If you're a veteran or active-duty service member, you've probably heard great things about the VA loan benefit: no down payment, no mortgage insurance, and competitive rates.
But if you’re in the market for a new house, you may have more questions about your eligibility, how the program really works and stacks up to conventional loans, and whether there are any “gotchas” to the program.
This guide covers the practical details you need to make an informed decision and get the most from your VA loan benefit.
What is a VA loan?
A VA loan is a government-backed mortgage available to eligible active-duty military, veterans, National Guard and Reserve members, and certain surviving spouses. You can use VA loans to purchase or refinance a home, depending on the loan type. VA purchase loans are the most common.
The Department of Veterans Affairs (VA) guarantees up to 25% of a VA loan’s total loan amount, or up to $36,000 for loans of $144,000 or less.[1] If you default and your lender takes a loss after selling your home, the VA covers up to the guaranteed loan amount.
This VA guarantee reduces the lender’s risk, which often means better loan terms for you. As Noah Borders, a Senior Mortgage Loan Officer with Best Interest Financial, puts it, “The VA loan benefit is arguably the most powerful mortgage product available to any borrower in America today.”
Current VA mortgage rates
VA mortgage rates currently average 5.89% for 30-year loans, noticeably lower than the 6.37% average for conventional 30-year mortgages.[2][3]
However, current interest rates aren’t the only numbers that matter when comparing loans. “Borrowers almost always fixate on the interest rate number itself, and I get it; it's the most visible number. But a VA loan at 6.5% beats a conventional loan at 6.25% plus PMI almost every single month,” notes Borders.
“I always walk clients through three numbers at once: the interest rate, the monthly payment, and the break-even point on any points or fees paid," Borders says. "APR alone doesn't tell you whether you're truly saving money.”
Lowering monthly mortgage payments
If you want to lower your monthly VA loan payment, Borders says that improving your credit score is the single most effective strategy. “The spread between a 620 and a 760 [credit score] can easily be 75 to 100 basis points on a VA [loan].”
One basis point (bp) is 1/100th of a percent, so 100 bps equals 1 percentage point. That means a borrower with a 760 credit score might qualify for a 5.9% rate, while someone with a 620 could see a 6.9% rate (all else being equal).
Your monthly mortgage payment is also affected by:
- Loan amount
- Loan-to-value ratio
- Debt-to-income ratio
- Residual income
- Funding fee handling (financing into loan or paying upfront)
- Interest rate lock period
- Lender’s margin
- Secondary market conditions for VA-backed securities
VA loan eligibility
VA loan eligibility is based on your service history. There are exceptions, but generally, you need less continuous service to qualify if you served during wartime (90 days) than during post-war times (181 days) or during other periods (24 months). For National Guard or Reserve members, you’ll need six creditable years in the Selected Reserve or National Guard or 90 or more days of active federal service.[4]
In all cases, your discharge must be other than dishonorable. The VA reviews “other than honorable” discharges individually. You’ll need a Certificate of Eligibility (COE) to prove you qualify for a VA loan, but your lender can usually obtain this for you in seconds.[4]
Surviving spouses may also qualify if the service member died in the line of duty or from a service-connected disability.
VA lender requirements
Here are the general homebuying qualification guidelines for a VA loan. Keep in mind, lenders can set their own requirements above and beyond the VA’s rules, so always check with your lender.
Credit score
Most lenders like to see a credit score of at least 620, though the VA itself doesn’t set a minimum. Borders has seen borrowers approved with scores in the high 500s when the rest of their financial profile was strong.
"The VA underwriting system is holistic, not formulaic," says Borders. "If you can show financial stability in other areas, a lower score is less of a dealbreaker than many people assume.”
DTI and residual income
Both DTI and residual income are ways lenders check affordability. Debt-to-income (DTI) is the standard ratio showing how much of your income goes to debt payments each month.
