Buying a Home with a VA Loan
9 minute read
December 3, 2022


Buying a home with a VA (veterans affairs) loan is a great benefit for those who have served or are currently serving in the military. 

VA loans offer a number of advantages over traditional mortgages, including no down payment, lower interest rates, and more flexible credit requirements.

Read on to learn more about the benefits of VA loans and how to qualify for one.

How do VA loans work?

VA loans are available to eligible veterans, reservists, and active-duty service members. 

These loans are provided by private lenders and backed by the VA, making them less risky for borrowers. This means that lenders can offer more favorable terms, including lower interest rates and down payments.

To qualify for a VA loan, you’ll need to obtain a Certificate of Eligibility from the VA. This can be done through your lender or by visiting the VA’s website. Once you have your certificate, you can start shopping for a home and VA-approved lender, if you haven’t already found one.

The benefits of a VA mortgage loan

One of the biggest benefits of VA loans is that they do not require a down payment. 

This makes buying a home more affordable for those who may not have the savings for a traditional down payment.

In addition, VA loans typically have lower interest rates than traditional mortgages. This can save you money over the life of your loan.

Another advantage of VA loans is that they offer more flexible credit requirements than other types of loans. Those with less-than-perfect credit may still be able to qualify for a loan.

Lastly, VA loans do not require private mortgage insurance (PMI). This is an insurance policy that protects the lender if you default on your loan. PMI can add to your monthly payments, so not having to pay it can save you money each month.

Potential drawbacks of a VA Loan

VA loans can help those who have served their country and their loved ones. But there are a few considerations to make before moving forward.

First, VA loans can only be used for certain types of homes. This includes single-family homes, condos, and manufactured homes. If you’re interested in buying a multi-family home or investment property, you’ll need to look into other types of loans.

Second, VA loans come with a funding fee. This is a one-time fee that’s paid at closing and varies based on factors such as your down payment amount and whether you’re a veteran with prior service. The good news is that this fee can be rolled into your loan so you don’t have to pay it upfront.

The other good news is that the funding fee goes back into the program to help other veterans and service members to purchase homes. 

Lastly, there are limits on how much you can borrow with a VA loan. The limit varies by county but is generally around $484,350 for most of the country. If you’re looking to purchase a more expensive home, you may need to explore other financing options.

The VA loan process

The VA loan process can be a bit complicated, but working with a lender who’s experienced in VA loans can make it easier. It’s important to understand the steps involved before you start the process so there are no surprises. 

Find a VA-approved lender

The first step to securing a VA home loan is finding a VA-approved lender. There are a number of lenders who offer VA loans, so it’s important to compare rates and terms before you choose one.

You can start by asking your current mortgage lender if they offer VA loans. If not, search for approved lenders online or through the VA’s website. Once you’ve found a few potential lenders, it’s time to compare rates and terms, and if they offer everything you need.

Apply for your Certificate of Eligibility

The Certificate of Eligibility (COE) is a document that proves you’re eligible for a VA loan. You’ll need to provide this to your lender when you apply for a loan.

You can get your COE either through your lender or by visiting the VA’s website. If you’re applying through your lender, they’ll likely handle the process for you. However, if you’re applying online, you’ll need to fill out and submit the appropriate form yourself.

The VA typically issues a COE within a few weeks, but it can take longer if you’re applying online. Once you have your COE, you’re ready to move on to the next step.

Get pre-approved for a VA home loan

The next step is to get pre-approved for a VA home loan. This means that you’ll need to provide your lender with some basic information about your finances, including your income, debts, and assets.

Your lender will use this information to determine how much they’re willing to lend you. Getting pre-approved gives you a better idea of how much home you can afford and can make the home-buying process simpler and smoother.

Once you’ve been preapproved, you’re ready to start shopping for a home. Many sellers will only consider offers from those who have been pre-approved already, so it could mean the difference between getting the home you want and missing out. 

Find a home and make an offer

Now it’s time to start shopping for a home. You can work with a real estate agent or search for homes on your own. Working with a local agent has some perks compared to going at it alone, such as access to listings before they become public. They do, however, come with a commission fee. Once you’ve found a home you’re interested in, it’s time to make an offer.

