VA Loan Guide: What It Is, How It Works, Best Lenders and How to Apply
Military service members and veterans earn many special benefits, but one of the most useful is a VA loan benefit. This mortgage program allows buyers to more easily finance a home. The VA loan borrowing process is a lot like traditional mortgages, but there are key differences you’ll need to understand before deciding whether a VA loan is right for you.
What is a VA loan?
A VA home loan is a special type of mortgage created specifically to help veterans become homeowners, offering more lenient requirements than conventional loans. Guaranteed by the U.S. Department of Veterans Affairs (VA), VA loans are only available to qualified borrowers as a part of their military benefits. This generally includes active-duty service members and veterans, though spouses may also qualify in some cases.
Key takeaways about VA loans
→ A loan option exclusively for veterans, active-duty service members and eligible family members.
→ Affordable loans with no down payment, no minimum credit score requirement and no mortgage insurance.
→ Typically offer lower interest rates and have lower closing costs.
→ A good alternative for buyers who need to borrow more than conforming loan limits allow.
→ A great option for any veteran, but especially for first-time homebuyers who may need extra help in a competitive housing market.
→ Comes with some unique fees and costs, including the VA funding fee and a VA home appraisal.
Purchase loans
With a VA purchase loan you can enjoy:
- No down payment
- No credit minimum
- No income limit
- No loan limits (as long as the borrower has full entitlement)
- The ability to buy more than one home with no down payment
Jumbo loans
With a VA jumbo loan you can borrow more than the current conforming loan limits allow. The current loan limit for a single-family home is $726,200 in most parts of the U.S.
Refinance loans
With a VA refinance, you can:
- Replace an existing mortgage with a VA loan that has a lower rate
- Borrow up to 100% of your home’s value
Cash-out refinance loans
With a VA cash-out refinance, you can:
- Trade out your current home loan for a new VA loan and pocket some cash at the same time
- Tap home equity up to 90% of your home’s value
VA Interest rate reduction refinance loans (IRRRLs)
A VA IRRRL can provide the following benefits to homeowners with a current VA loan:
- A reduction of your current interest rate
- The ability to roll VA closing costs into your loan
- The option to skip a home appraisal
- The ability to bypass income verification
Renovation loans
VA renovation loans may allow you to:
- Purchase or refinance a fixer-upper home and roll remodeling and repair costs into the loan
- Finance up to 100% of the home’s value
Energy-efficient loans (EEMs)
A VA energy-efficient loan may allow you to:
- Add the cost of energy-saving home improvements to your VA loan
- Finance up to 100% of the home’s value
VA manufactured home loans
VA manufactured home loans may allow you to:
- Finance just a manufactured home and place it on land you already own
- Finance a manufactured home and land at the same time
- Refinance a manufactured home you already own and purchase a plot of land to place it on
- Finance the improvements necessary to meet VA manufactured home foundation requirements
VA land loans
A VA land loan can give you the opportunity to:
- Buy land, then build a home on it — all with one mortgage
- Refinance land you’ve already purchased and a home you’ve already built
- Buy farmland, as long as it also has a house on it
Construction loans
A VA construction loan can let you:
- Build a house with no down payment
- Choose from one-time or two-time close options
Supplemental home improvement loans
VA home improvement loans allow you to:
- Finance smaller home maintenance projects and add the loan amount to your current loan
- Finance home maintenance projects and take the cost out as a separate loan
How does a VA loan work?
You can get a VA loan from traditional lenders, like banks and credit unions. The VA doesn’t issue VA loans — instead, it “backs” them, which means the agency pays lenders a certain amount of money if the loan goes into default. This reduces the risk lenders have to take on and allows them to give loans to borrowers who may not be able to qualify for a conventional loan.
Getting a VA loan is very similar to getting any other home loan: You have to apply and provide documentation of your income, assets and employment. Your lender will also review your credit history, credit score and income before approving you for a specific loan amount.