VA loans also look at residual income—a more flexible measure of what you have left after paying all major bills (mortgage, taxes, insurance, child care, and debt payments). The VA bases thresholds on family size and location.
“It’s a real-world affordability check," notes Borders, "and one of the more thoughtful underwriting standards in the mortgage industry.”
Loan limits
The VA mostly eliminated loan limits in 2020, but lenders may have their own internal limits, such as requiring down payments for loans above conforming loan limits ($832,750, or $1,249,125 in high-cost areas).[5]
Entitlement
You can have either full or partial entitlement. Full entitlement means the VA guarantees 25% of your approved loan amount, waiving lender down payment requirements. You have full entitlement if you’ve never used your VA loan benefit before, or if you’ve paid off a previous VA loan in full.
Partial entitlement applies if you still have a property with a VA loan. Your remaining benefit depends on how much of your entitlement you’re using, the county’s VA loan limits, and how much of your guarantee is already tied up in your current VA loan.
Borders recommends having your entitlement calculation clarified before making offers if you have partial entitlement.
Property requirements
VA minimum property requirements (MPRs) ensure veterans have a safe place to live. Appraisers look for things like a sound roof, no exposed wiring, working HVAC, no pest infestations, and safe access to every room.
The thoroughness of these appraisals sometimes scares sellers away from accepting offers from VA buyers. Borders estimates that property condition issues come up on 15-20% of VA transactions in older homes, but he stresses that these are almost always solvable if buyers and sellers negotiate repair credits or agreements.
To help avoid surprises, he also advises ordering a home inspection before the VA appraisal.
Occupancy
You can only use a VA loan for a home you plan to use as your primary residence, and you must move in within 60 days of closing. Tell your lender right away if you receive Permanent Change of Station (PCS) orders during the loan process. Occupancy rules can be flexible, but your lender needs to know to accommodate occupancy changes during underwriting.
What would my payment look like on a VA loan?
Here are some real-life scenarios Borders shares for what you could pay with a VA loan on a $350,000 home with no down payment. [5]The funding fee (see next section) and how it’s paid will also affect your final numbers.
VA loan scenarios
| Buyer | Borrower credit history | Potential interest rate and monthly payment (principal + interest) |
|---|---|---|
| Buyer A | 620 score, 48% DTI, and gap in employment history | 7.25%; $2,390/month |
| Buyer B | Top-tier borrower (760+ credit score, DTI under 35%, strong residual income, two years of stable W-2 employment) | 6.25%; $2,156/month |
Making a 10% down payment offers only modest rate improvements, but it can reduce your funding fee.
How do these numbers stack up against a conventional loan for buyers with a similar profile? “The math almost always lands in favor of VA loans when you structure the loan correctly,” says Borders.
For example, on a conventional loan, Borrower A might see a 7.75% rate and $175–$225 in monthly PMI, according to Borders. That puts their payment around $2,720—about $330 more per month than with a VA loan.
VA Loan Calculator
Estimate your VA mortgage payment including the one-time funding fee. No monthly PMI required.
How does the VA funding fee work?
The VA funding fee is a one-time charge that helps fund the VA loan program. Funding fees are a percentage of the loan. There’s a tiered structure, with rates depending on your down payment amount. Here are the current funding fees, and what they look like on a $400,000 home.[6]
VA funding fees
| If your down payment is… | Your VA funding fee will be… | …which equals this dollar value on a $400k home |
|---|---|---|
| First use | ||
| $0–$19,999 (less than 5%) | 2.15% | $8,600 |
| $20,000–$39,999 (5% to under 10%) | 1.5% | $5,700 |
| $40,000+ (10% or more) | 1.25% | $4,500 |
| After first use | ||
| $0–$19,999 (less than 5%) | 3.3% | $13,200 |
| $20,000–$39,999 (5% to under 10%) | 1.5% | $5,700 |
| $40,000+ (10% or more) | 1.25% | $4,500 |
Veterans with a service-connected disability rating of 10% or more are exempt from the funding fee. Make sure your COE shows “exempt” and double-check that no funding fee appears in Section A of your Loan Estimate.
