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VA Home Loan Guide and VA Loan Requirements
The U.S. Department of Veterans Affairs (VA) offers mortgage programs for eligible active and retired military personnel, including individuals in the reserves and national guard. The VA guarantees 25% of the mortgage amount, which protects the lender from losing significant money in the event of foreclosure. You can obtain a VA home loan through an approved lender, such as a bank, mortgage broker or credit union, that offers the program.
The key benefit of a VA loan is that you can obtain a mortgage and buy a home with no down payment. This represents a huge opportunity, especially for first-time home buyers who may struggle to save enough money for a down payment. Another benefit of the program is that VA mortgage rates are typically 0.250% - 0.500% lower than the interest rate for other programs. VA rates are lower because the government insures the loan and because VA borrowers are financially responsible and credit-worthy.
Although the Department of Veterans Affairs determines program guidelines and VA loan requirements, borrowers do not apply for the program with the VA. Instead, borrowers apply for VA mortgages through approved lenders such as banks, mortgage banks, mortgage brokers and credit unions. These approved lenders make sure that applicants meet program eligibility requirements and qualify for the loan according to the borrower qualification guidelines.
The table below compares VA mortgage rates and fees for leading lenders. VA fees are higher because you may be required to pay a one-time funding fee but VA mortgage rates are lower than for other programs. We recommend that you shop multiple lenders and compare mortgage proposals to find the best VA loan terms including the lowest interest rate and closing costs.
To be eligible for a VA mortgage you must meet certain borrower qualification requirements and receive a certificate of eligibility. In general, eligibility is determined by date of military service, length of service, if the service occurred during wartime or peacetime and the type of discharge from the military (applications involving other than honorable discharges will usually require further investigation by the VA). Typically, you are eligible for VA home loan programs if you served on active duty for more than 90 consecutive days during wartime or more than 181 days during peacetime. National Guard members and Reservists are required to have served at least six years. Spouses of deceased or missing military personnel may also be eligible for the program. You can review a detailed description of the eligibility rules and apply online to for your Certificate of Eligibility through the VA website.
Borrowers who are eligible for the VA home loan program qualify for an entitlement benefit, which is essentially the amount of the mortgage that the VA guarantees in the event of default or foreclosure. When you get a VA loan, you use all or part of your entitlement. One of the main benefits of the VA program is that eligible borrowers can use the program an unlimited number of times over their lifetime as long as they restore their entitlement. If you have used your VA entitlement in the past, the entitlement can be fully restored if the property financed is sold and the mortgage is repaid in full. Please note that if your loan is paid off in full, it is possible to keep the home for use as an investment property or vacation home and fully restore your entitlement by using a one-time VA entitlement restoration benefit.
If you currently have a VA loan outstanding, you may be able to use the VA program for another mortgage if you are not using your full entitlement (or if you use your second tier VA entitlement). For example, if you have a VA loan on your current home and you are transferred, you may decide to keep that property and rent it out and use your remaining entitlement on another loan to buy a home in your new location. Borrowers who do not have a enough entitlement remaining may be required to make a down payment to use the program although they still benefit from the advantages including paying a lower mortgage rate and not paying ongoing mortgage insurance. Please note that VA loans can only be used to purchase owner-occupied properties. If you are considering using or re-using the program, we recommend that you contact the VA to determine your eligibility status and the current amount of your entitlement.
VA Residual Income Requirement
The VA home loan program requires that the borrower have a minimum level of residual (leftover) income after accounting for the monthly mortgage payment and other expenses. Residual income is determined by subtracting the following expenses from monthly gross income:
- Taxes
- Social Security
- Monthly housing expense (monthly mortgage payment, property tax, homeowners insurance)
- Child care expenses
- Other monthly debt (credit card debt, auto and student loans)
- Maintenance and utilities expenses
The minimum level of residual income required to qualify for a VA loan depends on the loan amount, the number of people in the borrower's household and the region of the country in which the property is located. Lenders may have some flexibility to reduce the residual income requirements by 5% or more for active-duty or retired personnel if they will continue to benefit from using military-based facilities located near the property being purchased. The table below outlines the residual income required to qualify for the program.
