What Is a VA Loan?

A VA loan, or Veteran Affairs home loan, is a mortgage option available to veterans, active-duty service members, and eligible military spouses who purchase a home. VA loans offer several advantages, including no down payment, low rates, and no requirement for private mortgage insurance (PMI).

Established by the U.S. Department of Veterans Affairs, the VA loan program includes protections limiting the fees lenders can charge. These safeguards are designed to make veteran home financing options significantly cheaper than conventional loans by minimizing upfront costs of purchasing a home. and reducing the size of monthly payments.

VA Loan Program Eligibility Requirements

To qualify for a VA home mortgage loan, applicants must meet specific service-related criteria set by the Department of Veterans Affairs. These criteria are designed to ensure that VA home financing is accessible to those who have served while maintaining financial stability for the borrower.

Service Requirements.

• Served at least 90 consecutive days of active duty during wartime
• Served at least 181 days of active duty during peacetime
• Completed more than 6 years of service in the National Guard or Reserves
• Be the spouse of a military member who lost their life in the line of duty or as a result of a service-related disability

Financial Requirements

• You must demonstrate to lenders that you have sufficient income to afford the property you wish to purchase
• Typically, a DTI of 40% or less is preferred, though lenders may offer flexibility based on individual circumstances
• A credit score of 620 is generally required, though lenders may go as low as 500

VA Home Loan Pros and Cons

Pros

• Lower interest rates than conventional loans
• No down payment required, which typically averages 6% to 12% of the total loan amount for conventional mortgages
• No PMI required even with no down payment, which can cost hundreds of dollars each month (often 0.3% to 1.5% of the original loan amount per year)

Cons

• VA loans are only available for primary residences, limiting their use for investment properties or second homes
• Well-qualified buyers (individuals with high credit scores and low debt) who can afford a substantial down payment (20% or more) may qualify for lower rates with conventional loans
• One-time funding fee required (about 0.5% to 1.25%)

How to Get Prequalified for a VA Loan

Getting prequalified is a smart first step in the VA mortgage process. It provides an estimate of how much you could borrow and what rates you may qualify for, helping you set realistic expectations as you start your home search. During prequalification, you’ll self-report basic financial information including your income, credit score, and debt levels. Since the lender doesn’t require documentation or a credit check at this stage, prequalification isn’t a guarantee of loan approval.

• Prequalification can show sellers that you're a serious buyer, giving you an advantage in competitive markets.

If you're unsure whether to go with prequalification vs. preapproval, we suggest you start by getting prequalified with several lenders. This allows you to compare personalized estimates and identify the best VA home loan lenders for your needs. To reduce the number of hard credit checks on your report, you should move forward with preapproval from your top lender, since preapproval requires a more thorough review of your finances.

How VA Loans Compare to Conventional Loans

VA home loan typically result in lower monthly payments and overall cost savings, making them a more affordable choice for those who qualify.

Benefits of VA Loans

• No Down Payment: Unlike many conventional loans, VA loans often don’t require you to pay any money upfront (a down payment), which can help you get into a home without significant savings
• Lower Interest Rates: Veterans mortgage loans usually have lower interest rates than conventional mortgage loans
• More Lenient Approval Requirements: VA mortgage loans are more lenient regarding credit requirements and allow for higher debt-to-income ratios than many conventional loans
• No Private Mortgage Insurance (PMI): PMI is monthly insurance payment that protects the lender, but, since VA loans are backed by the U.S. Department of Veterans Affairs, there’s no PMI
• Reduced VA Mortgage Closing Costs: Closing costs on a VA loan are typically much lower since the program by caps origination (loan processing) fees at 1% of the loan amount, preventing lenders from charging excessive “junk fees”

The best VA lenders generally offer lower rates and more manageable terms than conventional lenders, but they may not be the right choice for everyone. You might want to consider conventional mortgage loans if you have a strong credit profile (typically 740+) and a low debt-to-income (DTI) ratio. It could be smart to request quotes from conventional mortgage lenders as well as VA lenders. This can help you compare rates and determine if veterans home mortgage loans are right for you based on your financial situation.

VA Loan Rates

Veteran home loan rates are often lower than conventional rates because they are backed by the U.S. Department of Veterans Affairs, which reduces the lender’s risk. Even with recent market fluctuations, veteran loans typically remain more affordable than conventional loan options, providing veterans with better savings opportunities over the life of their loans.

