VA Loan: What Military Home Buyers Need To Know

• Minimum credit score: 580
• Down payment required: 0%
• Mortgage insurance: None
• Loan limits: No specific limit on VA-backed loans, but may depend on lender guidelines
• DTI requirements: No specific limit from VA, but lender guidelines may apply

The VA Loan is a mortgage with no down payment required, available to active military members, veterans, and surviving spouses.

Its official name is the VA Guaranteed Home Loan, but it’s commonly known as the VA Loan or VA Mortgage.

Eligible home buyers often get competitive interest rates backed by the U.S. government.

What is a VA Loan?

The VA Loan was introduced as part of the 1944 G.I. Bill to help returning WWII service members buy homes and establish roots in their communities.

Today, more than 400,000 veterans use VA loans to purchase homes annually.

Benefits of VA-backed mortgages include:

• No down payment
• No mortgage insurance
• Competitive interest rates

VA loans do not have specific loan size limits, but lenders may have their own guidelines.

Benefits of VA Loans

The Department of Veterans Affairs offers various benefits, including a mortgage loan guaranty for eligible service members and veterans.

VA loans can be used to buy single-family homes, condos, and multi-unit properties. Both fixed-rate and adjustable-rate mortgages are available.

No Down Payment Required

VA loans allow for 100% financing. While home buyers can make a down payment, it is not required. The average down payment for VA loans is around 2 percent.

No Private Mortgage Insurance (PMI)

Unlike FHA and conventional loans, VA loans do not require ongoing mortgage insurance, making homeownership more affordable.

Low Interest Rates

VA loans typically have lower interest rates than the national average because the U.S. government guarantees part of the loan. Rates may be as much as 0.25 percentage points lower than comparable conventional 30-year fixed rates.

No Minimum Credit Score Requirement

VA mortgage guidelines do not require a minimum credit score. However, many lenders may set their own minimums, typically around 580.

Limited Closing Costs

The VA limits buyer closing costs to specific fees such as discount points and third-party charges. Lenders are restricted from charging buyers for additional fees like notary and settlement costs.

Lifetime Use of VA Loan Benefit

VA loan benefits can be used multiple times throughout a veteran’s life to purchase homes.

Assumable VA Loans

VA loans can be transferred to a new home buyer, even if the buyer is not a veteran. The buyer must meet the VA’s credit and income qualifications and may pay a fee of up to 0.5% on the remaining loan balance.

No VA Mortgage Loan Limits

There are no VA loan limits for veterans with full entitlement. For those with partial entitlement, loan limits may apply, similar to conforming loan limits.

VA Home Loan Eligibility Requirements

VA loan eligibility has two main components: service-based eligibility and mortgage-based eligibility.

Service-based eligibility applies to active duty and retired members of the U.S. military, including:

• Army
• Navy
• Air Force
• Marines
• Coast Guard
• Space Force

National Guard and Reserves members also meet service-based eligibility criteria.

To apply, home buyers must provide a valid Certificate of Eligibility (COE) and meet VA’s service time requirements.

Mortgage-based eligibility includes factors such as:

• Occupancy rules
• Residual income levels
• Debt-to-income ratios
• Minimum credit scores (if required by lenders)

Let’s review what it takes to get your VA mortgage approved.

Certificate of Eligibility (COE)

Buyers must provide a COE to verify their service history and eligibility for VA benefits. The COE can be obtained online via the eBenefits portal.

VA Minimum Service Requirements

To qualify for a VA loan, buyers must meet one or more service requirements:

• 90 days of active duty during wartime
• 181 days of active duty during peacetime
• Six years of National Guard or Reserves service
• 90 days under Title 32 orders (with at least 30 consecutive days)

Spouses of veterans who died during service or due to a service-related disability may also qualify.

Primary Residence Requirement

VA loans require buyers to move into the home within 60 days of closing and use it as their primary residence. Exceptions are made for active-duty service members or civilian borrowers working overseas.

Residual Income Requirement

Residual income refers to the amount of income left over after monthly expenses like loan payments and utilities. The VA sets minimum thresholds based on family size, location, and loan amount.

Debt-to-Income Ratio (DTI)

While the VA does not enforce a strict DTI limit, lenders typically scrutinize borrowers with DTIs over 41%. Some lenders may allow DTIs over 50%, depending on other factors like credit score.

