exemplary service, and expert guidance on the VA home loan process. Borrowers can easily get a personalized quote for a VA home loan or refinance online.
2. Veterans United
Veterans United Home Loans offers a variety of VA home loans to servicemembers and veterans throughout the country. The lender can guide the VA home loan process thanks to its commitment to the military community and the use of military advisors to help support its efforts.
In addition, Veterans United offers 24/7 customer support to better assist service members overseas, and it offers competitive rates on all its VA mortgage loan products.
3. PenFed Credit Union
As a long-standing military-focused financial institution, Pentagon Federal (PenFed) Credit Union offers a variety of VA home loans to eligible veterans and service members. PenFed takes pride in providing affordable home loan products for both purchase and refinance transactions.
The credit union also offers mortgage specials from time to time to help reduce out-of-pocket expenses for borrowers. Additionally, PenFed makes it easy to get a quote for a VA mortgage online and start the application process within a few minutes.
Who Should Consider a VA Home Loan?
The VA mortgage loan program is intended to make the process of home buying more accessible and more affordable throughout the veteran and servicemember community.
The VA home loan program features, including no down payment requirement, no minimum credit score criteria, and more flexible loan limits, make this a smart choice for those interested in purchasing a home, refinancing a home, or building from the ground up.
Any homebuyer who meets the VA requirements of time in service should consider a VA loan for their mortgage needs. However, as with any other financial decision, borrowers should take the time to compare lenders, closely evaluating fees, repayment terms, and eligibility requirements before signing on the dotted line.
If you have any questions or comments regarding our VA home loan guide, please don’t hesitate to leave them below.
Hi Lawrence, Typically, the lower the loan-to-value (LTV) and the higher your credit score the lower the interest rate will be. However, at some point it will bottom out as the interest rate can only be lowered so far. If you are putting a lot of money down you can also lower the APR further by buying down the interest rate through mortgage discount points.
I wasn’t 100% sure what you were asking, so I hope that answers your question?
Is there a difference with a 30 percent VA mortgage loan amount and interest rate?