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VA Home Loan Guide and VA Loan Requirements

VA Home Loan Guide and VA Loan Requirements

  • Key VA Mortgage Considerations
    Pros Cons
    • Ability to purchase home with little or no down payment
    • Typically lower interest rate than conventional mortgage
    • Potentially lower closing costs
    • Borrower not required to pay ongoing monthly mortgage insurance (PMI or FHA MIP)
    • One-time, up-front VA funding fee creates additional cost for borrower
    • Limits on mortgage amount
    • More conservative borrower qualification requirements
  • VA Home Loan Program Overview
  • The U.S. Department of Veterans Affairs (VA) offers mortgage programs for eligible active and retired military personnel, including individuals in the reserves and national guard.  The VA guarantees 25% of the mortgage amount, which protects the lender from losing significant money in the event of foreclosure.  You can obtain a VA home loan through an approved lender, such as a bank, mortgage broker or credit union, that offers the program.

    The key benefit of a VA loan is that you can obtain a mortgage and buy a home with no down payment. This represents a huge opportunity, especially for first-time home buyers who may struggle to save enough money for a down payment. Another benefit of the program is that VA mortgage rates are typically .250% - .500% lower than the interest rate for other programs. VA rates are lower because the government insures the loan and because VA borrowers are financially responsible and credit-worthy.

  • How a VA Loan Works
  • Although the Department of Veterans Affairs determines program guidelines and VA loan requirements, borrowers do not apply for the program with the VA. Instead, borrowers apply for VA mortgages through approved lenders such as banks, mortgage banks, mortgage brokers and credit unions. These approved lenders make sure that applicants meet program eligibility requirements and qualify for the loan according to the borrower qualification guidelines.

    The table below compares VA mortgage rates and fees for leading lenders. VA fees are higher because you may be required to pay a one-time funding fee but VA mortgage rates are lower than for other programs. We recommend that you shop multiple lenders and compare mortgage proposals to find the best VA loan terms including the lowest interest rate and closing costs.

  • Rate Details*
    Loan Program:  
    Monthly Payment:  
    APR:  
    Rate:  
    Points  More Info:
    Points: Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
     
    Total Lender Fees:  
    Loan type:  
    Property Value:  
    Loan to Value:  
    Credit Rating:  
    Date Submitted:  
    Monthly Housing Payments
    P & I More Info
    Principal & Interest: A periodic payment, usually paid monthly, that includes the interest charges for the period plus an amount applied to the reduction of the principal balance.
    Mortgage Insurance More Info
    Mortgage Insurance: The monthly cost for a policy that protects the lender in case you’re unable to repay the full amount of the loan. It is typically required for loans that have a loan-to-value ratio between 80% to 100%.
    (Estimated)
    Property Tax More Info
    Property Tax: (Also called "Real Estate Tax.") Property taxes are government assessments on real estate property. With mortgage financing, the local, county or state tax assessment on real estate property is considered part of the monthly housing obligation and typically collected and set aside by the lender ...
    (Estimated)
    Homeowner Insurance More Info
    Homeowner Insurance: or also commonly called hazard insurance, is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory.lender ...
    (Estimated)
    Homeowner Association Fee More Info
    Homeowner Association fee: (HOA) fees are funds that are collected from homeowners in a condominium complex to obtain the income needed to pay (typically) for master insurance, exterior and interior (as appropriate) maintenance, landscaping, water, sewer, and garbage costs.
    (If Any)
    Total Monthly Housing Payments
    Lender Fees
    Points More Info
    Points Fees you are willing to pay in order to get a lower interest rate. The number of points refers to the percentage of the loan amount that you would pay. For example, "2 points" means a charge of 2% of the loan amount.
    Origination Fee More Info
    Origination Charge: A loan origination charge is a fee charged by the lender for evaluating, processing, and closing the loan.
    Credit Report Fee More Info
    Credit Report Fee: Fee charged to obtain an applicant’s credit history prepared by one or all of the three major credit bureaus. Used by lender to determine the borrower’s creditworthiness.
    Tax Service Fee More Info
    Tax Service Fee: A fee charged by the lender to cover the cost of retaining a tax service agency. These agencies monitor the property tax payments on the property and report the results to the lender.
    Processing Fee More Info
    Processing Fee: A processing fee is a charge by the lender for clerical items associated with the loan. Examples of processing include loan set up, organization of loan conditions for underwriting, and preparing required disclosures for the borrower.
    Underwriting Fee More Info
    Underwriting Fee: A fee charged by the lender to verify information on the loan application, authenticate the property’s value, and perform a risk analysis on the overall loan package.
    Wire Transfer Fee More Info
    Wire Transfer Fee: In most cases lenders wire funds to escrow companies to fund a loan. Commercial banks that perform this function will charge the lender so the fee is generally passed on to the borrower.
    (If Any)
    FHA Upfront Premium More Info
    FHA Upfront Premium: A fee paid in cash at the close of escrow or more commonly it is financed into the loan. These premiums are pooled together by the FHA and are used to insure the risk of borrower default on FHA loans. FHA upfront premiums are prorated over a five year period, meaning should the homeowner refinance or sell during the first five years of the loan, they are entitled to a partial refund of the FHA upfront premium paid at loan inception.
    (If any)
    VA funding Fee (If any)
    Flood Fee
    Other Fees More Info