When you apply for a VA loan, you need to complete a VA Loan Analysis Form to determine your residual income and ability to qualify for the mortgage. We provide an example VA Loan Analysis Form for your review as well as an instructional video below.
Borrower Debt-to-Income Ratio
The maximum debt-to-income ratio for a VA loan is typically 41%. The debt-to-income ratio represents the maximum percentage of a borrower's monthly gross income that can be spent on total monthly housing expense plus other monthly debt payments such as credit card, auto and student loans. The 41% maximum debt-to-income ratio is lower than the ratio typically used for conventional mortgage programs and other government-backed programs such as the FHA Mortgage Program. The lower the debt-to-income ratio, the smaller the mortgage you qualify for. Please note that it is possible to qualify for a VA home loan with a debt-to-income ratio above 41% although lenders are required to provide additional documentation to support the use of the higher ratio.
- VA MORTGAGE QUALIFICATION CALCULATORshows you what size VA loan you can afford
Credit Score
Technically, the VA home loan program does not have a minimum required credit score and lenders are advised to review applicants' entire credit profile and history to determine if they qualify for the mortgage. From a practical standpoint, most lenders require that borrowers have a minimum score of 620 to meet their internal underwriting guidelines although some lenders permit a score as low as 600. It may be possible to qualify with a lower credit score or limited credit history if your application is strong in other areas such as your income, assets or down payment.
We recommend that you contact multiple lenders to determine their credit score requirement as guidelines vary. Additionally, we advise you to review your credit report six months to a year before you start the mortgage process to address potential issues.
VA Loan Reserve Requirement
The VA Program does not require borrowers to hold savings in reserve at mortgage closing for purchases of one or two unit properties, although we recommend that you keep enough savings in reserve to cover three-to-six months of total monthly housing expense. For purchases of three or four unit properties borrowers are required to hold six months of total monthly housing expense, which includes your mortgage payment plus property tax and homeowners insurance, as savings in reserve at mortgage closing. So if your total monthly housing expense is $2,000, you would be required to hold at least $12,000 in reserves at the time the mortgage closes. Additionally, if you own rental properties you are required to hold three months of total housing expense in reserves at closing for each rental property that is not financed by a VA loan.
Borrower Income Limit
Unlike many other no or low down payment mortgage programs, the program does not apply borrower income limits.
First-Time and Repeat Home Buyers
VA loans are available to both first-time and repeat home buyers as compared to other no or low down payment programs that are only available to first-time buyers. Repeat users of the program are required to pay a higher upfront VA funding fee.
Use our free mortgage quote form to review no proposals from top-rated VA lenders. Our quote feature is personalized, easy-to-use and does not impact your credit. Comparing several loan quotes the best way to save money on a VA home loan.
Mortgage Rate
The mortgage you pay on a VA loan depends on several factors including your location and lender. VA mortgage rates are typically .250% - .500% lower than the rates for other conventional low down payment programs and comparable to the rates for government-backed programs such as the FHA and USDA mortgages. VA mortgage rates are among the lowest of all loan programs because the program is backed by the VA and borrowers are more credit-worthy. Additionally, VA mortgage rates should not vary significantly based on your credit score so applicants with both high and low scores should pay approximately the same rate. Borrowers should compare multiple lenders to find the VA loan with the lowest mortgage rate and closing costs.
Impound Account
Along with their mortgage payment, the VA program requires you to pay property tax and homeowners insurance into an impound account on a monthly basis. An impound account is a trust account that is controlled by the lender from which your property tax, homeowners insurance and other authorized expenses are paid when due. The impound account does not affect your mortgage rate or closing costs.
Extra Fees
Borrowers are required to pay standard lender fees and closing costs with the program. Aside from the up-front VA funding fee, borrowers are not required to pay additional fees to apply for the program.
The program requires that most borrowers pay a one-time, upfront VA funding fee, which is calculated as a percentage of the mortgage amount. The fee may be paid in cash or added to the mortgage amount, or a combination of the two.
We should highlight that some borrowers do not have to pay the VA funding fee. Applicants that receive compensation for a service-related disability or who are entitled to receive compensation for a service-related disability but who receive active duty or retirement pay are not required to pay the fee. Active duty service members who have received a purple heart are also exempt from paying the funding fee. Additionally, spouses of a totally disabled veteran or of a veteran who died in service or from a service-related cause do not need to pay the fee.