Factors that Affect VA Loan Rates

• Credit Score: While VA loans are more forgiving of lower credit scores, those with strong credit histories will still secure the most favorable rates
• Loan Amount and Term: Shorter-term loans (like 15 years) typically have lower interest rates than longer-term loans (like 30 years)
• Fixed-Rate vs. Adjustable-Rate: Fixed-rate loans keep the interest rate steady for the life of the loan, while adjustable-rate loans start with a lower initial rate which can adjust based on market conditions
• Current Market Conditions: VA loan rates generally follow broader mortgage market trends, which are influenced by factors like inflation, Federal Reserve policies, and overall economic health
• Lender Policies: Different lenders may offer slightly different rates based on their own policies, meaning it may be advantageous to compare a list or two of best VA home lenders before you move forward

Understanding the factors that affect your mortgage rate and how they work together could help you reduce your monthly payments and save thousands of dollars in interest over the life of your VA home mortgage loan.

VA Loan Rates Near You

Regions with Higher and Lower VA Loan Rates

In general, VA loan rates tend to be a bit higher in areas with booming housing markets. This includes major cities or high-demand regions along the coasts. In these areas, home prices are higher, and there’s often more competition for loans, which can push rates up slightly.

On the other hand, in less competitive or more rural areas, VA loan rates tend to be lower. These areas, such as parts of the Midwest and South, often see slower housing growth, resulting in more favorable rates for borrowers.

Why VA Loan Rates Vary by Location

Even though VA loans are backed by the government, regional differences still play a role in the rates you’ll qualify for. Some reasons why VA loan rates might change based on location include:

• Cost of Living: In places where the cost of living is higher, like large cities or coastal areas, VA loan rates might be slightly higher due to higher demand
• Housing Demand: In growing or competitive real estate markets, such as urban centers or popular suburban areas, more people are looking to buy homes, which can result in increased rates
• State Regulations: Some states may have laws or programs that affect loan rates and can influence the overall cost of borrowing in certain regions

Finding the Best VA Loan Rate for You

While your location is a factor, personal details like your credit score, loan term, and the lender you choose will also affect the VA loan rate you're offered. It’s a good idea to compare offers from multiple lenders to find the best deal in your area. Many lenders are familiar with VA loans and can help you navigate the process, offering insights specific to your local market.

The Total Cost of a VA Loan

While VA home mortgage loans generally come with fewer out-of-pocket expenses compared to conventional loans, there are still costs required.

VA Loan Costs

• Loan Amount and Interest: The loan principal and the interest rate attached to it make up the largest portion of a mortgage loan
• Appraisal Fees: Appraisal fees generally range from $300 to $600 depending on the lender and location (similar to conventional loan prices)
• Title Insurance and Recording Fees: These fees cover the cost of protecting against title disputes and documenting the property sale, and vary depending on property location and local regulations
  • Title insurance typically ranges from $500 to $1,500
  • Recording fees are usually between $50 and $300
• VA Funding Fee: A one-time fee that typically ranges from 1.25% to 3.3% of the loan amount. This fee can be rolled into the loan to reduce upfront costs and is lower for first-time VA home loan users
  • Veterans with service-related disabilities may be exempt
• VA Mortgage Closing Costs: The closing cost on a VA loan are typically more affordable since home lenders for veterans are restricted from charging certain "junk fees" and must cap origination fees at 1% of the loan amount

How to Apply for a VA Loan

To apply for VA home loans you’ll need your Certificate of Eligibility (COE) to show lenders that you qualify for VA benefits. Most lenders will handle the COE application for you. If they don’t, you can apply yourself through VA.gov or by mail. Most receive their COE within a few minutes when applying online, but, if it’s not automatically linked to your profile, the process can take up to 30 days to complete manually.

Once you have your COE, you’ll submit your loan application for a VA purchase loan. You'll need to provide a home appraisal and financial documents, such as pay stubs, tax returns, and bank statements. After submitting your application, the lender will review your information and, once approved, you'll proceed to closing, where final documents are signed, and you officially become a homeowner.

Expected Timeline

1. COE: Immediate to 30 days, depending on whether it's automatic or manual
2. Prequalification: 2-5 days
3. Loan Application and Processing: Typically 2 to 3 weeks for VA purchase loans
4. Closing: Usually 30-60 days in total from the start of the application