    Other fees could be either additional Administrative Fees that a lender charges or it could be a Flat Fee to cover all lender charges such as: (Origination Fees, Points, Underwriting and Processing Fees, Credit Reports and Tax Service Fees)

    The flat fee does not include prepaid items and third party costs such as appraisal fees, recording fees, prepaid interest, property & transfer taxes, homeowners insurance, borrower’s attorney’s fees, private mortgage insurance premiums (if applicable), survey costs, title insurance and related services.

    Total Lender Fees
    *Actual rates and other information may vary. Sponsored results shown only include participating lenders. The information you enter on this page will only be shared with lenders you choose to contact, either by calling the phone number or requesting a quote.
    Current VA Mortgage Rates as of December 13, 2018
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    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click here for more information on rates and product details.
  • VA Loan Eligibility Requirements
  • To be eligible for a VA mortgage you must meet certain borrower qualification requirements and receive a certificate of eligibility.  In general, eligibility is determined by date of military service, length of service, if the service occurred during wartime or peacetime and the type of discharge from the military (applications involving other than honorable discharges will usually require further investigation by the VA).  Typically, you are eligible for VA home loan programs if you served on active duty for more than 90 consecutive days during wartime or more than 181 days during peacetime.  National Guard members and Reservists are required to have served at least six years. Spouses of deceased or missing military personnel may also be eligible for the program.  You can review a detailed description of the eligibility rules and apply online to for your Certificate of Eligibility through the VA website.

  • VA Home Loan Entitlement
  • Borrowers who are eligible for the VA home loan program qualify for an entitlement benefit, which is essentially the amount of the mortgage that the VA guarantees in the event of default or foreclosure.  When you get a VA loan, you use all or part of your entitlement.  One of the main benefits of the VA program is that eligible borrowers can use the program an unlimited number of times over their lifetime as long as they restore their entitlement.  If you have used your VA entitlement in the past, the entitlement can be fully restored if the property financed is sold and the mortgage is repaid in full.  Please note that if your loan is paid off in full, it is possible to keep the home for use as an investment property or vacation home and fully restore your entitlement by using a one-time VA entitlement restoration benefit.

    If you currently have a VA loan outstanding, you may be able to use the VA program for another mortgage if you are not using your full entitlement (or if you use your tier two VA entitlement). For example, if you have a VA loan on your current home and you are transferred, you may decide to keep that property and rent it out and use your remaining entitlement on another loan to buy a home in your new location. Borrowers who do not have a enough entitlement remaining may be required to make a down payment to use the program although they still benefit from the advantages including paying a lower mortgage rate and not paying ongoing mortgage insurance.   Please note that VA loans can only be used to purchase owner-occupied properties. If you are considering using or re-using the program, we recommend that you contact the VA to determine your eligibility status and the current amount of your entitlement.

  • VA Loan Requirements
  • VA Residual Income Requirement

    The VA home loan program requires that the borrower have a minimum level of residual (leftover) income after accounting for the monthly mortgage payment and other expenses.  Residual income is determined by subtracting the following expenses from monthly gross income:

    • Taxes
    • Maintenance and utilities expenses
    • Social Security
    • Child care expenses
    • Monthly housing expense (monthly mortgage payment, property tax, homeowners insurance)
    • Other monthly debt (credit card debt, auto and student loans)

    The minimum level of residual income required to qualify for a VA loan depends on the loan amount, the number of people in the borrower's household and the region of the country in which the property is located.  Lenders may have some flexibility to reduce the residual income requirements by 5% or more for active-duty or retired personnel if they will continue to benefit from using military-based facilities located near the property being purchased.  The table below outlines the residual income required to qualify for the program.

