Buy A Home With The VA Loan Benefit
A VA loan might be the best way to buy your home if you currently serve or are a military veteran. Offering loans with a no down payment option, competitive interest rates, lower closing costs, and flexible terms, the VA program is a popular veteran benefit.
The loan is guaranteed by the U.S. Department of Veterans Affairs and offered by approved lenders. Thanks to this guarantee, lenders can offer better terms to borrowers.
The VA program have helped millions of veterans and continue to offer great terms for eligible home buyers. While this loan offers many advantages, eligibility and property requirements have to be met to benefit from them. We look at the things you need to know about VA home loans.
Will I Qualify for a VA Loan?
With a loan guaranteed by the VA, the borrower will have to go through the underwriting process as with other loans. On top of this, there are additional eligibility requirements:
- Applicants need to have served for 90 days during wartime or 181 days during peacetime.
- National Guard or Reserves can qualify having served for six years.
- The surviving spouse of a person who died during their service, or as the result of injuries sustained during it, can also qualify.
A Certificate of Eligibility (COE) from the VA will show if these conditions have been met. This can be requested directly from the VA by the borrower, or the lender will request a copy of the COE.
What are the Advantages of a VA Loan?
Compared to conventional loans and other types of lending, there are some significant benefits to VA buyers:
You Don’t Need a Down Payment for a Purchase Loan
Saving money for a down payment can delay the purchase of a home. Lenders require at least 3% of the purchase price with Fannie Mae or Freddie Mac loans and offer better terms with larger down payments.
As long as you have enough entitlement, the VA allows borrowers to bypass the years of savings that might be needed to meet this requirement. This is particularly valuable to first-time buyers, saving tens of thousands of dollars and a lot of time.
If you already have the money, there are advantages to having a down payment. If you provide a down payment there may be less interest to pay. It can also mean you can pay a lower VA funding fee, a one-time charge that can be rolled into the loan.
Even though a VA home loan doesn’t require a down payment, buyers are usually expected to provide an earnest money deposit. With an earnest money deposit, sellers can feel more confident in taking their home off the market. Without earnest money, buyers would be free to make multiple offers without real commitment.
As well as earnest money, buyers need to pay closing costs upfront.
Reduced Closing Costs
Every type of loan requires costs to be paid at closing, but with a VA home loan, these fees are limited.
Borrowers will sign the paperwork on their closing day, and the lender will supply the money to buy the home. The borrower also has the responsibility of paying the closing costs on that day. These costs cover many of the fees from the professionals involved in the home-buying process and can include:
- Title insurance
- Appraisal fee
- Home inspection fee
- Origination fee
- Credit report fee
- VA funding fee (can be rolled into the loan amount)
Some fees normally expected with a traditional loan may be considered non-allowable or limited with the VA program. For instance, underwriting fees are limited to 1% of the loan amount.
Reduced costs are one way that the VA program helps first-time buyers. Another advantage for first-time buyers is the lack of requirement for private mortgage insurance.
Avoid Private Mortgage Insurance
If you don’t have 20% of the purchase price for a down payment, most home loans require you to pay private mortgage insurance (PMI). This insurance protects the lender from loss should the home go into foreclosure.
These insurance premiums are added to your monthly loan payments and are a considerable extra expense. This fee can add several hundred dollars to your outgoings each month while offering no benefit to you.
With the conforming loan, PMI will usually be paid until the buyer has 20% equity. With an FHA loan, their PMI can remain for the lifetime of the loan.
But with the VA program, you won’t have to pay these ongoing costs.
However, as a VA borrower, you will be expected to pay a one-time funding fee. This serves a similar purpose to PMI, helping cover the cost of guaranteeing loans.
Some veterans are exempt from this fee, like Purple Heart recipients. Unless exempt, a fee of at least 1.25% will be payable on every loan. This fee can be paid at closing or rolled into the total loan.
- With down payments below 5%, the fee is 2.15% for the first use.
- With a down payment of 5%, there is a 1.5% fee.
- Down payments of 10% or more qualify for a 1.25% fee.
For borrowers with a down payment of less than 5% or zero down, the VA fee increases to 3.3% after the first use.
Easier Credit Requirements
Qualifying for a mortgage can be difficult if you have had credit issues. The VA program wants to make it as easy as possible for military personnel and veterans to qualify so they have a lower minimum credit score requirement.
It is possible to qualify for a VA loan with a credit score of just 500, whereas you would need at least 620 with conventional loans. However, the exact minimum credit scores required depend on the lender.
Increasing your credit score will likely improve the loan terms and reduce your costs whichever loan type you choose. There are some steps you can take to boost your credit score, though this can take a few months to show results.
Being late on payments and over-utilizing your available credit are just two things that could be negatively affecting your credit score. You can check your credit report for free with the main bureaus once a year. These reports should show where the problems are and what you can do to improve your score. You could even find that errors are causing your score to be lower than it should be.
VA Debt-to-Income Ratios
When applying for a loan, the lender will consider the borrower’s debt-to-income ratio. This important calculation shows what size loan the borrower can afford to repay.
