VA Home Loans

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If you are a veteran, an active service member, or a spouse of a veteran or service member, you may qualify for a VA loan. Learn more about what a VA loan is, how it works, and how it can help you buy a home with no down payment.

Am I Eligible for a VA Loan?

What is a VA Loan?

A VA loan, or Veterans Affairs (VA) home loan, is a mortgage where a portion of the loan, or in some cases all of the loan, is backed by the US Government through the Department of Veterans Affairs. In order to qualify, a Certificate of Eligibility (COE) is required and the borrower must be either a service member, a veteran, or a spouse of a military service member/veteran. Since VA loans are partially guaranteed by the government, mortgage loan lenders are encouraged to finance VA loans even if the borrowers have limited income or a bad credit score. This makes it easier for veterans and military service members to qualify for a mortgage loan.

How do VA loans work?

While the term “VA loans” suggests that these are home loans from the Department of Veterans Affairs, that is actually not the case. Instead, the Department of Veterans Affairs is the one that oversees the program, including setting lending policies and approving VA loan lenders.

To apply for a VA loan, you will need to go to one of the many banks and mortgage loan lenders that offer VA loans. Banks and other lenders, such as credit unions, are the ones that will originate and fund your VA loan. They will also be the one that you will interact with during the term of your VA loan, as they will also service your VA loan. All that the Department of Veterans Affairs does is guarantee your VA loan should you default on the loan.

VA Loan Regulations and Application Requirements

Down Payment Requirements

VA loans do not have minimum down payment requirements if the purchase price of the home is not greater than the appraised value of the home. This means that you will not need to make any down payment if you’re buying a home. While there might be no down payment requirement, you will still need to pay for buyer closing costs.

However, if you’re purchasing a home for more than it is worth, then the difference between what you paid and the home’s value will have to be paid as a down payment. This will happen if the sale price of the home exceeds the appraised value of the home. For example, if you purchase a home for $210,000 but the appraised value of the home is $200,000, then you will have to make a minimum down payment of $10,000.

Before 2020, VA loan limits meant that a down payment would need to be made if the purchase price of the home was over the VA loan limit for that county. Since 2020, VA loan limits no longer apply to borrowers with full VA entitlement. However, VA loan limits still apply to those without full entitlement, such as those that already have an active VA loan or have defaulted on a VA loan. If you already have an active VA loan and are looking to purchase an additional home, you may need to make a down payment if it’s over the county loan limit or your VA entitlement does not cover the full amount.

VA Loan Minimum Down Payment Requirements

Credit Score Requirements

Although VA loans do not have a required minimum score, most VA backed institutions look for a credit score of at least 620. The average credit score of VA purchase borrowers in 2019 ranged from 706 to 713.

Other Requirements

• Insurance: VA loans do not require mortgage insurance or MIP
• Debt-to-Income (DTI) Ratio: VA loans require a debt-to-income ratio of less than 41%.
• Down payment Sources: VA loans do not have any restrictions on the source of the down payment. Gifts and contributions from friends and family members are eligible as down payment.

Home Price Limitations

As of January 1st, 2020, the VA loan limits were removed for all counties. Previously the mortgage could not be greater than $510,400 for most counties as the department of Veteran Affairs would not insure it. The VA guaranty is 1/4 of a loan over $144,000. For loans less than $144,000, a larger portion is guaranteed. For details, see VA Guaranty.

Fees and Premiums

VA loans have an additional cost known as a VA funding fee which ranges from 1.4% to 3.6% as of 2021. The VA funding fee is a one-time cost at closing, and it plays a role of mortgage insurance for VA loans. Unlike private mortgage insurance (PMI) for conventional loans, the VA funding fee is not a recurring annual cost. However, while you can pay the full amount at closing, you can also choose to add the VA funding fee to your VA loan principal. This will allow you to pay off the VA funding fee over the term of your VA loan, but this does cause you to pay interest on the funding fee. The amount of the funding fee depends on several factors such as the type of VA loan you’re looking to borrow, the size of the down payment, and how many times you have already used the benefit. Borrowers with service-connected disabilities and select others might not have to pay a VA funding fee. Fees charged to the borrower may be covered with various first time home buyer programs available on state, county and municipal levels.

Home Price Limitations

As of January 1st, 2020, the VA loan limits were removed for all counties. This means that a borrower would be able to get a VA loan with no limit. Instead, the limit will be the amount that a VA loan lender will be willing to let you borrow, based on factors such as your credit score and income. Previously, VA mortgages could not be greater than $510,400 for most counties. However, VA loan limits have now been removed.

Top 100 VA Lenders in 2021

Rank	Lender Name			# of VA Loans	Average Loan Amount	Total Loan Amount
1	FREEDOM MORTGAGE CORP			214,374	$278,027	$59,601,822,548
2	ROCKET MORTGAGE, LLC			127,577	$278,033	$35,470,588,107
3	VETERANS UNITED HOME LOANS			98,139	$291,535	$28,610,919,377
4	PENNYMAC LOAN SERVICES LLC			59,043	$304,271	$17,965,050,401
5	UNITED SHORE FINANCIAL SERVICES, LLC			44,597	$353,604	$15,769,684,901
6	LAKEVIEW LOAN SERVICING			38,204	$310,256	$11,853,008,667
7	LOANDEPOT.COM, LLC			35,925	$360,349	$12,945,548,365
8	CALIBER HOME LOANS, INC			33,622	$348,562	$11,719,366,086
9	NAVY FEDERAL CREDIT UNION			30,200	$329,279	$9,944,216,805
10	USAA FSB			29,505	$275,115	$8,117,262,293

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Disclaimer: Data from the US. Department of Veterans Affairs (2021).