Your real estate agent will help you negotiate with the seller to try to get the best deal possible. Once you’ve reached an agreement, it’s time to move on to the next step.

VA appraisal and underwriting

Once you’ve reached an agreement on a home, your lender will order a VA appraisal. This is to make sure that the home is worth at least as much as you’re paying for it. They’re also known for their strict guidelines so don’t expect to be able to purchase a fixer-upper with this loan program. 

After the appraisal is complete, your loan will go through underwriting. This is where the lender reviews your financial information to make sure you’re able to repay the loan. Once you’ve passed underwriting, your loan is ready to be approved.

Closing on your VA home loan

The final step is closing on your loan. This is when the paperwork is finalized and you officially become the owner of the home.

You’ll need to bring a few things to closing, including your ID, proof of insurance, and any funds you’ll need for your down payment and closing costs. Your lender will provide you with a list of everything you’ll need.

Once everything is finalized, you’ll be ready to move into your new home.

VA home loan minimum property requirements include:

  • A functioning heating, cooling, and electric system
  • Size of the home must be sufficient for the family living there
  • Must be a primary residence, not a vacation home or income property
  • Must not have lead-based paint 
  • Crawl spaces and attics must be accessible and adequately vented
  • Well water must meet safe drinking standards

FAQ about VA loans

The VA loan process has different terms and requirements than a conventional loan. Below are the answers to some frequently asked questions on VA loans.

Who is eligible for a VA loan?

VA loan eligibility requirements include your time as a current or discharged service member of the armed forces—the United States Army, Navy, Marine Corps, Air Force, Coast Guard, National Guard, and Space Force Guardians, including Reserve components. 

The VA will determine eligibility based on your service classification, duration, and when it occurred. Surviving spouses of eligible service members and veterans can also qualify for VA home loans.

In addition to the VA’s requirements, borrowers must prove they can afford the home purchase.

What credit score is required for a VA loan?

While the VA doesn’t specify minimum credit prerequisites, credit requirements can vary from lender to lender. However, many lenders require a minimum 620 credit score. 

What debt-to-income ratio is needed for a VA loan?

VA loan eligibility requires a maximum debt-to-income (DTI) ratio of 41%. 

However, you could still meet eligibility with a higher debt-to-income ratio if your lender can justify your loan approval to the VA. 

If you’ve declared bankruptcy, foreclosed, or made a short sale, you’re ineligible for a VA loan for a period of 1-2 years. 

While inconvenient, the VA waiting period is significantly shorter than conventional mortgages which can require borrowers to wait seven years following bankruptcy before applying for a home loan. 

What is a VA entitlement?

The amount the VA will reimburse your lender is your VA loan entitlement. There are two types of entitlements:

  1. Basic entitlement
  2. Bonus entitlement (sometimes called additional or Tier 2 entitlement)

Your basic and bonus entitlement determine how much of your home loan the VA will guarantee, which determines whether you can use the zero down payment option. 

Your Certificate of Eligibility lists your basic entitlement. If you have “full” entitlement, there is no VA loan limit, and you qualify for no down payment. 

You qualify for “full” entitlement if any of the following statements apply:

  • You’ve never used the VA home loan benefit
  • You’ve used the VA home loan benefits to buy a home but repaid the loan in full and sold the home
  • You used the VA home loan benefit to purchase a home, had a foreclosure or compromise claim (also called “short sale”), and repaid the loan in full

What is the VA funding fee?

While VA loans don’t require private mortgage insurance (PMI) like conventional mortgages, there’s an additional cost associated with VA home loans—the VA funding fee. 

The VA funding fee is a one-time administrative fee charged at closing or rolled into your total mortgage amount. 

The VA funding fee varies but generally ranges between 1.4% to 3.6% of the loan amount. 

This fee reduces the cost of VA home loans for taxpayers and helps to ensure the program will continue to be available to help future borrowers.

How to get a VA loan

If you’re a veteran, surviving spouse, or currently-serving member, you may be eligible for a VA home loan.

These loans offer several benefits, including no down payment and no private mortgage insurance. You’ll need to apply for your Certificate of Eligibility and still get pre-approved for a mortgage from your VA-approved lender.

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