  • VA Residual Income Requirements
    Mortgage Amount Less than or Equal to $79,999
    Family Size Northeast Midwest South West
    1 $390 $382 $382 $425
    2 $654 $641 $641 $713
    3 $788 $372 $372 $859
    4 $888 $868 $868 $967
    5 $921 $902 $902 $1,004
    Over 5 Add $75 for each additional member up to a family of seven
    Mortgage Amount Greater than or Equal to $80,000
    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
    Over 5 Add $80 for each additional member up to a family of eight
  • When you apply for a VA loan, you need to complete a VA Loan Analysis Form to determine your residual income and ability to qualify for the mortgage. We provide an example VA Loan Analysis Form for your review as well as an instructional video below.

  • FREEandCLEAR Mortgage Instructional Video

    VA Loan Analysis Form Instructional Video

  • Borrower Debt-to-Income Ratio

    The maximum debt-to-income ratio for a VA loan is typically 41%.  The debt-to-income ratio represents the maximum percentage of a borrower's monthly gross income that can be spent on total monthly housing expense plus other monthly debt payments such as credit card, auto and student loans. The 41% maximum debt-to-income ratio is lower than the ratio typically used for conventional mortgage programs and other government-backed programs such as the FHA Mortgage Program. The lower the debt-to-income ratio, the smaller the mortgage you qualify for. Please note that it is possible to qualify for a VA home loan with a debt-to-income ratio above 41% although lenders are required to provide additional documentation to support the use of the higher ratio.

  • CalculatorUse our VA MORTGAGE QUALIFICATION CALCULATOR to determine what size VA loan you can afford
  • Credit Score

    Technically, the VA home loan program does not have a minimum required credit score and lenders are advised to review applicants' entire credit profile and history to determine if  they qualify for the mortgage.  From a practical standpoint, most lenders require that borrowers have a minimum score of 620 to meet their internal underwriting guidelines.  It may be possible to qualify with a lower credit score or limited credit history if your application is strong in other areas such as your income, assets or down payment.  We recommend that you review your credit report six months to a year before you start the mortgage process to address potential issues.

    VA Loan Reserve Requirement

    The VA Program does not require borrowers to hold savings in reserve at mortgage closing for purchases of one or two unit properties, although we recommend that you keep enough savings in reserve to cover three-to-six months of total monthly housing expense. For purchases of three or four unit properties borrowers are required to hold six months of total monthly housing expense,  which includes your mortgage payment plus property tax and homeowners insurance, as savings in reserve at mortgage closing. So if your total monthly housing expense is $2,000, you would be required to hold at least $12,000 in reserves at the time the mortgage closes.  Additionally, if you own rental properties you are required to hold three months of total housing expense in reserves at closing for each rental property that is not financed by a VA loan.

    Borrower Income Limit

    Unlike many other no or low down payment mortgage programs, the program does not apply borrower income limits.

    First-Time and Repeat Home Buyers

    VA loans are available to both first-time and repeat home buyers as compared to other no or low down payment programs that are only available to first-time buyers.  Repeat users of the program are required to pay a higher upfront VA funding fee.

    Use our free mortgage quote form to review no proposals from top-rated VA lenders. Our quote feature is personalized, easy-to-use and does not impact your credit. Comparing several loan quotes  the best way to save money on a VA home loan.

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  • Program Costs and Fees
  • Mortgage Rate

    The mortgage you pay on a VA loan depends on several factors including your credit score.  Borrowers with higher credit scores receive the program’s lowest mortgage rate while borrowers with lower credit scores pay higher rates. For borrowers with good credit scores, the mortgage rate on a VA loan is typically .250% - .500% lower than the rate for other conventional low down payment programs and comparable to the rates for government-backed programs such as the FHA and USDA mortgages.  VA mortgage rates are among the lowest of all loan programs because the program is backed by the VA and borrowers are more credit-worthy.  Borrowers should compare multiple lenders to find the VA loan with the lowest mortgage rate and closing costs.

    Impound Account

    Along with their mortgage payment, the VA program requires the borrower to pay property tax and homeowners insurance into an impound account on a monthly basis.  The impound account does not affect the amount of fees the borrower is required to pay for the mortgage.

    Extra Fees

    Borrowers are required to pay standard lender fees and closing costs with the program.  Aside from the up-front VA funding fee, borrowers are not required to pay additional fees to apply for the program.

  • VA Funding Fee
  • The program requires that borrowers pay a one-time, upfront VA funding fee.  The funding fee is calculated as a percentage of the mortgage amount.  The fee may be paid in cash or added to the mortgage amount, or a combination of the two, as long as the total mortgage amount does not exceed the VA loan limit.  Some applicants including veterans with a service-related disability rating are not required to pay the VA funding fee.

  • CalculatorUse our VA LOAN CALCULATOR to calculate the funding fee
  • The table below shows the VA funding fees for home purchase loans.  The amount of fee depends on the down payment amount (if you decide to make a down payment), type of military service (regular military versus reserves / national guard) and if this is your first time using a VA home loan program.  An eligible veteran may use the program multiple times although the funding fee increases after the first use.

