What is a VA loan?
In a nutshell
A VA loan is a powerful mortgage benefit designed to help Veterans, service members, and eligible surviving spouses achieve homeownership. Backed by the U.S. Department of Veterans Affairs, these loans offer lower interest rates than conventional loans, no down payment, and no ongoing mortgage insurance requirement.
Instead of lending money directly, the VA guarantees a portion of the loan. This guarantee reduces the lender's risk, making it easier to qualify and often leading to better interest rates than conventional loans. If eligible, a VA home loan allows you to purchase a home with no down payment, no private mortgage insurance, and access to competitive VA loan rates.
This powerful program provides one of the most valuable benefits of military service, helping thousands of military families achieve the dream of homeownership each year.
Who is Eligible for a VA Loan?
To qualify for a VA loan, you must meet certain service requirements. You may be eligible if one of the following scenarios describes your situation:
Active-Duty Service Members
- Currently serving with at least 90 continuous days of active duty
Veterans
Who meet one of the following service conditions:
- 90 days during wartime, OR
- 181 days during peacetime, OR
- 24 continuous months (if service began after Sept. 7, 1980, for enlisted, or Oct. 16, 1981, for officers), OR
- Completion of the full period for which you were called or ordered to active duty (with certain exceptions).
Received honorable or general discharge (you must have been discharged under conditions other than dishonorable).
National Guard and Reserve Members
Who meet one of the following service conditions:
- 6 years of honorable service in an active or drilling status, OR
- Activated under Title 10 for at least 90 days, OR
- Served 90 cumulative days under Title 32, with at least 30 consecutive days included.
Surviving Spouses
Surviving spouses can also qualify for VA loans as long as they are currently unmarried spouses of service members who died in the line of duty or from a service-connected disability. If they remarried after age 57 and on or after December 16, 2003, the spouse may also qualify for a VA loan.
Some surviving spouses of those who are known prisoners of war (POW) or missing in action (MIA) may also qualify.
What is a Certificate of Eligibility?
In addition to these service requirements, you need a Certificate of Eligibility (COE) to apply for a VA loan. The COE proves to lenders that you meet the necessary criteria. Most VA-approved lenders can assist in obtaining your COE, helping streamline the process for you. You can also log into your VA.gov account and request the document yourself.
VA Loan Types
VA loans come in several types, each designed to meet different stages of homeownership, from buying your first home to refinancing or tapping into your equity.
Here are the types of VA loans:
- VA Purchase Loan: This type helps eligible buyers purchase a home with no down payment and favorable terms.
- VA Interest Rate Reduction Refinance Loan (IRRRL): Also known as a streamline refinance, this helps reduce your monthly payments with less paperwork.
- VA Cash-Out Refinance: A VA cash-out refinance allows you to take equity out of your home to pay for things like home improvements, education, or debt.
- VA Native American Direct Loan (NADL): This type helps eligible Native American Veterans finance the purchase, construction, or improvement of homes on Federal Trust Land.
- VA Renovation (Rehab) Loan: A VA rehab loan finances both the purchase and repairs or renovations of a home.
VA Loan Pros & Cons
Like any mortgage option, a VA loan has advantages and limitations. Understanding the pros and cons can help you decide if this benefit aligns with your financial goals and homeownership plans.
| Pros | Cons |
|---|---|
| No down payment required | Only for primary residences |
| No private mortgage insurance (PMI) | VA funding fee |
| Typically lower than conventional loan rates | Only available to borrowers who meet service requirements |
| Flexible credit and debt-to-income requirements |
How to Apply for a VA Loan
Review our quick breakdown of the steps involved in applying for a VA loan, with helpful advice to guide you:
- Check your service eligibility: Make sure your service meets the minimum requirements, and gather your service records early to verify eligibility before applying.
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Find a VA-approved lender: Not all lenders offer VA loans, so double-check and look for lenders with strong VA loan experience and positive reviews.
Neighbors Bank is a VA-approved lender with a 4.7/5 star rating. Get started with us today!
- Get your Certificate of Eligibility: Request it through the VA or have your lender help, as many lenders can handle the COE request to avoid delays.
- Get pre-approved: Know how much home you can afford before you shop. Getting pre-approved strengthens your offer and speeds up the loan process.
