What a VA loan is and how it differs from conventional mortgages

A VA loan is a mortgage backed by the Department of Veterans Affairs. The VA does not lend the money itself — a bank, credit union, or mortgage company does. What the VA does is may provide a portion of the loan, which means if you stop paying, the VA will cover the lender's loss up to a set amount. That may provide lets lenders offer terms they would not offer to non-military borrowers: no down payment required, no private mortgage insurance, and often lower interest rates.

A conventional mortgage requires a down payment (typically 3 to 20 percent), and if you put down less than 20 percent, you pay private mortgage insurance (PMI) on top of your monthly payment until you build enough equity. A VA loan skips both of those. You can borrow the full purchase price with no money down and no insurance premium.

The VA also limits what lenders can charge you. You pay an origination fee (the lender's processing cost), but the VA caps what that can be. You may also pay a VA funding fee — a one-time charge that goes to the VA, not the lender — unless you are exempt. The funding fee is typically 1.4 to 3.6 percent of the loan amount, depending on whether this is your first VA loan and how much you are putting down.

Key Takeaways

  • A VA loan is a mortgage may provide by the Department of Veterans Affairs, allowing you to borrow without a down payment or private mortgage insurance.
  • The VA guarantees only a portion of the loan (the amount varies by year), so lenders still require you to may have access to based on income and credit, just as with any mortgage.
  • You pay a VA funding fee (usually 1.4 to 3.6 percent of the loan) unless you are exempt due to disability or other circumstances.
  • VA loans come with a borrowing limit called your entitlement, which resets if you sell the home and the new buyer assumes the loan or is also VA-may be able to access.
  • The VA does not set interest rates or approve loans — individual lenders do, so shopping around for the best rate and terms is necessary.

VA entitlement: your borrowing limit and how it works

Your entitlement is the maximum amount the VA will may provide on your behalf. It is not the maximum you can borrow — you can borrow more if a lender will approve it — but it is the amount the VA promises to cover if you default. The basic entitlement is $36,000, but most borrowers receive an additional entitlement that brings the total much higher. The additional amount depends on the current VA loan limit, which changes yearly and varies by county.

You use your entitlement when you take out a VA loan. If you borrow $300,000 and your entitlement is $144,000, the VA guarantees $144,000 of that loan. The lender covers the remaining $156,000 at their own risk, which is why they still check your credit and income before approving you.

Your entitlement resets when you sell the home, but only if the buyer is also VA-may be able to access and assumes the loan, or if you pay off the loan in full. If you sell to a non-VA buyer and the loan is paid off, your full entitlement becomes available again for a future purchase. If you sell and the buyer does not assume the loan, you can use your entitlement again when ready.

Who can use a VA loan

To use a VA loan, you must have served on active duty in the U.S. military and received an honorable or other-than-dishonorable discharge. The length of service required depends on when you served. Generally, active-duty service members need 90 days of continuous service; veterans who served before September 8, 1980, typically need 181 days of active duty in a single period; those who served after that date usually need 24 months of active duty or the full period for which they were called to active duty, whichever is shorter.

Members of the National Guard and Reserves have different requirements. You must have completed your initial active-duty for training (IADT) plus six years in the Guard or Reserves, or been called to active duty for a contingency operation.

Surviving spouses of service members who died on active duty or from a service-connected disability may also use VA loans. You will need a Certificate of may be able to access from the VA to prove your status. You can request one through the VA website, by mail, or through your lender.

The VA funding fee and when you pay it

The VA funding fee is a one-time charge added to your loan balance. It goes to the VA to help fund the loan program, not to your lender. The fee is typically 1.4 to 3.6 percent of the loan amount for first-time users, and it is higher (2.3 to 3.6 percent) if you have used a VA loan before.

You do not pay the funding fee upfront in cash. Instead, it is rolled into your loan, so you pay it back over the life of the mortgage as part of your monthly payment. If you put down 5 percent or more, the fee is lower. If you put down 10 percent or more, it is lower still.

You are exempt from the funding fee if you receive VA disability compensation, if you are may be able to access for disability compensation but have not yet filed, or if you are a surviving spouse of a service member who died on active duty or from a service-connected disability. Purple Heart recipients are also exempt. If you are exempt, bring documentation of your status when you explore.

How lenders approve VA loans and what they check

A lender approves a VA loan based on your income, credit history, and debt-to-income ratio — the same factors they use for conventional mortgages. The VA may provide does not mean automatic approval. The lender still wants to know you can pay the loan back.

Most lenders require a credit score of at least 580 to 620, though some will go lower. They will pull your credit report and look at your payment history on credit cards, auto loans, and other debts. They will also verify your income through recent tax returns, W-2s, and pay stubs, and they will calculate how much of your monthly income goes toward all your debts, including the new mortgage payment.

The VA does not set interest rates. Each lender sets its own rate based on market conditions, your credit profile, and the loan terms you choose. Shopping around with multiple lenders is common practice and can save you thousands over the life of the loan.

VA loan limits and how they affect your borrowing power

The VA loan limit is the maximum amount the VA will may provide without a down payment. This limit changes each year and varies by county. In most counties, the 2024 limit is $766,200, but in high-cost areas it can be significantly higher. You can borrow more than the limit, but you would need to put down the difference between the loan amount and the limit, which defeats the purpose of a VA loan for most borrowers.

The limit applies to the amount the VA guarantees, not the amount you can borrow. If you have strong income and credit, a lender may approve you for more than the limit without a down payment, but the VA will only may provide up to the limit. The lender takes on the extra risk for the amount above the limit.

Limits are set by the VA based on the conforming loan limit for conventional mortgages, which is adjusted annually. Check the VA website or ask your lender what the current limit is in your county, as it affects how much you can borrow without putting money down.

Frequently Asked Questions

Can I use a VA loan more than once?

Yes. Once your entitlement is restored — either by selling the home and paying off the loan, or by having a VA-may be able to access buyer assume it — you can use a VA loan again. Many borrowers use VA loans multiple times throughout their lives as they move or upgrade homes.

Do I have to use my VA loan to buy a house?

No. You can also use a VA loan to build a home, to refinance an existing VA loan (called a VA streamline refinance), or in some cases to buy a manufactured home. You cannot use a VA loan to purchase investment property or a second home.

What happens if I cannot pay my VA loan?

If you fall behind on payments, the lender will contact you about a loan modification or forbearance plan. If the home is foreclosed, the VA will pay the lender's loss up to your entitlement amount. You may still owe the difference if the home sells for less than you owe, though the VA may pursue a claim against you depending on the circumstances.

Can I get a VA loan if I have bad credit?

Some lenders will work with borrowers who have lower credit scores, though most require a minimum of 580 to 620. If your credit is poor, you may need to wait and rebuild it, or work with a lender that specializes in VA loans and has more flexible standards. Your debt-to-income ratio and income stability matter as much as your score.

Is the VA funding fee the same for everyone?

No. The fee varies based on whether it is your first VA loan, how much you are putting down, and your military status. It is lower for first-time users and for those who put down 5 percent or more. It is waived entirely for those with service-connected disabilities and certain other groups.