The lender will compare your gross income against your debts, with most companies allowing a DTI of up to 41%. A VA loan can offer more flexibility in qualifying DTI ratios. Some companies allow DTIs as high as 55%, depending on income and credit score.
Competitive Interest Rates
With all the benefits we’ve looked at, you might not expect great interest rates on the loan. However, even if you’re buying without a down payment, lenders typically offer competitive mortgage loan rates on VA loans.
Thanks to the guarantee mortgage companies have through the VA loan program, they can offer lower rates. Sometimes these rates are even lower than conventional loans, potentially saving many thousands of dollars over the loan term. The exact interest rate available to you will depend on your VA mortgage company.
Reusing Loan Benefits, Foreclosure & VA Loan Limits
If you qualify for a VA loan, you can use these home loan benefits multiple times. Your VA entitlement can allow you to buy a second home or help you recover after foreclosure.
Even if you have purchased a home using your VA entitlement, you could buy a second home with zero down if you have enough entitlement remaining. Known as Second-Tier Entitlement, borrowers still need to meet the lender’s requirements and have a good reason for buying the second home such as a permanent change of station (PCS). A VA loan cannot be used to buy an investment property, though you might be able to rent out your first home.
If you haven’t previously used your entitlement, you will have a basic entitlement of $36,000 which guarantees 25% of the purchase price. This basic entitlement therefore means the VA guarantees homes costing $144,000. There is also second-tier entitlement that varies depending on location.
VA loans offer various guarantee amounts based on the loan size, ensuring flexibility for veterans seeking to finance their homes. The guarantee amounts are as follows:
- Amounts up to $45,000 have a maximum guarantee of 50 percent of the loan.
- Amounts between $45,001 and $56,250 have a maximum guarantee of $22,500.
- Amounts between $56,251 and $144,000 have a maximum guarantee of 40 percent of the loan, with a maximum of $36,000.
- Amounts greater than $417,000 have a maximum guarantee of the lesser of:
- 25 percent of the VA county loan limit, or
- 25 percent of the loan amount.
These guarantee amounts ensure that veterans have access to a variety of financing options, helping them secure homes in different price ranges without unnecessary restrictions.
The lowest VA loan limits in 2025 are $806,500, meaning available entitlement is at least $201,625 (25% of $766,550). This is made up of $36,000 in basic entitlement and $165,625 in second-tier entitlement. While you can buy a home above the county loan limit, you will need a down payment to do so.
When you pay off your loan your entitlement will be restored, allowing you to use your full entitlement again to buy another property with zero down.
More Flexible VA Appraisals
Waiting for the home appraisal report can be a stressful stage in the buying process. If the appraiser finds that the home’s value is lower than the agreed purchase price, the mortgage company is unlikely to provide the full amount.
An appraisal gap can lead to renegotiation with the seller, or the buyer having to back out of the purchase. However, with a VA appraisal, the buyer and their agent have an opportunity to justify a higher valuation before the final decision is made. This is called a reconsideration of value. There may have been improvements to the home or other factors that justify a higher valuation.
Low appraisals can be a problem with any home purchase, but with a VA loan, there’s an extra step to allow the purchase to continue.
No Early Repayment Penalty
Paying off the loan ahead of schedule can incur prepayment penalties with some loans. The VA program ensures borrowers are not penalized for early repayment.
Refinancing for a Lower Interest Rate
The VA offers a streamlined Interest Rate Reduction Refinance Loan (IRRRL) to help borrowers reduce their interest costs on their mortgages. When lower interest rates are available, an existing VA loan can be refinanced with less paperwork and faster closing.
While there will be refinancing costs, if interest rates are lower this may still mean significant savings for the homeowner.
What are the Disadvantages of a VA Loan? Funding Fee & Down Payment
Of course, while there are many advantages to choosing a VA loan, there are also some downsides. Perhaps the biggest disadvantage is that sometimes sellers don’t like that the buyer may not have a down payment. This could lead the seller to be negative about the VA loan and prefer another buyer.
There are also some situations where choosing a VA loan might not be your best option. If you already have 20% of the purchase price for the down payment, you will still need to pay the funding fee when using a VA loan. Choosing a different type of home loan could work out cheaper when you don’t have to worry about monthly mortgage insurance.
Summing Up the Benefits of a VA Loan
Buying a home is the most expensive purchase most people will ever make, so taking advantage of every benefit available is important. If you have served, the VA loans program offers many benefits that will save you time and money.
You can avoid waiting to buy until you’ve saved a down payment. Your monthly outgoings will be lower, thanks to the lack of mortgage insurance premiums. And on top of this, your costs should be lower compared to other home loan options.
About the author: This article was written by Luke Skar of MadisonMortgageGuys.com. As the Social Media Strategist, his role is to provide original content for all of their social media profiles as well as generate new leads from his website.
We provide award-winning customer service to clients who need to purchase a home or refinance an existing mortgage.
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