What Is a VA Home Loan?

VA loans offer homeownership benefits to Veterans, surviving spouses, and members of the military service community. With no down payment or mortgage insurance required, VA loans are a valuable benefit of military service that has helped millions of Americans achieve their homeownership dreams.

Discover how VA loans work, how to qualify, and more with our comprehensive guide.

What Is a VA Loan?

The United States Department of Veterans Affairs (VA) created the VA loan to help American Veterans afford to buy and own a home. Although VA loans are mortgages backed by the VA, they are offered to veterans by private lenders like Freedom Mortgage.

VA loans can be a great option if you're looking for a lower interest rate and no down payment when you buy a home. Whether you're a first-time homebuyer or a Veteran homeowner looking to refinance, the VA loan benefit can help eligible military members, Veterans, and surviving spouses purchase or refinance their homes.

How Does a VA Home Loan Work?

VA mortgages are government-backed, meaning the VA guarantees part of the loan against default. This allows lenders to offer no-down-payment VA loans. Lenders also usually offer slightly lower rates and more favorable terms on VA loans than they can with conventional mortgages that aren't backed by the federal government.

You can use a VA loan to buy single-family homes, VA-approved condos or townhomes, or, in some cases, manufactured homes.

Types of VA loans

There are different types of VA loans, all intended to meet the needs of the military community by providing options to become a homeowner, refinance, or tap into home equity:

• VA purchase loan: Helps eligible Veterans, active-duty service members, and surviving spouses buy a home with no down payment
• VA IRRRL streamline refinance: Helps eligible VA borrowers refinance their existing VA loan to a lower interest rate, often with no appraisal and simplified processing
• VA cash out refinance loan: Helps eligible homeowners (with any existing mortgage) tap into their home's equity to access cash by refinancing to a new VA loan

VA Loan Pros and Cons

VA loans are a top benefit of military service and come with unique considerations that can help veterans, active-duty service members, and surviving spouses decide if a VA home loan is the right fit for them and their financial goals.

VA Home Loan Benefits

Key potential benefits of VA loans often include:

• No down payment requirement
• No mortgage insurance requirement
• Competitive interest rates that are typically slightly lower than conventional loans
• Less restrictive minimum credit score requirements
• Lower closing costs
• VA funding fee waived for VA-recognized disabled Veterans and qualifying surviving spouses (Freedom Mortgage can help you determine if you're eligible for a funding fee waiver)

Potential Drawbacks of VA Home Loans

VA loans require a VA funding fee, which is a percentage of the loan amount and is usually rolled into the loan. The VA funding fee is waived for disabled Veterans, and there are other exemptions. If you aren't sure if you can waive the VA funding fee, just ask.

There are also VA loan limits to consider, which refer to being able to borrow without a down payment, not overall eligibility. These limits are based on county loan limits and only apply to borrowers who have partial/remaining entitlement. Those with full entitlement aren't subject to VA loan limits.

Other restrictions on VA Loans include that they are limited to primary home purchases and have property eligibility requirements. Again, if you aren't sure if your home qualifies for the VA loan, we'll help you figure it out.

VA Loan vs. Conventional Loan

While VA loans and conventional loans are similar in some ways, there are also key differences to be aware of:

VA Loan Eligibility Requirements

To qualify for a VA loan, you must meet certain requirements, including:

• Veteran or military status: To qualify, Veterans, surviving spouses, active-duty, reserve, and National Guard service members must meet VA loan eligibility requirements. This includes minimum service timelines, credit and income guidelines, and property type stipulations. Most VA borrowers will also need a Certificate of Eligibility (COE) to verify their eligibility.
• Down payment: VA loans allow homebuyers to purchase a house without making a down payment. However, making one can reduce the VA funding fee, lower your monthly payments, and help you build immediate equity.
• Credit score: VA loans generally have flexible credit score requirements. At Freedom Mortgage, you may qualify with a FICO score as low as 550 to buy or refinance a home with a VA loan. If you're a Freedom Mortgage customer, primary borrowers can check their credit score on our mobile app.
• Income: There are no official income limits for VA loans, but lenders often require a debt-to-income ratio (DTI) of 41% or less. Exceeding this ratio may affect your approval or result in less favorable terms, unless you qualify for a DTI exemption.
• Occupancy: VA loans are intended for primary residences only, meaning you must live in the home you purchase with a VA loan. Second homes, rental properties, and investment properties aren't eligible (with a few exceptions, such as a 4-unit property). Another exception is with VA IRRRL refinances, where prior occupancy is sufficient.
• Property and appraisal: A VA loan appraisal is required, where a VA-certified appraiser will assess the property to ensure it meets the VA's minimum occupancy requirements. You'll also be required to get a VA pest inspection, and, if you're not on a local water system, a well water safety test.

If you have questions about your VA loan eligibility, Freedom Mortgage can help you explore VA loans and other loans that meet your needs.

Final Thoughts: Making the Most of Your VA Home Loan Benefit

VA loans make buying a home or refinancing more affordable and achievable for the military community, thanks to unique advantages like no down payment, no mortgage insurance, and competitive interest rates.

If you're ready to take the next step, Freedom Mortgage can help you explore your options, check your eligibility, and get started on your path to affordable homeownership with confidence. Get prequalified today to get an idea of how a VA loan can help make it possible.