However, there are some big differences between VA loans and the loans available to the average civilian, like conventional loans and loans backed by the Federal Housing Administration (FHA).
Unique VA loan benefits include:
No down payment
Most VA borrowers won’t be required to make a down payment if they don’t want to. Sometimes, though, it makes good financial sense to put money down — it can reduce your VA funding fee (more on that below), and you’ll end up with a smaller loan amount. The smaller the loan, the less you’ll pay in interest and the faster you’ll build equity.
Learn more about how to decide if you should make a down payment on your VA loan.
No mortgage insurance
Most low- or no-down-payment loan programs available to civilians require mortgage insurance, which covers lenders in case you default on your payments and they have to foreclose on your home. The VA doesn’t require mortgage insurance on any of its loan types.
Closing costs capped at 1%
VA lenders can only charge 1% of your loan to cover their fees, making VA loan closing costs more affordable than other loan programs. Neither FHA loans nor conventional loans have similar caps on origination or lender fees. Many lenders (those who work with veterans and civilians alike) charge around 1% on just their origination fee, but may also charge application, underwriting or processing fees.
Special benefits for disabled veterans
Veterans with qualifying disabilities get some additional perks when they use their VA loan benefit:
→ Funding fee exemption
→ Property tax exemptions (check with your county tax assessor for more information)
→ Eligibility for various disability housing grant programs, including:
- Specially Adapted Housing (SAH) or Special Home Adaptation (SHA) grants, which offer up to $101,754 and $22,036, respectively, to help disabled veterans buy a house or improve one they already own to make it more accessible.
- Temporary Residence Assistance (TRA) grants, which provide up to $40,983 to veterans to make accessibility alterations to a home owned by a family member.
- Home Improvements and Structural Alterations (HISA) grants, which provide up to $2,000 for veterans who don’t have service-connected disabilities and up to $6,800 for veterans with service-connected disabilities.
Unique VA loan costs and fees include:
VA funding fee
The VA funding fee helps offset the cost of the VA loan program to taxpayers. It’s typically rolled into the total loan amount, even if you make no down payment.
Higher VA home appraisal costs
An appraisal for a VA loan is usually more expensive than other home appraisals. Only VA-approved appraisers can complete a VA appraisal, and they’ll typically cost $500 to $1,200 — much more than the $300 to $400 usually spent on a conventional appraisal. In addition to establishing a fair property value, a VA appraisal ensures that the home meets special VA standards, known as “minimum property requirements.” We will describe these requirements in more detail later.
Current VA mortgage rates
VA loan rates are generally lower than FHA loan rates or rates offered on conventional loans. However, since VA loans require a funding fee that conventional and FHA loans don’t, it’s a good idea to compare both APRs and interest rates when deciding between these loan types.
In some cases, a VA loan could carry a higher interest rate than a comparable conventional loan.
The best VA loan lenders
To find the best VA lender for you, gather loan estimates from at least three to five lenders. Shopping around can save you thousands of dollars over the long haul, according to LendingTree data.
Below, we list our picks for the best VA lenders. They offer best-in-class service to veterans and service members looking to achieve homeownership.