Funding fees are separate from lender origination fees. Many lenders charge a flat 1% loan origination fee on VA-backed home loans.[7] There could be other lender fees, some of which are negotiable. Check Section A of your Loan Estimate for an itemized list. You’d have to roll all the loan costs into the VA loan for a true, zero out-of-pocket loan.
Advantages of a VA loan
The biggest advantages of VA loans include:
No down payment required: VA borrowers don’t have to put money down. In fact, 90% of borrowers don’t. [8]
No mortgage insurance—ever: With conventional loans, you pay PMI until you reach 20% home equity. On FHA loans, the mortgage insurance premium lasts for the life of the loan.[9] Borders recalls a client in Ohio who almost chose conventional because the rate was 0.125% lower, but over 84 months, the VA loan saved him more than $11,000.
Competitive rates: VA loan rates generally match or slightly beat conventional rates, thanks to the government guarantee.
More flexible qualifying: The VA's residual income system is a more holistic way to check affordability than the standard DTI cutoff. Strong residual income can allow for a higher DTI than usual.
Reusable benefit: You can use your VA loan benefit again. Full entitlement is restored when you sell your VA-financed home and pay off the loan.
Assumable loans: Any qualified buyer—whether VA-eligible or not—can take over your existing VA loan. It’s a big selling point if you have a low-rate VA mortgage loan.
Potential drawbacks of a VA Loan
While there are many benefits to VA loans, potential drawbacks do exist:
Funding fee adds to your loan balance: Rolling the funding fee into your loan increases the total amount borrowed and the lifetime cost. You’ll likely still save compared to paying PMI until you hit 20% home equity or paying an FHA mortgage insurance premium for the life of the loan, but ask your lender to crunch the numbers.
Seller misconceptions and VA loan stigma: Some sellers assume VA loans are slow or prone to appraisal issues, and may reject VA buyers.
Cam Janssen — a military veteran who served as a helicopter engine mechanic and now owns Shoreline Shine Roof & Exterior Cleaning in Fort Myers, Florida—has used his VA loan benefit to purchase three homes without encountering any stigma. But he says the same wasn’t true for all his friends.
As a precaution, choose a lender who understands VA loans and can educate agents and sellers to help smooth the process and ease concerns. Borders also suggests considering a short appraisal contingency or a larger earnest money deposit to show confidence in your offer.
Minimum property standards can complicate deals: Sellers who want to sell as-is may prefer buyers who don’t have loan-related repair requirements.
Primary residence only: VA loans can’t be used for investment properties or vacation homes. The home must be your primary residence, though PCS orders or other life changes may allow you to legally rent it later.
Types of VA loans
While VA purchase loans are the most popular, there are other types of VA loans, too.[10][4] Here’s a quick overview of what’s available and what makes each unique.
| VA loan type | What it’s used for | Key benefits |
|---|---|---|
|
VA-backed purchase loan |
Standard home purchases |
|
VA IRRRL (Streamline Refinance) [11] |
Refinancing mortgage to lower interest rates and monthly payments |
|
|
VA Cash-out Refinance |
Refinancing mortgage to access home equity |
|
|
VA Renovation Loan (Alteration and Repair Loan) |
Financing home improvements into the mortgage loan at purchase |
|
|
VA Energy Efficient Mortgage (EEM) |
Financing energy upgrades (HVAC, solar, storm windows and doors) when purchasing a home or refinancing a loan |
|
|
Native American Direct Loan (NADL) |
Financing homes on Federal Trust Land |
|
Each type of VA loan has its own restrictions, such as property type, occupancy requirements, entitlement limits, and other program-specific rules.