Minimum Property Requirements (MPRs)

VA loans require homes to meet MPRs, which include being safe, structurally sound, and sanitary. This is verified through a home inspection.

These requirements ensure homes are free from hazards like lead-based paint, have functioning electrical systems, and are pest-free.

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VA Residual Income Requirements: Mortgages Larger Than $80,000

Residual income requirements for loans above $80,000 are based on family size and region. Add $80 for each additional family member.

Family Size	Northeast	Midwest	South	West
1	$450	$441	$441	$491
2	$755	$738	$738	$823
3	$909	$889	$889	$990
4	$1,025	$1,003	$1,003	$1,117
5	$1,062	$1,039	$1,039	$1,158

Regions

• Northeast: Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont
• Midwest: Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Wisconsin
• South: Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, Virginia, Washington, D.C., West Virginia
• West: Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, Wyoming

Source: Table of Residual Incomes by Region, https://www.benefits.va.gov/WARMS/docs/admin26/pamphlet/pam26_7/ch04.pdf

Types of VA Loans

The VA Home Loan program guarantees mortgage loans for purchase, refinance, and cash-out refinance. It also guarantees construction-related mortgages, enabling eligible service members to use VA loans to buy, build, or improve residential properties.

VA loans are available across the United States, its territories, and possessions, including Puerto Rico, Guam, the Virgin Islands, American Samoa, and the Northern Mariana Islands.

VA Purchase Loan

VA purchase loans are used to buy owner-occupied homes, which may be 1-4 unit properties, attached or detached, and must meet VA minimum property requirements. No down payment or ongoing mortgage insurance is required.

VA Interest Rate Reduction Refinance Loan (IRRRL)

The VA IRRRL (also known as the VA streamline refinance) allows VA-backed homeowners to reduce their interest rate. No appraisal, credit score, or income verification is required; only payment history and potential savings are reviewed for approval.

VA Cash-Out Refinance

The VA Cash-Out Refinance allows homeowners to refinance into a larger loan and withdraw cash for any purpose. Though the VA does not set a loan-to-value limit, many lenders cap cash-out refinances at 90% of the home’s value.

Native American Direct Loan (NADL)

The VA’s Native American Direct Loan program is available to veterans who are Native American or married to a Native American and want to buy, build, or improve homes on federal trust land. These loans often have lower interest rates than standard VA loans.

How to Buy a Home with a VA Loan

Buying a home with a VA loan follows a structured process, similar to conventional mortgages but with additional benefits and requirements. VA-backed loans focus on affordability and ensuring that homes meet safety and livability standards.

Here are the basic steps for buying a home with a VA loan:

1. Obtain your Certificate of Eligibility (COE) from the VA’s eBenefits website or via mail.
2. Set a housing budget and decide whether to make an optional down payment.
3. Get a mortgage pre-approval, which includes reviewing credit and income.
4. Choose a real estate agent through referrals or online searches.
5. Find your home and submit a purchase offer with the required VA clauses.
6. Negotiate your sales contract, including the closing date and any seller concessions.
7. Lock in your interest rate with your VA lender.
8. Have the home inspected to ensure it meets VA property standards.
9. Review your VA disclosures and the final mortgage approval contract.
10. Close on the home and move in within 60 days.

Most VA loans require a one-time Funding Fee, which ranges up to 3.6% of the loan amount. First-time home buyers typically pay a 2.3% funding fee, but this fee decreases with a larger down payment.

Some VA borrowers are exempt from paying the Funding Fee, such as Purple Heart recipients, veterans with service-related disabilities, and surviving spouses of veterans receiving Dependency and Indemnity Compensation (DIC).

Frequently Asked Questions About VA Loans

Do I apply for a VA loan directly with the Department of Veterans Affairs?

No, you apply for a VA-backed mortgage through a VA-approved lender, not directly with the Department of Veterans Affairs.

Are there loan limits for first-time home buyers using a VA loan?

There are no specific loan limits for VA-backed mortgages, but the amount you can borrow depends on the lender’s criteria and your entitlement. For buyers with full VA entitlement, there are no loan limits.

Can I use my VA loan benefit if my income is from the marijuana industry?

No, income derived from marijuana-related employment cannot be used to qualify for a VA loan because marijuana remains illegal under federal law. However, income from federally legal industries, such as the hemp industry, is acceptable.