What is a VA loan?
A VA loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs (VA), specifically for eligible active-duty military, veterans and surviving spouses. If you qualify, you can use the VA loan program to buy a home, build or renovate a home or refinance to a new mortgage.
How does a VA loan work?
The VA doesn’t provide VA loans to borrowers directly. Instead, you’ll get your loan through a VA-approved mortgage lender. Many national banks offer VA loans, and there are lenders that specialize in them, too.
In most cases, borrowers don’t need to make a down payment to get a VA loan. You won’t need to pay mortgage insurance either — a key difference between VA loans and conventional and FHA loans. The latter require borrowers to pay mortgage insurance if putting down less than 20 percent.
You will need to pay the VA funding fee, however. Collectively, these fees allow the VA to guarantee VA loans, up to a certain amount. This guarantee lowers the risk lenders take on providing mortgages without a down payment. The funding fee ranges from 1.25 percent to 3.3 percent of the loan amount and applies whether you’re buying a home or refinancing (with some exceptions).
VA loan eligibility
To be eligible for a VA loan, the VA imposes service requirements. Here’s an overview:
- You’re currently on active military duty or a veteran who was honorably discharged and met the minimum service requirements.
- You served at least 90 consecutive active days during wartime or at least 181 consecutive days of active service during peacetime; or you served for more than six years in the National Guard or Selective Reserve.
- Your spouse died in the line of duty.
Before applying for a VA loan, you’ll need a certificate of eligibility, or COE, that proves you’ve satisfied the service requirements to qualify for the loan.
Lastly, you can only use a VA loan with a primary residence; investment properties and vacation homes aren’t allowed. The property also needs to meet certain safety and structural standards.