Purchasing a Home with a VA Home Loan

Current servicemembers, veterans, and survivors may be eligible for home loans through the Department of Veterans Affairs or home loans backed by the VA when buying or building a new home, performing home improvements, or refinancing an existing mortgage.

VA loans and VA-backed loans can offer significant benefits over privately funded home loans in that they:

• May not require a down payment
• Do not require private mortgage insurance
• May offer lower interest rates
• May require less in closing costs

There may be some drawbacks to using a VA loan, though. These include minimum property requirements, appraisal requirements, and additional requirements for sellers.

Note that to be eligible for VA loans and VA-backed loans, servicemembers must have served for at least 90 continuous days on active duty. The minimum service requirement for veterans and members of the National Guard or Reserves depends on when they served. Learn more here.

What types of loans does the VA offer?

The VA offers one type of direct home loan, meaning that the VA itself becomes your lender – unlike other home loans that are distributed through banks or mortgage companies. These direct loans are distributed through the Native American Direct Loan (NADL) Program and are available to Native American veterans and veterans who are married to Native Americans as described below.

The VA also backs three different types of loans:

1. Purchase Loan – This type of loan is used to buy, build, or improve a home.
2. Interest Rate Reduction Refinance Loan (IRRRL) – This type of loan is used to lower a monthly mortgage payment by obtaining a lower interest rate or to stabilize monthly payments by refinancing from a variable interest rate to a fixed interest rate.
3. Cash-Out Refinance Loan – This type of loan is used when an individual already has a home loan but wants to replace it with a new one after taking cash out of the home’s equity value to pay off debt, improve the home, or pay for education. It may also be used to replace a non-VA loan with a VA-backed loan.

Because VA-backed loans are not provided by the VA but, rather, by a private lender, there may be specific credit score and income requirements for eligibility. However, because these loans are backed by the VA, meaning that the government guarantees a portion of the loan amount, they present less risk for the lender. That may translate to better loan terms and easier qualifying for the borrower.

A veteran who wishes to take advantage of the VA loan program must provide a Certificate of Eligibility to the lender. This certificate can be requested via the eBenefits website or by filling out VA Form 26-1880 and submitting it to your regional VA loan center.

Who is eligible for the Native American Direct Loan Program?

In addition to being a Native American veteran or a veteran married to a Native American,

• The Native American veteran’s or Native American spouse’s tribal government must have an agreement with the VA about how the home loan program works on tribal land.
• The applicant(s) must have a VA Certificate of Eligibility.
• The applicant(s) must meet credit requirements and provide proof of ongoing funding to pay for the mortgage and other costs associated with homeownership.
• The applicant(s) must live in the home for which they are using the loan.

What is the process of applying for an NADL?

To start the process, you must first request a Certificate of Eligibility that confirms your eligibility for VA home benefits and your entitlement amount.

After you receive your Certificate of Eligibility, you must contact a VA home loan representative by calling 1-877-827-3702 or emailing NADL@va.gov.

Who is eligible for VA-backed loans?

To be eligible for a purchase loan or a cash-out refinance loan, an applicant must request a Certificate of Eligibility and meet the lender’s requirements for credit score and income. Further, the home for which the loan is purchased must be or become the applicant’s primary residence.

To be eligible for an interest rate reduction refinance loan, an applicant must already have a VA-backed home loan and plan to use the IRRRL to refinance that loan; the home must currently be lived in or have been lived in at one time by the applicant.

What is the process of applying for a VA-backed loan?

If you a buying a home, after you have obtained your Certificate of Eligibility, you will want to select a real estate agent and a lender. The lender will go through the process of preapproving you for the loan – up to a certain amount – after which you can shop for a home. Once you select a home, you will work with your agent to submit an offer. The seller can either approve or decline your offer. If approved, the home will undergo an appraisal to determine its value. If the appraised value is less than the price listed in the offer, you can rescind your offer, or you can pay the difference between the appraised value and the price of the home in cash. If the home appraises at or above the home’s list price, you must continue with the purchase of the home. After your contract is ratified, you will need to pay closing costs, including the VA funding fee and other costs that vary by lender, including the loan origination fee, the VA appraisal fee, and taxes.

