VA Loan Basics: What Every Veteran Should Know
The short answer
- You can request your Certificate of Eligibility on VA.gov, by mail, or through your lender
- Zero down and no PMI can add up to large savings over the life of your loan
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Why this matters
The VA home loan is one of the most powerful homeownership benefits available to those who have served. Yet many eligible veterans, active-duty service members, and surviving spouses either do not know about it or misunderstand how it works. This article walks through the core features so you can make informed decisions about your home purchase.
Who Is Eligible and How to Prove It
VA service requirements depend on when and how you served. Active-duty service members generally need 90 continuous days of service. Veterans need a minimum that varies by era; for example, most who served since August 1990 need 24 continuous months or the full period they were called up for, with at least 90 days. National Guard and Reserve members can qualify with six creditable years of service or 90 days of non-training active duty, and some discharges, such as for a service-connected disability, can qualify with less time. Surviving spouses who receive or are eligible for certain Dependency and Indemnity Compensation, and spouses of service members missing in action or held as prisoners of war, may also qualify. To prove eligibility, you need a Certificate of Eligibility (COE), which you can request online at VA.gov, by mail using VA Form 26-1880, or through your lender, and lenders can often get it electronically. Your COE shows how much entitlement you have available, which affects how much you can borrow without a down payment.
Zero Down Payment and No PMI
The two headline benefits of a VA loan are straightforward: VA does not require a down payment as long as the sales price is not above the appraised value, and you never pay private mortgage insurance (PMI). On a conventional loan, putting less than 20 percent down usually means paying PMI every month until it is removed, and over years that cost adds up. The zero-down feature also means you may be able to buy without first spending years saving for a down payment, though you will still need cash for closing costs unless the seller or lender covers them.
The VA Funding Fee Explained
The VA does not charge monthly mortgage insurance, but it does charge a one-time funding fee that helps sustain the loan program. For first-time VA loan users putting less than 5 percent down, the funding fee is 2.15 percent of the loan amount. In a simple example, on a $300,000 loan that is $6,450. The fee drops to 1.5 percent if you put at least 5 percent down, and to 1.25 percent with 10 percent or more down. You are exempt from the fee if you receive VA compensation for a service-connected disability, and certain other groups are exempt too, including surviving spouses receiving Dependency and Indemnity Compensation and active-duty Purple Heart recipients. The fee can be rolled into the loan so you do not have to pay it out of pocket at closing, though that does increase your total loan balance.
Other Key VA Loan Features
VA loans come with additional protections that many buyers overlook. There is no prepayment penalty, so you can pay off the loan early or make extra payments without fees. VA also limits some of the fees a lender can charge you at closing. If you run into financial trouble, VA loan technicians can work with your servicer on options to help you avoid foreclosure. VA loan rates are often competitive with conventional rates because the government guarantee reduces lender risk, but rates vary by lender, so compare offers.
When a Conventional Loan Might Make More Sense
Having VA eligibility does not mean you must use it every time. For veterans with limited savings, the VA loan is often the lower-cost choice. But if you have strong credit and can put 20% or more down, a conventional loan has no mortgage insurance and no funding fee, and that can cost less overall. The VA appraisal also checks the home against minimum property requirements, which can mean repairs before closing on an older home. VA loans are for homes you will live in, so a second home or investment property needs a different loan. Ask your lender to price both loans side by side, including the funding fee, any mortgage insurance, and your cash at closing. If a lender tells you VA loans close much slower, or that sellers will not take them, it may be worth talking to a lender with more VA experience — a well-prepared VA offer can compete.
Using Your Benefit More Than Once
Your VA loan benefit is not a one-time program, and it is not only for first-time buyers. When you take out a VA loan, part of your entitlement is tied to that loan. Once you sell the home and the VA loan is paid off, you can ask to have that entitlement restored for your next purchase — your lender can request it, or you can use VA Form 26-1880. If you paid off the loan but kept the home, restoration is allowed only once. If you keep a VA-financed home and buy another, you may still have remaining entitlement to use. You must plan to live in the new home as your primary residence. With full entitlement, there is no VA loan limit — the amount you can borrow with no down payment depends on what a lender will lend based on your income and credit. With partial entitlement, county loan limits affect how much you can borrow with no money down. The funding fee is higher for later uses at less than 5% down (3.3%) unless you are exempt. If you are active duty, think about how likely a PCS move is before you buy.
Benefits Beyond the VA Loan
Veterans may have other benefits worth checking. In California, CalVet Home Loans is a separate state program for veterans, and veterans rated 100% disabled by the VA, or paid at the 100% rate, may be eligible for California's Disabled Veterans' Exemption through the county assessor. The VA's Specially Adapted Housing grant can help veterans with certain service-connected disabilities modify or build a home. If you are on active duty, the Servicemembers Civil Relief Act provides protections, including on some debts taken on before you entered service.
Everything to remember
- You can request your Certificate of Eligibility on VA.gov, by mail, or through your lender
- Zero down and no PMI can add up to large savings over the life of your loan
- The funding fee is a one-time cost (2.15% for a first use with less than 5% down) that can be rolled into the loan, and it is waived for veterans receiving VA disability compensation
- With strong credit and 20% or more down, ask your lender to compare a conventional loan side by side, since it avoids the funding fee
- Your VA benefit is reusable — selling and paying off a VA loan lets you restore your entitlement, and with full entitlement there is no VA county limit on zero-down borrowing — your income and credit set the amount
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