Summary: The best VA mortgage lenders
| Lender | LendingTree rating and best of category | Minimum credit score (VA loan) | Minimum down payment | Lender review |
|---|---|---|---|---|
 |  Best overall VA lender | 580 | 0% with full entitlement | Read our review |
 | Best for transparency | 620 | 0% with full entitlement | Read our review |
 | Best for online experience | Not disclosed | 0% with full entitlement | Read our review |
 |  Best for VA loans with bad credit | 500 | 0% with full entitlement | Read our review |
Read more about how we chose our list of the best VA lenders below.Best overall VA lender: Rocket Mortgage
Rocket Mortgage at a glance
- Minimum credit score (VA loans): 580
- Available VA loan programs: Purchase, streamline refinance (IRRRL), cash-out refinance
- Additional loan products: Conventional, FHA, jumbo, home equity loans
- LendingTree rating:
Best for VA loan rate transparency: Veterans United
Veterans United at a glance
- Minimum credit score (VA loans): 620
- Available VA loan programs: Purchase, streamline refinance (IRRRL), cash-out refinance
- Additional loan products: Conventional, FHA, jumbo
- LendingTree rating:
Best online experience: Flagstar Bank
Flagstar Bank at a glance
- Minimum credit score (VA loans): Not disclosed
- Available VA loan programs: Purchase, streamline refinance (IRRRL)
- Additional loan products: Conventional, FHA, jumbo, HELOC
- LendingTree rating:
Best for VA loans with bad credit: Carrington Mortgage Services
Carrington Mortgage Services at a glance
- Minimum credit score (VA loans): 500
- Available VA loan programs: Purchase, refinance, streamline refinance (IRRRL)
- Additional loan products: Conventional, FHA, jumbo, USDA
- LendingTree rating:
VA loan eligibility and requirements
Not everyone who served in the military automatically qualifies for a VA loan. Specific VA loan requirements and eligibility criteria must be met, which we have summarized below.
VA loan eligibility
Here’s what you’ll need to verify that you’re eligible:
- A minimum amount of service. The exact requirement is based on what type of service member you are or were.
- A certificate of eligibility (COE). This form, issued by the VA, proves that your VA loan benefits qualify you for a loan. You can request one online.
What if my COE says I have '$0' of entitlement?
If your COE says that you have “$0” of basic entitlement left, don’t panic. You may still be able to get another VA loan using your “bonus” entitlement. If you need help determining where your VA benefits stand, ask your lender or contact your local VA regional loan center.
VA loan requirements
These are some of the most important VA requirements you’ll need to meet:
- Have a steady employment history. Lenders prefer a steady, two-year job history, but may make exceptions at their discretion.
- Have a credit score above 500. VA guidelines don’t require a minimum credit score, but many lenders set their minimums at 620. However, you may find lenders — like Rocket Mortgage and Carrington Mortgage Services — who will accept scores between 500 and 619 without too much trouble.
- Keep your DTI ratio below 41%. Your debt-to-income (DTI) ratio measures your total monthly debt, including your new mortgage payment, divided by your gross (pretax) income.
- Stay within VA loan limits. There are no loan limits for borrowers with full entitlement, but if you’ve used your VA loan benefits before, you may be working with partial entitlement. For those with partial entitlement, the VA loan limit is the current conforming loan limit.
- Occupy the home as a primary residence. The VA requires you to live in the home you intend to finance, which in lender terms is known as a “primary residence.”
- Have no delinquent federal debt. Borrowers in default on past VA loans or federal student loans may not be able to qualify for a VA loan.
- Get a home appraisal. It typically takes one to three weeks to get a VA appraisal.
- Meet the property requirements. Any home financed with a VA loan must be “safe, sound and sanitary,” according to VA guidelines.
- Have residual income. Residual income is the amount of cash you have each month after you’ve covered your basic living expenses. The VA sets a minimum requirement that depends on your home and family size, as well as your home’s location.
- Maintain reserve funds. Most single-family homebuyers won’t have to show reserve funds over and above the amount needed to cover their closing costs, but you may require reserve funds if you’re ending your active duty in the next 12 months and haven’t yet lined up a civilian job, you’re buying a multifamily property or you’re using rental property income to qualify for the loan.
- Pay the VA funding fee. VA loans come with a VA funding fee, which costs 1.4% to 3.6% of the loan amount. Disabled veterans are exempt from having to pay the funding fee.