If you are refinancing a home, you will need to choose a lender and provide your Certificate of Eligibility and any other information requested. Once approved, you will need to pay closing costs, including the VA funding fee and other costs that vary by lender, including the loan origination fee, the VA appraisal fee, and taxes.

What are VA loan and VA-backed loan entitlement amounts?

The entitlement amount listed on a Certificate of Eligibility is the amount of money that the VA promises to repay if a homeowner defaults on their mortgage. For applicants with full entitlement (those who have never used a home loan benefit and those who used their benefit but repaid the loan in full and sold the property), this amounts to 25% of the loan amount – or the amount that a lender requires to be guaranteed through a combination of entitlement and down payment before approving a loan.

While the VA does not state an upper limit to the amount of their loans and backed loans, the Federal Housing Finance Agency does. The baseline limit for 2022 is $647,200. However, depending on the county in which the property is located, the limit may be higher. You can find this year’s and previous years’ limits here.

There are several situations in which an applicant may have a VA home loan limit:

• If they previously purchased a property using a VA loan or a VA-backed loan and are still making payments toward the mortgage.
• If they previously purchased a property using a VA loan or a VA-backed loan and repaid the loan in full, but still own the property.
• If they refinanced a VA loan or a VA-backed loan into a non-VA loan and still own the property.
• If they sold a home purchased with a VA loan or a VA-backed loan for less than they owed on the mortgage (a short sale) and did not repay the remainder in full.
• If they transferred a home’s title to the bank that holds the mortgage to avoid a foreclosure or if they foreclosed on a VA loan or a VA-backed loan and did not repay the loan in full.

Having a home loan limit reduces an applicant’s entitlement, which, in turn, might force the applicant to make a cash down payment to qualify for an additional loan (because the entitlement alone may not be enough to meet the 25% down payment required by the lender).

What is the VA funding fee?

The VA funding fee is payment that must be made upon the closing of a VA loan or a VA-backed loan. The funding fee depends on the type of loan received and the amount of the loan. For some loans, the fee may also depend on whether a VA loan or VA-backed loan has been used previously and the amount of the down payment.

View VA funding fee charts here.

Certain circumstances may cause the funding fee to be waived, including:

• Receiving VA payments for a service-connected disability
• Being eligible for VA payments for a service-connected disability but receiving active duty or retirement pay instead
• Being on active duty and providing evidence of receiving a Purple Heart
• Receiving a proposed or memorandum rating before the loan closing date stating that the servicemember is eligible for compensation due to a pre-discharge claim
• Being the surviving spouse of a veteran who died or was totally disabled as the result of a service-connected disability and who receives Dependency and Indemnity Compensation (DIC)

Currently, the VA funding fee will not exceed 3.6% of the loan amount.

Are there VA home loan options for survivors?

Yes, surviving spouses may be eligible for a Certificate of Eligibility if they meet one of the following requirements:

• The veteran is missing in action or a prisoner of war
• The veteran died during service or from a service-connected disability and the surviving spouse did not remarry
• The veteran was totally disabled and then died, though the disability may not have been their cause of death

To receive the Certificate of Eligibility, spouses must submit the veteran’s DD214 and VA Form 26-1817 to their regional VA loan center or to their lender, who may be able to request it online. Spouses who are not receiving Dependency and Indemnity Compensation benefits should apply for DIC before applying for their Certificate of Eligibility.

Can a VA loan be assumed by another buyer?

Another buyer can assume a VA loan, which may be advantageous if the current interest rate on the VA loan is low. However, there are specific requirements for assumption:

• The loan must be current or be brought current at the time of sale
• The buyer must be determined to be creditworthy
• The buyer must agree to assume all of the loan’s obligations

Most important, the sellers must be certain that they are released from liability for the current loan, otherwise, they may still be financially responsible if the loan goes into default – and their ability to use their VA loan again could be jeopardized.

Buying or refinancing a home is complicated. A knowledgeable real estate agent can be a valuable asset in walking you through the process, as is the VA’s Housing Assistance website. As a VSO, Navy Mutual can also help. If you have questions about VA benefits or survivor benefits, you can reach a Navy Mutual representative at 888-298-4442.