VA Loans: Benefits, Eligibility Requirements And More

A VA loan is a type of government loan backed by the U.S. Department of Veterans Affairs (VA). VA loans are available to veterans, active-duty service members, people who’ve served in the National Guard and the Reserves, and surviving spouses who all meet certain requirements for eligibility.

Before you apply for a VA loan, it’s important to understand how this special government-backed financing works, including its benefits and requirements, and how its interest rate and costs compare to other borrowing options.

The VA offers specific guarantees to private lenders that handle VA loans.

How Do VA Loans Work?

VA mortgages are considered non-conforming loans because they don’t meet, or “conform” to, the guidelines of government-sponsored enterprises Fannie Mae and Freddie Mac. The VA doesn’t issue VA loans, but the VA determines who qualifies for them and which lenders issue them.

There are several types of VA loans, and they pose less of a risk to lenders because they’re backed by a government agency. This backing allows lenders to set more lenient borrowing requirements on VA loans, including for borrowers with a lower credit score. VA loans also tend to offer a lower interest rate than conventional loans (which are more common and are backed by private lenders, not the government), and they include the option to purchase a home with no down payment.

VA Loan Limits

The VA doesn’t limit how much you can borrow, except in the case of impacted entitlement. But when loan limits do apply to a VA loan, they’re usually based on the conventional loan limit, which for 2024 is $766,550 for one-unit properties in non-high-cost areas of the continental U.S. Additionally, lenders often use the conventional loan limits as the lower bounds for VA jumbo loans.

Certain high-cost areas have higher borrowing limits. If you need a loan even higher than that amount, you can explore the possibility of a VA jumbo loan, which doesn’t require a down payment and may offer a lower rate than a regular jumbo loan.

Common Types Of VA Loans

Eligible borrowers can choose from a variety of VA loan options when financing or refinancing a home.

Who Qualifies For A VA Loan?

VA loans are typically available for the following types of people:

• Veterans
• Service members
• Currently or formerly activated National Guard members
• Surviving spouse
• Reserve members

You must also meet at least one of the following criteria for VA loan eligibility:

• You’ve served 181 days of active service during peacetime.
• You’ve served 90 consecutive days of active service during wartime.
• You’ve served more than 6 years of service with the National Guard or the Reserves, or 90 days under Title 32 with at least 30 of those days being consecutive.
• You’re the spouse of a service member who lost their life in the line of duty or as the result of a service-connected disability. You generally can’t be remarried, although there are exceptions. There are also other requirements for a spouse getting a VA loan.

Wartime or peacetime definitions depend on when you served. For more information, see the VA’s eligibility guidelines.

What Is A Certificate of Eligibility (COE)?

A Certificate of Eligibility (COE) is a document that shows your mortgage lender that you qualify for a VA home loan. To get a COE, you need to demonstrate proof of service. The proof you need to submit varies based on whether you’re an active-duty military member, a veteran or another type of individual who’s VA loan-eligible.

You can request a COE on the VA website or ask your lender to help secure your COE.

VA Loan Requirements

Once you’ve verified your VA loan eligibility, you need your income, assets and credit to check out. The property you’re buying also must meet certain requirements. Requirements vary for any loans your lender considers a VA jumbo loan.

Property Type

To be in compliance with VA loan occupancy requirements, the property you buy must be your primary residence within 60 days of purchase. You can’t use a VA loan for a vacation or investment property, but you can use it to buy a one- to four-family home if the eligible member uses it as a primary residence.

VA loans can also be used on condos and manufactured homes, but not all VA lenders will finance loans for these property types. Rocket Mortgage offers financing for manufactured homes built on or after June 15, 1976, that are permanently affixed to the land (real property) and have a HUD tag.

Credit Score

The VA doesn’t require a specific minimum credit score for VA loans, so the credit requirement varies by lender. The minimum median credit score for a VA loan from Rocket Mortgage is 580.

Income

Your lender will evaluate your debt-to-income ratio (DTI) when considering your ability to pay back the loan. Your DTI represents how much of your gross monthly income goes toward paying back debt. The VA doesn’t set limits on your DTI, but your lender might.

At Rocket Mortgage, the maximum DTI will often vary based on factors such as your credit score and down payment or equity amount.

Down Payment

VA loans are one of the few loan options that don’t require a down payment. Your lender may have specific requirements for a no-down-payment VA loan.

For example, they may require that you have a higher credit score if you’re putting down less than 10%.

Costs Of A VA Loan

“No down payment” doesn’t mean “zero cost.” In addition to VA loan closing costs, you’ll have other expenses to prepare for – even if you’re putting 0% down and don’t need to pay mortgage insurance.

These costs include the funding fee and the reserve funds requirement.

Funding Fee

Most people who get a VA loan are required to pay a funding fee, which covers the cost to taxpayers. The VA funding fee normally ranges from 1.25% to 3.3% of your loan amount. If you previously had a VA loan and you’re doing a VA Streamline, the funding fee is 0.5%.

The cost of the fee is determined by your type of service, the size of your down payment or amount of equity, whether it’s the first-time you’re getting a VA loan and whether you’re buying or refinancing the property. Surviving spouses, veterans who receive disability, and Purple Heart recipients serving in an active-duty capacity are exempted from funding fees.

In most cases, if you don’t have the money upfront, the VA funding fee can be rolled into your mortgage.

Reserve Funds

Most loans require the home buyer to have additional money in the bank that they’re not using for upfront costs. This ensures you’ll be able to make payments once your loan closes.