  • Type of Veteran Down Payment VA Funding Fee for
    First Time Use
    VA Funding Fee for
    Subsequent use
    Regular Military 0% – 4.99% 2.15% of loan amount 3.30% of loan amount
    5% – 9.99% 1.50% of loan amount 1.50% of loan amount
    10% or more 1.25% of loan amount 1.25% of loan amount
    Reserves / National Guard 0% – 4.99% 2.40% of loan amount 3.30% of loan amount
    5% – 9.99% 1.75% of loan amount 1.75% of loan amount
    10% or more 1.50% of loan amount 1.50% of loan amount
  • The great news about a VA loan is that borrowers are not required to pay any ongoing monthly mortgage insurance fees such as private mortgage insurance (PMI) or FHA mortgage insurance premium (MIP) like they are required to pay with most no or low down payment mortgage programs.  Not requiring ongoing mortgage insurance fees results in lower total monthly housing expense and makes home ownership more affordable.

  • VA Loan Limits
  • The VA does not technically impose a maximum amount that you can borrow according to program guidelines; however, VA loan limits establish the maximum amount of a loan that the VA guarantees which effectively limits the mortgage amount for most borrowers.  The maximum mortgage guaranty amount (available for loans over $144,000) is 25% of the VA loan limits shown in the table below.

  • CalculatorUse our VA LOAN LIMIT CALCULATOR to determine the loan limit in your county
  • A veteran with a full entitlement available may borrow up to the mortgage limits shown in the table below and the VA guarantees 25% of the loan amount. So while technically there is no maximum VA loan amount, in practice lenders apply VA loan limits to program applicants. As outlined in the table below, VA loan limits vary by county and range from $453,100 to $679,650 for high cost areas in the contiguous United States and Puerto Rico.  In Alaska, Hawaii, Guam and the U.S. Virgin Islands VA loan limits range from $679,650 to $1,019,475 for high cost counties.

  • Number of Units Contiguous States, District of Columbia,
    and Puerto Rico
    Alaska, Guam, Hawaii, and the U.S. Virgin Islands
    Basic Standard High Cost General High Cost
    1 $453,100 $679,650 $679,650 $1,019,475
  • How to Get a Mortgage Above the VA Loan Limit
  • If you contribute a down payment, lenders may be willing to lend you a mortgage amount above the VA loan limit as long as you qualify for the loan based on your gross income, debt and credit score.  For mortgages that are above the VA loan limit, lenders typically require borrowers to make a down payment equal to 25% of the amount by which the loan exceeds the loan limit. For example, if the VA loan limit is $453,100 and you want a $553,100 mortgage, you would be required to make a $25,000 down payment ($25,000 = 25% * $100,000 (amount by which the mortgage exceeds the loan limit)).

    Use the FREEandCLEAR Lender Directory to find lenders that offer the VA home loan program and many other low down payment options.

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  • Mortgage Program and Type
  • Mortgage Program

    Only 10 - 30 year fixed rate mortgages plus  3/1, 5/1, 7/1 and 10/1 adjustable rate mortgages (ARMs) are eligible for the program while interest only mortgages are not permitted.

    Mortgage Type

    You can use a VA home loan to both purchase a home and refinance an existing mortgage.  Homeowners with existing VA loans can use the VA Streamline Refinance Program (VA IRRRL Program) to refinance their mortgage with less documentation and more flexible borrower qualification requirements including no credit score or appraisal report.  The VA also offers the the VA Energy Efficient Mortgage (EEM) Program that enables borrowers to include up to $6,000 in energy efficiency home improvements in their VA loan amount. The VA EEM Program also applies to both purchase loans and refinances.

  • Property Eligibility
  • The VA Program only applies to owner occupied primary residences. You can use the program to purchase single-family homes, condominiums or multifamily properties with up to four units such as an apartment building with four residences.  For multifamily properties at least one of the units needs to be owner occupied, or lived in by the individual(s) who obtained the mortgage to purchase the property.  Investment properties and vacation homes are not permitted under VA program guidelines.

  • Great Mortgage IdeaRelated FREEandCLEAR Resources

  • Sources

    VA Program Eligibility: https://www.benefits.va.gov/WARMS/docs/admin26/pamphlet/pam26_7/Chapter2.pdf

    VA Mortgage Program Guidelines: https://www.benefits.va.gov/warms/pam26_7.asp

    VA Loan Limits: https://www.benefits.va.gov/homeloans/purchaseco_loan_limits.asp

    VA Funding Fee: https://www.benefits.va.gov/homeloans/purchaseco_loan_fee.asp

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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