VA Loans

A VA loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs. It is widely considered the most powerful home loan program available in the American market — offering better terms than almost any conventional or government-backed alternative.

Because the VA guarantees a portion of every eligible loan, private lenders can offer incredibly favorable terms: zero down payment, no ongoing private mortgage insurance, and interest rates that consistently come in below the national average for conventional loans.

VA loans can be used to purchase a primary residence, build a new home, make energy-efficient improvements, or refinance an existing mortgage through the Interest Rate Reduction Refinance Loan (IRRRL) program.

VA loan eligibility is based on military service history. You generally qualify if you meet one of the following:

• Active duty: Currently serving with at least 90 continuous days of active duty service.
• Wartime veterans: 90 days of active duty during a wartime period.
• Peacetime veterans: 181 continuous days of active duty during a peacetime period.
• National Guard and Reserve: 6 years of service in the National Guard or Reserve, or 90 days of active duty under Title 10 orders.
• Surviving spouses: Unmarried spouses of service members who died in the line of duty or from a service-connected disability, and spouses of POW/MIAs.

Lenders also look at your credit profile and income stability, but the VA itself does not set a minimum credit score. Most lenders require 620+; some will work with scores down to 580.

The VA loan program's greatest advantage is its down payment policy:

• 0% down payment: Qualified borrowers can finance 100% of the purchase price. There is no required down payment for VA loans with full entitlement.
• Making a down payment reduces the funding fee: Putting down 5%+ lowers the VA funding fee, which can make a voluntary down payment worthwhile even though it's not required.
• Credit score: The VA sets no minimum, but lenders may have minimum requirements like 560 or higher. Debt-to-income ratios up to 41% are typical, though exceptions exist with strong residual income.
• Residual income standard: The VA requires borrowers to have enough money left over each month after all obligations to cover typical living expenses. This replaces strict DTI ratios as the primary affordability test.

VA loans have no mortgage insurance, but they do require a one-time VA funding fee that goes back to the VA program to fund future loans:

• First-time use, 0% down: 2.15% of the loan amount. On a $400,000 loan, that's $8,600.
• First-time use, 5%–9.99% down: 1.5% of the loan amount.
• First-time use, 10%+ down: 1.25% of the loan amount.
• Subsequent use: 3.3% for 0% down; lower percentages apply with down payments.
• Funding fee waiver: Veterans with a service-connected disability rating of 10% or more pay no funding fee. Surviving spouses are also exempt.

The funding fee can be financed into the loan or paid at closing. Even with the fee, the lifetime savings from no PMI typically far outweigh the one-time cost within 2–3 years.