- Shop for a home: Choose a property that meets VA appraisal and condition standards, working with a real estate agent familiar with VA requirements to avoid surprises.
- Complete the loan process: The lender will guide you through underwriting and appraisal, so stay organized and respond promptly to lender requests to keep things moving.
- Close on your home: Sign your paperwork and get the keys, making sure to review all documents carefully and ask questions before signing to ensure clarity.
Remember, each VA home loan journey is unique, and the right support can make all the difference. Taking advantage of your VA benefits not only opens doors to affordable homeownership but also provides protections and advantages you won't find with conventional loans.
VA Loan FAQs
Lingering questions about how a VA loan works, or wondering if you qualify? This FAQ section tackles the most common questions so you can feel confident and informed as you navigate your path to homeownership.
Can I get a VA home loan with a low credit score?
Yes, you can. While the VA doesn't set a specific credit score requirement, most lenders do. At Neighbors Bank, we typically require a minimum credit score of 620 to qualify for all our home loans. If your score is below that, you still might be able to qualify with strong compensating factors, or you might need to improve your credit or work with a lender who offers more flexible requirements.
What is the interest rate on a VA loan?
One of the biggest advantages of a VA home loan is the lower-than-average interest rate. VA loan rates are typically among the most competitive on the market, which can make your monthly payments more affordable and help you save significantly over the life of the loan.
Several factors can influence the rate you receive, including your credit score, the term of the loan (such as choosing a 15-year versus a 30-year mortgage), and your lender. Because VA loan rates can vary from one lender to another, shopping around is essential.
Comparing multiple offers gives a clearer picture of your options and helps you secure the best possible deal.
What closing costs come with a VA loan?
Although VA loans limit what buyers can be charged, there are still some closing costs to plan for, including:
- VA funding fee (can be financed into the loan)
- Lender fees
- Prepaid costs like insurance
- Appraisal and inspection fees
- Recording fees and property taxes
Unlike many other loans, the VA allows sellers to pay all the buyer's closing costs and prepaids. Plus, borrowers are protected from certain lender fees common with conventional loans.
How much is the VA funding fee?
The VA funding fee differs depending on the VA loan type, the size of your down payment (if you choose to provide one), the type of service, and whether it's your first time using a VA loan.
Let's take a look at VA funding fee costs:
| Loan Type | Down Payment | First-Time Use | Subsequent Use |
|---|---|---|---|
| Purchase or Construction | None | 2.15% | 3.3% |
| 5% or more | 1.5% | 1.5% | |
| 10% or more | 1.25% | 1.25% | |
| Cashout Refinance | Not Applicable | 2.15% | 3.3% |
| IRRRL (Streamline Refi) | Not Applicable | 0.5% | 0.5% |
| Native American Direct Loan (NADL) | Not Applicable | 1.25% | 1.25% |
| Loan Assumptions | Not Applicable | 0.5% | 0.5% |
How long does VA loan approval take?
You can get pre-approved for a VA loan within the same day. The full VA loan approval process (from pre-approval to close) can take between 30 and 45 days, but the timeline can vary depending on your lender, how quickly you submit paperwork, and how smoothly the home appraisal goes.
To keep things moving efficiently, it helps to get pre-approved early, submit requested documents promptly, and choose a knowledgeable VA lender familiar with the process.
Can you use multiple VA loans?
Yes. The VA loan program can be used multiple times throughout a veteran's life, as long as eligibility requirements are met. If a home purchased with a VA loan has been sold and the loan fully repaid, the veteran's entitlement can typically be restored, allowing them to use the benefit again. Even in cases where a prior VA loan ended in foreclosure or a short sale, it may still be possible to qualify for another VA loan, though additional steps or requirements could apply. Working with an experienced lender who understands how to calculate remaining entitlement is key.
Can you use multiple VA loans at the same time?
In some cases, it is also possible to use multiple VA loans at the same time.
Let's say you used a VA loan to buy a home in North Carolina. A few years later, your job relocates you to Arizona. If you've sold your first home or have remaining entitlement, you may be able to buy a second home with another VA home loan.
This flexibility is especially helpful for military families who move often or want to hold onto an existing home while purchasing another.