Pros and cons of VA loans
| Pros | Cons |
|---|---|
No down payment: Making a down payment is optional, not required. No loan limits for most borrowers: Those with full entitlement have no loan limit. No income restrictions: Rich or poor, your income won’t bar you from using a VA loan. No mortgage insurance: Mortgage insurance that protects your lender in case of loan default isn’t required. Capped fees: Lenders can’t charge you more than 1% of the loan amount. Extra benefits for those with disabilities: Borrowers with qualifying disabilities get extra help with fees and grants (see below). | Military service required: Eligibility is based on your military service history. VA funding fee: This fee can be up to 3.6% of the loan amount. Tougher appraisal requirements: The complex VA requirements must be applied by a VA-approved appraiser. Costly appraisals: VA appraisals are more expensive than those of conventional or FHA loans. Loan limits: A borrower with partial entitlement will have a loan limit. Primary residences only: VA loans can’t be used to finance a second home or investment property. |
How to get a VA loan
You’ll normally follow these five steps to apply for a VA home loan:
STEP 1: Shop for a lender
Shop for a VA lender with your own specific needs in mind. You might need customer service tailored to someone deployed overseas, or simply want the most competitive interest rate offer — either way, having your particular needs met is more important than whether you go with a lender that specializes in VA loans or a more general mortgage lender.
Skip lenders that charge fees over 1% of your loan amount
The VA caps lender fees at 1% of your loan amount, so skip VA lenders that quote costs any higher than that.
See current VA loan rates today to find your best lender offers.STEP 2: Gather your financial documents
Getting a mortgage preapproval for any loan typically requires pay stubs, W-2s, bank statements and a credit report, but VA loans can require a bit of additional documentation.
VA loan documents checklist:
Certificate of eligibility
DD214 (discharge or record of separation paperwork)
Leave and earning statement (if you’re on active duty)
Child care statement
Nearest living relative statement
Two years of W-2s
60 days of bank statements
Letters of explanation for:
a. Credit issues
b. Gaps in employment
c. Large deposits in your asset accounts
STEP 3: Find your home and get it appraised
Your lender will need to order your appraisal from a VA-approved inspector. You’ll likely have to pay for your appraisal upfront, but in some cases the seller might pay some or all of the appraisal fees. One good thing about VA appraisals: The appraisers on the VA rotation must finish your appraisal within a set time, depending on your location. Check the appraisal for any repair requirements and be prepared to negotiate with the seller if anything needs to be fixed.
STEP 4: Review your closing disclosure
The lender will issue your closing disclosure at least three business days before your closing date. Double-check all the figures and, in particular, make sure you aren’t being charged a funding fee if you meet the requirements for an exemption.
STEP 5: Transfer funds and sign your documents
You’ll typically need to attend your closing in person at a title company, escrow office or attorney’s office. Once the lender reviews your closing package and loan funds are wired, the property title is recorded into your name and you’re officially a homeowner.
Is a VA loan right for you?
Before you commit to any loan it’s important to weigh the pros and cons of the exact loan you’re being offered. For a VA loan you should evaluate whether:
→ It’ll help you meet your financial goals
→ You can find a lower interest rate elsewhere
→ The true cost of borrowing — also known as the loan’s annual percentage rate (APR) — is competitive
→ The monthly payments will fit in your budget comfortably
If you’re eligible for a VA loan, it’s likely a great option you should seriously consider. VA loans typically have extremely competitive interest rates, forgiving qualification requirements and many other beneficial loan terms.
Frequently asked questions
You can use your VA loan benefit as often as you wish, as long as you have sufficient entitlement to buy a home and are purchasing a primary residence. Your VA loan entitlement is a lifetime benefit.
No, private mortgage insurance (PMI) is not required. Instead of the borrower paying for insurance to cover a lender’s potential losses, the VA offers a guaranty that covers the cost of lender losses equaling up to 25% of your loan amount if you default. The VA also charges you a funding fee of 0.5% to 3.6% to offset the program cost to taxpayers.
You’ll usually pay 2% to 6% in VA loan closing costs depending on your loan size. However, VA-approved lenders can’t charge more than 1% of your loan amount in lender fees.
Eligible veterans typically don’t need any down payment. However, you may need one if you have an outstanding VA loan on another home and don’t have enough entitlement to cover the guaranty on the new loan.
Yes, VA loans are assumable. Just make sure that you’ve done your due diligence and know the pros and cons of assuming a VA mortgage.