VA Loan Eligibility Calculator

VA Loans Eligibility Requirements

Certain mandatory requirements need to be met in order to qualify for a VA loan. A Certificate of Eligibility is required for current and former service members once the minimum service requirements are met. Only 1 requirement needs to be met for the branch of service you served, they are as follows:

Branch of Service - Army, Marines, Navy, and Airforce

1. At least 90 days of active wartime service OR
2. At least 180 days of active service during peacetime OR
3. If you are the spouse of a service member that passed away during their service

Branch of Service – National Guard or Reserves

1. If you were part of the National Guard or Reserves, then at least 6 years of service OR
2. If you are the spouse of a service member that passed away during their service

What Service is considered Wartime and Peacetime Service?

Army, Marines, Navy, and Airforce Service Members

The following table shows which periods are considered wartime service and the requirements

National Guard and Reserve Service Members

VA Certificate of Eligibility (COE)

What is a VA Certificate of Eligibility (COE)?

A VA certificate of eligibility is used to help VA loan lenders determine if the borrower has met the necessary service requirements. Service requirements as described in the above section are linked to the number of days served either during wartime or peacetime. Your COE will also state your remaining entitlement amount.

How do I get my VA Certificate of Eligibility?

There are several simple ways you can receive your VA Certificate of Eligibility:

1. Lender - If you have decided on a specific VA approved lender, they can usually get your COE in a very timely manner, all you have to do is provide proof of service.
2. Online Application - If you go to the E-benefits portal on the Department of Veteran Affairs website, you can create a new account and get your COE.
3. Mail Application - Mail options are also available. Fill out this Request for Certificate of Eligibility form, and send it to one of the regional offices listed on the form.

VA COE and Entitlement Codes

Your Certificate of Eligibility contains useful information for the lender such as your name, Social Security number, and branch of service. It also has an Entitlement Code which informs the lender of your military background and length of service. This code is important because it will determine if you have to pay the VA Funding Fee which is an up-front cost of a VA loan. Certain borrowers such as Purple Heart recipients, eligible spouses, and individuals with a service-related disability are exempt from the VA funding fee.

Most VA entitlement codes are linked to a specific war and others are linked to status. There are 11 different codes as shown below:

Code 05 is for “Entitlement Restored”, which means that the borrower has already used their entitlement on a VA loan but has since restored their entitlement. This might be due to the borrower having fully repaid their previous VA loan, which will restore their full VA entitlement.

Code 06 is for surviving spouses. There is no minimum required time for code 06.

Code 07 is for the spouse of a prisoner of war (POW) or a service member that has been missing in action (MIA) for at least 90 days.

Frequently Asked Questions

How do VA loan rates compare to Conventional or FHA Loan Rates?

As a portion of the VA loans is insured by the Department of Veterans Affairs these loans have competitive rates which are often lower than the rates offered by conventional loans and even FHA loans. The reason being that the VA approved lender is secured up to 25% of the loan amount by the government agency in case the borrower of the home defaults. These loans are the best option for veterans with their lower rates and minimal financial restrictions.

How do I get a VA Loan?

The VA loan process is not very different from getting a conventional mortgage. It has various steps such as mortgage qualification, home search, contract, loan processing, and finally closing. VA loans have several benefits such as no minimum down payment or credit requirements making it a great option for veterans. The VA loan process steps are as follows:

1. Mortgage Qualification - This is linked to getting your Certificate of Eligibility or COE which will show lenders that you have met the necessary service requirements or have the right status. The pre-approval process is the most important step as it determines if you can get a VA backed home loan. Apart from the COE, the pre-approval process will also look at your financial health such as credit score and income, this will also help determine the size of the mortgage you can afford. Once you get your COE and meet the lender’s requirements you will be pre-approved and can move to the next step.
2. Home Search - This is where you find your dream home. All homes such as single-unit, condominiums, multi-complex, and even new construction homes are eligible. Real estate agents can help in this part of the process and can help obtain the best deal that fits your needs.
3. Contract - Once you have selected the house you want to purchase, you and your real estate agent need to negotiate the terms with the seller of the property. Closing costs vary between different situations and hence it is best to discuss this with your agent, in some cases the closing costs can be paid for by the seller of the home. Home inspections and the appraisal processes can also be included in the contract.
4. VA Loan Processing - Once the contract is signed between the buyer and the seller, the VA approved lender will do an analysis on your credit, income, debt, employment, and have an independent 3rd party appraise the home. If the home purchase value and your financials meet the requirements then the loan will be approved.
5. Closing - This last step involves signing the final paperwork with your agent and lawyer, following which you will receive the deed to the property and the keys.