The amount of leftover funds you’ll need is determined by the cost of your mortgage payment, including principal, interest, taxes and insurance. Although it’s not always required, it’s a good idea to show reserves equal to 2 months of mortgage payments.

VA Loan Benefits

VA loans have many benefits over conventional mortgages. Among them are a potentially lower interest rate, the absence of a down payment and mortgage insurance requirement, more relaxed credit requirements, and additional pluses for disabled veterans.

Lower Interest Rates

Because they’re backed by the government and carry lower risk for lenders and investors, VA loans typically have lower interest rates than conventional loans – particularly for borrowers with credit issues.

No Down Payment Requirement

VA loans are one of two major mortgage options that typically don’t require a down payment. This means you’ll need less money upfront, being able to save the extra or spend it on home furnishings and projects.

No Private Mortgage Insurance (PMI)

VA loans don’t require private mortgage insurance (PMI). PMI is mortgage insurance on conventional loans that a lender will require you to pay if you don’t put at least 20% down. Not having to pay PMI can save you 0.1% – 2% of your remaining loan balance per year, which you’ll have to pay until you reach 20% equity if you didn’t put that same percentage down at minimum.

Lenient Borrowing Requirements

VA loans allow you to qualify with a higher DTI than any mortgage program from one of the major mortgage investors. If your credit score is 620 or better, DTI to qualify can vary based on factors such as credit score and down payment amount.

If your score is at least 580 but less than 620, your mortgage payment can’t account for more than 38% of your gross monthly income. Additionally, your DTI can be no higher than 45%.

100% Loan-To-Equity Value When Refinancing

In most cases, you don’t need any equity to refinance your VA loan into a lower rate or take cash out. In fact, with a VA Streamline Loan, you can refinance up to 120% of your home’s value for changing your repayment term or lowering your interest rate. This means you can refinance even if you owe more on your home than it’s worth.

To do this, however, Rocket Mortgage requires that your median credit score be at least 620. Otherwise, you can take out up to 90% of your home equity if you have a median score of 580 or better.

Ability To Use A VA Loan More Than Once

A VA loan isn’t a one-time benefit.

You may be able to get an additional VA loan in the future if you sell your first home and pay off the initial loan, or you sell the house and another home buyer who meets the VA’s requirements agrees to assume the loan.

You can also repay the full loan amount and get another VA loan to purchase an additional home.

Additional VA Loan Benefits For Disabled Veterans

In addition to standard VA loan benefits, disabled veterans have access to other benefits.

• Exemption from funding fees: Disabled veterans are exempted from the VA funding fee, so they don’t have to pay this expense during closing.
• Specially Adapted Housing (SAH) grants: SAH grants can go toward constructing, modifying or paying the unpaid balance on an existing loan for a special home designed to fit the needs of a disabled individual. In 2024, you may qualify for a grant of up to $117,014 and use the money from the grant up to six times – as long as your disability qualifies.
• Special Housing Adaptation (SHA) grant: The main difference between the special housing adaptation (SHA) grant and the SAH grant is the amount of funding available. Which one you qualify for may depend on the severity of your injuries and the number of grants available. The maximum funding under this grant is $23,444 for 2024. The funds can also be used up to six times.
• Other adaptation grants: Disabled veterans may also qualify for a Temporary Residence Adaptation (TRA) grant to add modifications to their property that make it easier to navigate if they live with a family member.
• Property tax exemption: Property tax exemptions for disabled veterans can lower the amount you must pay in property taxes. These tax exemptions aren’t a federal program, and they vary by state and possibly area of residence.

How To Apply For A VA Loan

Applying for a VA loan is a lot like applying for any other mortgage, with a few differences.

1. Secure A Certificate Of Eligibility (COE)

You’ll need proof of your military service for VA loan eligibility.

Tell your lender you need your Certificate of Eligibility early in the process so they can help you get it.

2. Apply For Approval

Get preapproved early on. This will give you a baseline for determining how much you can afford.

In addition, when you make an offer on a house, you’ll find that sellers tend to take offers more seriously if a letter of preapproval is attached.

3. Shop For A House And Make A Purchase Offer

Finding a house with a VA loan is like finding a house with any other loan option. Whatever property you buy must meet the VA’s Minimum Property Requirements (MPRs) to ensure the home is safe, structurally sound and sanitary.

Once you find a home you like in your price range, put in an offer to buy the home. The seller may accept your offer, reject the offer or make a counteroffer. Once the offer is accepted, a real estate agent or attorney will draw up a sales contract sometimes known as a purchase agreement.

4. Undergo VA Appraisal And Underwriting

Underwriters from your lender assess your finances and make sure you qualify for a VA loan. The VA will also require an appraisal before they approve the loan. VA appraisals are more involved than appraisals for homes financed with a conventional loan.

During a VA appraisal, the appraiser will check that the home meets the VA’s MPRs and is sanitary, structurally sound and move-in ready with minimal repairs needed.

5. Close On Your New Home

Once the VA appraiser says your new home is safe and sound, it’s time for you to sign on your new home, get your loan and grab the keys to your new property.

The Bottom Line: A VA Loan Has Benefits For Eligible Members Of The Military Community

A VA loan is an important benefit available to many people who’ve served in the military or are actively serving. If you qualify for a VA loan, you can get a great interest rate with no money down – which means an upfront savings and an overall more affordable home buying option than you’ll likely find with a conventional loan program.

If you feel like you’re ready, start an application for a VA loan with Rocket Mortgage today!