- Use ourVA LOAN CALCULATOR
to determine your funding fee
The table below shows 2023 VA funding fees for different types of loan programs. The amount of the fee depends on your down payment amount (if you decide to make one), mortgage program and if this is your first time using a VA program. An eligible veteran may use the program multiple times although the funding fee increases after the first use.
As noted in the table above, the VA funding fee for a home purchase or construction loan ranges from 1.25% to 3.30% of the loan amount, depending on your down payment and if this is your first VA home loan. For a cash out refinance, the VA funding fee is 2.15% of the loan amount for the first use of the VA program and 3.30% for subsequent uses, regardless of how much equity you have in your home.
VA program guidelines apply lower funding fees for the VA Streamline Refinance Program (VA IRRRL) (0.5% of the loan amount), mortgage assumptions (0.5% of the loan amount), manufactured home loans (1.0% of the loan amount) and the Native American Direct Loan Program (1.25% of the loan amount).
The great news about a VA loan is that you are not required to pay any ongoing monthly mortgage insurance fees like you are required to pay with most other no or low down payment loan programs. Not paying these fees reduces your total monthly housing expense and makes home ownership more affordable.
Effective January 1, 2020, the VA no long applies loan limits as long as you have your full VA entitlement available to you. This means that you can use the VA program to buy a home with no down payment, regardless of the purchase price, and no maximum mortgage amount, as long as you meet the qualification requirements and earn sufficient income to afford the monthly payment. This guideline also makes it easier to qualify for a jumbo VA mortgage, which is especially helpful for applicants that live in areas with higher home prices. In the past, you were required to make a down payment if your mortgage amount exceeded the VA loan limit for your county but this is no longer the case.
VA loan limits only apply to applicants who have not fully restored their entitlement. In this case, the VA guarantees 25% of your mortgage amount up the loan limit for your county, less the amount of your entitlement that has not been restored, which effectively caps your loan amount. In this scenario, you would likely need to make a down payment if your mortgage amount exceeds the applicable loan limit.
If you have never used the VA home loan program, you should have your full entitlement available. If you have previously used the program, you can restore your entitlement by selling your home or paying off your mortgage.
Use the FREEandCLEAR Lender Directory to find lenders that offer the VA home loan program and many other low down payment options.
Mortgage Program
Only 10 - 30 year fixed rate mortgages plus 3/1, 5/1, 7/1 and 10/1 adjustable rate mortgages (ARMs) are eligible for the program while interest only mortgages are not permitted.
Mortgage Type
You can use a VA home loan to both purchase a home and refinance an existing mortgage. Homeowners with existing VA loans can use the VA Streamline Refinance Program (VA IRRRL Program) to refinance their mortgage with less documentation and more flexible borrower qualification requirements including no credit score or appraisal report. The VA also offers the the VA Energy Efficient Mortgage (EEM) Program that enables borrowers to include up to $6,000 in energy efficiency home improvements in their VA loan amount. The VA EEM Program also applies to both purchase loans and refinances.
The VA Program only applies to owner occupied primary residences. You can use the program to purchase single-family homes, condominiums or multifamily properties with up to four units such as an apartment building with four residences. For multifamily properties at least one of the units needs to be owner occupied, or lived in by the individual(s) who obtained the mortgage to purchase the property. Investment properties and vacation homes are not permitted under VA program guidelines.
Related FREEandCLEAR Resources
Sources
"VA-backed Veterans home loans." VA. U.S. Department of Veterans Affairs, 2020. Web.
"Lenders Handbook - VA Pamphlet 26-7." VA. U.S. Department of Veterans Affairs, 2020. Web.
"How to apply for a VA home loan Certificate of Eligibility." VA. U.S. Department of Veterans Affairs, January 1 2020. Web.
"VA funding fee and loan closing costs." VA. U.S. Department of Veterans Affairs, April 2023. Web.
"Blue Water Navy Veterans and Your Home Loan Benefits." VA Home Loans. U.S. Department of Veterans Affairs, January 1 2020. Web.
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