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VA loans are for qualifying military service members and eligible surviving spouses, and their biggest draw is that they allow you to buy a home with no money down.
With a VA loan, you also won’t have to pay for private mortgage insurance. Instead, VA borrowers pay a funding fee at closing or roll it into their loan.
Here’s what you should know about VA loans before you apply:
- What is a VA loan?
- Requirements for a VA home loan
- How to apply for a VA home loan
- Pros and cons of a VA loan
What is a VA loan?
A VA loan is a mortgage that benefits individuals who have served in the U.S. military. By guaranteeing a percentage of every VA home loan, the U.S. Department of Veterans Affairs lessens the risk to lenders.
This means that qualified borrowers can get a home without making a down payment or paying for private mortgage insurance (PMI).
Your loan limit is determined by your VA entitlement, which is the amount the VA will pay back to your lender should you default on the loan. Here’s a quick breakdown:
- Full entitlement: No loan limit. You can borrow as much as you’re financially qualified to.
- Reduced entitlement: Subject to loan limits. The VA loan limit is $548,250 in most U.S. counties, and $822,375 in high-cost areas.
With reduced entitlement, you may have to make a down payment. Most lenders require that your entitlement plus your down payment be at least 25% if the loan amount is more than $144,000.
Learn More: VA Loan vs. Conventional Loan: How to Choose
Requirements for a VA home loan
Essentially, anyone who has served in the U.S. armed forces and was not dishonorably discharged may be eligible for a VA loan, although the specific requirements depend on when you served and what branch of the military you served in.
Here’s a quick look at how VA loan requirements compare to typical conventional loan requirements:
| VA loans | Conventional loans | |
|---|---|---|
| Credit score | None, but lenders may impose a minimum, such as 640 | 620 |
| Debt-to-income ratio | None, but ideally not more than 41% | 50% max |
| Down payment | 0% | 3% |
| Mortgage insurance | None, but you may have to pay a VA funding fee | Usually required with less than 20% down |
| Property requirements | Primary residence only | Can be used for primary residence, second home, or investment property |
Even though the VA will guarantee up to 25% of your loan, the lender is still taking on most of the risk. As a result, lenders often have tighter borrowing requirements than the minimums allowed by the VA.
For example, even though the VA doesn’t have a credit score minimum, you shouldn’t expect to qualify with a rock-bottom credit score.
Military service requirements
Not everyone who has served in the armed forces qualifies for a VA loan entitlement. For example, you may not be eligible if you served less than the minimum time for your service period.
In general, these are the military service requirements for VA loan eligibility:
- Serving for 90 continuous days of active duty during wartime (less if you were discharged for a service-related disability)
- Serving for 181 continuous days of active duty during peacetime (less if you were discharged for a service-related disability)
- Serving for 24 continuous months of non-active duty during much of the 1980s and 1990s
- Being a surviving spouse of a veteran who was killed, went missing in action, or is being held as a prisoner of war
National Guard and Reserve members can also qualify for VA loans. Here are the basic requirements for these members:
- 90 days of active duty
- 6 creditable years of service
While Credible doesn’t offer VA loans, we can help you get your next conventional loan. Credible makes it easy to compare all of our partner lenders.
Property requirements
When you buy a home with a VA loan, you must use it as your primary residence. You can buy a new or existing home that has one to four units, a condo, or a manufactured home.
The VA requires any property purchased with a VA loan to be in decent, habitable condition. Along with several other requirements, the property must:
- Be structurally sound
- Not be subject to regular flooding
- Comply with zoning laws
- Have electricity
- Have safe drinking water
Your VA mortgage approval is also contingent on the home appraisal, which must be performed by a VA-certified appraiser.
If it doesn’t, the seller may be required to repair the property before you can purchase it.
Depending on where you live, the appraisal may take up to two weeks. Fees for appraisals vary by state, but expect to pay several hundred dollars.
Credit score requirements
Technically, there is no minimum credit score you have to meet to get a VA loan. However, VA lenders often prefer to see scores similar to those required for a conventional loan — 620 and above.
The typical borrower of a VA loan has a credit score of 711 to 725, according to recent data from mortgage software firm Ellie Mae.
Learn More: Can You Buy a House with No Credit?
Debt-to-income ratio requirements
The VA also does not specify a maximum debt-to-income ratio. Again, lenders typically prefer to see a DTI no higher than 41%.
So, if you can meet residual income requirements, you might have an easier time qualifying for a loan.
Down payment requirements
Unlike most other types of mortgages, VA loans don’t require a minimum down payment assuming you have full entitlement. If you put enough down, however, you can reduce your funding fee.
VA funding fee
Most VA borrowers pay a funding fee of 1.4% to 3.6% of the loan amount. This fee helps keep the VA loan program afloat so all qualifying veterans, service members, and their eligible surviving spouses can benefit from it.
The funding fee is based on whether you’re using your VA entitlement for the first time or a subsequent time and how much you’re putting down:
| If your down payment is.... | Your VA funding fee will be... | |
|---|---|---|
| First use | Less than 5% | 2.3% |
| 5% or more | 1.65% | |
| 10% or more | 1.4% | |
| After first use | Less than 5% | 3.6% |
| 5% or more | 1.65% | |
| 10% or more | 1.4% | |
| Source: VA.gov | ||
You can either pay the funding fee at closing or roll it into your loan. It’s not required if you’re receiving VA compensation for a service-related disability or if you’ve received the Purple Heart.
How to apply for a VA home loan
Applying for a VA loan is different from applying for a conventional mortgage in that you’ll need to find a lender who knows how to process VA loans — and you might find the process is smoothest if you choose a lender who specializes in them.
You’ll also need to get a certificate of eligibility (COE) telling your lender you’re eligible for the VA mortgage program and have an entitlement to use. You can have your lender pull your COE for you, or you can apply online or by mail.
Here’s the documentation you’ll need to get your COE:
| Status | Documentation |
|---|---|
| Veteran | Copy of your discharge or separation papers (DD214) |
| Service member | Statement of service — signed by your commander, adjutant, or personnel officer |
| Current or former activated National Guard or Reserve member | Copy of your discharge or separation papers (DD214). |
| Current member of the National Guard or Reserves, and have never been activated | Statement of service — signed by your commander, adjutant, or personnel officer |
| Discharged member of the National Guard and were never activated |
|
| Discharged member of the Reserves and were never activated |
|
| Surviving spouse | The Veteran’s discharge documents (DD214) — if available — and other documents depending on if you're receiving Dependency & Indemnity Compensation (DIC) benefits. To see the full list of required documentation, click here. |
Pros and cons of a VA loan
While VA loans do allow you to buy a home with no money down and don’t require you to pay for monthly mortgage insurance, they have the added expense of the VA’s funding fee.
Pros of a VA loan
- No down payment required
- No monthly mortgage insurance premiums
- Funding fee and closing costs can be rolled into your loan
- Interest rates are generally lower than conventional loan rates
Cons of a VA loan
- With nothing down, it can be easy to end up owing more than your home is worth
- VA funding fee can add thousands to the cost
- Can’t be used to purchase a second home or investment property
- Rigorous appraisal process
Credible doesn’t currently offer VA loans, but we can help you find a great deal on a conventional mortgage.
