VA loans are a specialtype of mortgage loan only available to military service members, veterans, and their spouses.
But for those who can qualify? They’re “a fantastic way to get into a house,” says Jennifer Beeston, senior vice president of mortgage lending at Guaranteed Rate Mortgage.
She’s right: Not only do VA loans often come with lower interest rates than other loan options, but they also require zero down payment, which could allow you to buy a home sooner than other loan programs would.
Are you eligible to use one of these valuable loans for your home purchase orrefinance? Here’s what it takes to qualify for a VA mortgage loan in 2023.
What are the requirements for a VA home loan 2023
The biggest requirement of a VA loan is that you or your spouse served or currently serve in the U.S. military — meaning the Army, Navy, Air Force, Marines, or Coast Guard. Some Reservists and National Guard members qualify, too.
The exact length of time you must serve depends on the dates you were in the service. You can see the full breakdown of VA loan eligibility guidelines at VA.gov, but generally speaking, you’ll need to have one of the following:
90 days of active service during wartime
181 days of active service during peacetime
Six years of service in the National Guard or Reserves
You can also be the spouse of a service member who died in the line of duty or as a result of a service-related disability.
Beyond the service requirements, the property you’re buying also has to meet the Department of Veterans Affairs’ property standards. This will be confirmed using an appraisal (by an approved VA appraiser) once you’ve gone under contract on a home.
VA mortgage rates
VA loans come with the backing of the VA Department, meaning the VA will compensate the lender if a borrower defaults on their loan. This reduces the risk that lenders take on with VA loans and allows them to offer lower rates than they might be able to with other, riskier loan programs.
See how average rates looked as of May 17, 2023:
Data courtesy of Mortgage News Daily
Keep in mind that interest rates vary widely from one company to the next. Your loan amount, credit history, and other factors can play a role, too.
Pros and cons of VA loans
There are many benefits to using a VA loan. Potentially lower interest rates, as seen above, are certainly one. On top of this, they also don’t require a down payment. Other loan programs require at least 3% on the low end — or about $13,000 on a median-priced home.
VA loans also don’t have a minimum credit score or mortgage insurance requirement, and there’s no loan limit to what you can borrow (as long as you can prove you have the income to make your payments).
“If you have full eligibility, you can literally buy a $2 million home with zero down, no mortgage insurance, and a fantastic rate,” Beeston says.
The downside to VA loans is that they come with a funding fee. The exact cost varies based on your down payment size and whether you’ve used a VA loan before, but it ranges from 1.25% of the loan amount to 3.3% for homebuyers.
“One positive aspect of the funding fee is that it can be financed into the loan, so you don’t have to come out of pocket for it,” says Scott Bridges, senior managing director of consumer direct lending at Pennymac. “If the veteran has an exemption related to a disability, the funding fee may be waived in its entirety.”
Another drawback to VA loans is that you can’t use them to buy second homes or investment properties. VA loans can only be used to purchase a primary residence — somewhere you plan on living for the bulk of your time. (Though you can turn the home into a second home or rental property after you’ve lived there at least one year, Beeston says).
“You can use your VA eligibility more than once, and you can have multiple VA loans at the same time,” Beeston says. “We have seen many veterans build their real estate portfolio by utilizing the VA loan with every PCS move and then turning those properties into rentals when they move to the next base.”
How to apply for a VA loan
Before you can get a VA loan, you’ll need to choose a VA-approved lender. While there’s a chance your main bank offers VA mortgages, Beeston says it’s important to compare a few options before deciding what institution to go with.
“Veterans really need to shop lenders rates and fees when they get loans, as VA loans are where we see a lot of predatory lenders,” Beeston says. “We literally will see the same borrower be charged 1% higher and one point more in fees based on the lender they are talking to.”
Once you’ve decided on a lender, you’ll need to:
Request your Certificate of Eligibility (COE). You can get this through the VA Department, or your lender may be able to request it on your behalf. It basically just states that you’re eligible for a VA loan based on your service record.
Get preapproved for your loan: Having a preapproval is important before you can start house hunting. Your preapproval letter will detail how much you’re eligible to borrow and at what interest rate.
Find a home. You may want to use a real estate agent for this step. Make sure to include your preapproval letter when submitting any offers.
Get the home appraised. After you’ve signed a contract, your lender will order an appraisal of the home. This is used to confirm it meets the VA’s property standards and to determine its value.
Close on your loan. If the home meets the VA’s standards and its value is confirmed to be as much as or more than what you’ve offered for it, your lender will underwrite your loan and schedule you for closing. This is when you’ll sign your paperwork and pay for your closing costs and down payment (if you’re making any).
VA loans come with fairly strict property requirements compared to some other loan programs. Fortunately, if you’re looking to buy a fixer-upper, the VA does offer renovation loans that can help you roll the costs of repairing the home into your mortgage loan. If this is something you’re considering, make sure to talk to your lender about it from the start.
Does a VA loan require a home inspection?
VA loans require a home appraisal — but inspections are always optional. Inspections are more designed for the buyer’s benefit than the lender’s. They include a third-party assessment of the home’s systems and structure and help buyers decide if they’d like to negotiate repairs or pull out of the deal based on the home’s condition.
Appraisals, on the other hand, are used to determine value and, in the case of VA loans, to ensure a property is safe enough for a veteran or military member to inhabit.
Other mortgage loan options
VA loans aren’t the only way to buy a home or refinance — even for veterans and military members. You also might consider a conventional loan, FHA loan, USDA loan, or jumbo loan, depending on your budget and credit score.
Here’s a look at some alternative mortgage loan options:
Conventional loans: These are the most popular type of mortgage loan. When comparing VA loans vs. conventional loans, the main difference is the credit score and down payment requirements. Conventional loans require a 3% down payment and usually a 620 credit score or higher. They may also have higher rates.
USDA loans: If you’re looking to buy a house in a more rural part of the country, you could use a USDA loan. These require no down payment but can only be used in eligible areas.
FHA loans: These are mortgages backed by the Federal Housing Administration. They require a 3.5% to 10% down payment, depending on your credit score. Some lenders will allow for scores as low as 500.
Jumbo loans: If you’re looking to buy a higher-priced home (more than $726,600 in most parts of the country), you may want a jumbo loan. These offer higher loan limits than conventional and government-backed loans.
If you’re not sure whether a VA loan or another type of mortgage is right for you, consider talking to a loan officer or mortgage broker. They can help you run the numbers and consider the pros and cons of each option.
Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.
This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as Financial and Home Services Editor for the Hearst E-Commerce team. Email her at firstname.lastname@example.org.
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