What is the VA Interest Rate Reduction Refinance Loan (IRRRL)?

VA interest rate reduction loan (IRRRL) is also known as VA Streamline Refinance or VA-to-VA refinance, involves refinacing an existing VA loan and getting a lower interest rate. The interest rate of your loan determines the size of the monthly payments and if the interest rate reduces the size of the monthly payments also reduces making it easier for the borrower to save money. The VA IRRRL can also be used to refinance an adjustable-rate mortgage (ARM) into a fixed-rate mortgage.

What are the criteria to be eligible for VA IRRRL?

There are certain criteria that need to be met to qualify for a VA IRRRL such as:

1. VA Loan Borrower - VA IRRRL is only available to those individuals who already have an existing VA loan and it is not available to first time home buyers. The original entitlement is used and it is a VA to VA refinance.
2. VA IRRRL occupancy and proceeds - The individual trying to obtain a VA IRRRL only needs to show that they still occupy the home. All homes such as single-family and condominiums are eligible. The proceeds from the VA IRRRL must be used to pay the existing VA loan and not another debt obligation.
3. Status - It is only open to veterans and their spouses and not open to the general public. There is no need to apply for another certificate of entitlement.
4. Loan Limit - The loan cannot be larger than the existing VA loan.

There are several criteria that have no restrictions and limits such as income limits, credit score, loan-to-value (LTV) ratio, debt-to-income (DTI) ratio, minimum down payment, and mortgage insurance! Therefore, the VA IRRRL can be easily obtained if you meet the few eligibility requirements and do not require a major change in income or debt.

Are VA Loan closing costs limited?

The Department of Veterans Affairs does limit the amount that a VA loan lender can charge as a loan origination fee. This is capped as a maximum flat charge of 1%. This 1% origination fee is meant to cover charges that the lender has incurred that is not paid for separately by the VA loan borrower. The table below lists some examples of what the 1% origination fee pays for.

What Does The 1% VA Loan Origination Fee Pay For?

There are also other closing costs that a VA borrower might have to pay. This includes:

• Cost of obtaining a credit report
• Prepaid taxes and insurance
• Hazard insurance premiums
• Land survey costs
• Title insurance and examination costs
• VA funding fee
• Mortgage Electronic Registration System (MERS) Fee

If the VA loan doesn’t close, but these closing costs have already been incurred, then the costs will not be refunded. For example, if the lender paid to obtain a credit report and charged the borrower for the cost, then the borrower will not be refunded should the loan not close. However, the lender’s 1% origination fee must be refunded should the VA loan not close for any reason.

Fees that a VA borrower cannot be forced to pay include:

• Brokerage fees
• Lender’s attorney fees
• Certain prepayment penalties
• HUD/FHA inspection fees

The origination fee is charged as a percentage of the VA loan principal amount. If the borrower chooses to not pay the VA funding fee in full upfront and instead finances it into the VA loan, then the origination fee is the principal amount plus the VA funding fee amount. Origination fees are included when calculating a mortgage’s APR.

Let’s say that a borrower is purchasing a $200,000 home with a 0% down payment. The VA funding fee will be 3.6%, which is $7,200. If the borrower pays the funding fee in full, then the VA loan principal will be $200,000. Since the maximum origination fee is 1%, the maximum origination fee would be $2,000.

If the borrower finances the VA funding fee into the loan, then the principal amount would be $207,200. This means that the 1% origination fee would result in $2,072 being charged at closing.

Origination Fees for VA Construction Loans

For VA construction loans, the maximum origination fee that a lender can charge will depend on the involvement that the lender will have during construction. If the lender will be supervising construction or allow advances that are more than 50% of the loan, then the VA loan lender can charge up to an 2% origination fee for a VA construction loan in addition to the 1% origination fee for regular VA lenders. This equals a 3% origination fee for VA construction loans.

If the lender will not supervise construction or allow draws of more than 50% of the loan, then the maximum origination fee is an additional 1%. This means that the total origination fee will be 2%.

Let’s say that a borrower is applying for a $500,000 VA construction loan and wants to draw more than $250,000 during construction. How much can the VA lender charge in origination fees at closing? At an origination fee of 3%, the lender can charge up to $15,000.

VA Loan Lenders

In 2021, there were 1,385 lenders that lent out VA loans across the United States. The largest VA loan lender in 2021 is Freedom Mortgage, which lent out over 214,000 VA loans. In second place is Rocket Mortgage with over 127,000 VA loans, then Veterans United with 98,000 VA loans. To compare your options, Casaplorer® has a list of the best mortgage lenders of 2021.

^† While we try our best to get your the best rates, we cannot guarantee that they are always accurate. Casaplorer® assumes no liability and provides no warranty for the accuracy of the information presented, and will not be held responsible for any damages resulting from its use. Rates shown are for informational purposes only and may differ by zipcode, county, and state. Estimated payments do not include taxes and insurance. Some state and county maximum loan amount restrictions may apply. Casaplorer® is not endorsed or sponsored by any mortgage lender or government agency. For information regarding any of these rates, please contact the relevant mortgage lender.