Borders says VA Renovation Loans are an often overlooked VA loan. “I’ve had veterans walk away from perfectly good homes because they needed $40,000 in updates and didn’t know they could finance that into a VA loan.”
Almost all VA loan types are available to eligible service members, veterans, and surviving spouses, except for NADL loans. NADL loans borrowers must also be Native American and buying on Federal Trust Land where the tribe has an active Memorandum of Understanding (MOU) with the VA.[10]
How to get a VA loan
Getting a VA purchase loan is a lot like getting any other mortgage, but there is more required. For Janssen, the process didn’t feel like much extra work over applying for a traditional mortgage: “I understand when you’re making a big purchase, you’re going to have to provide documentation. So, if I had to get one more piece of paper on top of the others, it wasn’t a big deal.”
Step 1: Verify your eligibility
Ask your lender to pull your COE electronically to verify eligibility. If you have a 10% or higher disability rating, confirm your COE shows your funding fee exemption and make sure you’re not charged a funding fee in Section A of your Loan Estimate.
Surviving spouses wanting to use the VA loan benefit who are receiving a Dependency and Indemnity Compensation (DIC) can submit VA Form 26-1817 and the Veteran’s DD214 (or other separation papers) directly to the lender to verify eligibility. [12]
Surviving spouses not receiving a DIC benefit, must first fill out a VA Form 21P-534EZ and mail the form and these documents to the address listed further below:
- The Veteran’s DD214 (or other separation papers) if available
- A copy of your marriage license
- The Veteran’s death certificate
Department of Veterans Affairs
Pension Intake Center
PO Box 5365
Janesville, WI 53547-5365
Step 2: Choose your lender carefully
Lender quality and communication can make your offer more competitive. “A well-executed VA purchase with an experienced lender closes in 15–30 days. Appraisal turnaround in most markets is 4–10 business days, and a clean file doesn’t look any different to a title company or selling agent than a conventional loan,” says Borders.
Step 3: Shop at least 2-3 lenders
A mortgage broker can help by comparing multiple lenders at once. Be sure to request loan estimates on the same day, for the same loan term and lock period, for the best comparison.
Step 4: Get pre-approved—not just pre-qualified
“Pre-qualification is a conversation. It's a loan offer collecting data over the phone and giving you a soft number based on what you've told them, with no document verification,” explains Borders.
“Pre-approval means your income documents, credit, assets, and VA eligibility have been reviewed and verified—ideally with an underwriter looking over your file before you make an offer," Borders continues. "In a competitive market, the difference matters enormously.”
Pre-approval letters that are tailored to the specific property you want—rather than a generic “up to $X”—are the strongest.
Connect with a loan officer to make a plan for your VA loan
Whether you’re planning to buy soon or just starting to think about it, connecting with a loan officer now can help. An experienced loan officer will review your financial profile and help you understand your mortgage options.
At Best Interest Financial, we offer personalized, white-glove service you won’t find at big-box or automated lenders. With over 80 years of combined experience and billions in closed loans, our loan officers have the expertise to help identify creative financing possibilities that others might miss.
No matter your timeline, we’ll help you build a strategy to reach your goals and get you on the path to homeownership. Get your free, 60-second quote from Best Interest today to learn more.
FAQ
Do I need a down payment for a VA loan?
Not usually. The VA doesn’t require a down payment, though some lenders might if your loan is above conforming limits ($832,750, or $1,249,125 in high-cost areas).[5]
Can I use a VA loan more than once?
Yes! You can reuse your benefits, but having one unpaid VA loan will limit your entitlement on a second. If a non-military buyer assumes your VA loan, your entitlement stays tied up until the new buyer pays off the loan either by satisfying the loan term, refinancing, or selling the home.
What is a VA loan assumption, and how does it work?
A qualified buyer—VA-eligible or not—can take over your VA mortgage. The mortgage loan formally transfers over to them. If the buyer doesn’t use their own VA entitlement, yours stays frozen until the loan is paid off or refinanced.