Types of VA Loans: Which Is Right for You?

A Quick Guide to Common VA Home Loan Options

VA loans are a top benefit of military service and a valuable resource for active service members, veterans, and their families, offering a more affordable path to homeownership thanks to perks such as no down payment required.

But “VA loan” doesn’t just refer to one specific mortgage. There are several types of VA home loans to help you achieve your homeownership goals. So, whether you’re buying your first home, refinancing for a lower rate, or funding home renovations, we’ll help you find the best VA loan for your situation.

Why Choose a VA Loan?

Backed by the U.S. Department of Veterans Affairs (VA), VA loans can help eligible active-duty service members, veterans, and qualifying surviving spouses buy a new home or make renovations to their current home.

Here are some key benefits:

• No down payment required in most cases
• Competitive interest rates compared to conventional loans
• No private mortgage insurance (PMI)
• Less restrictive credit score requirements

If you want to buy a home or make some changes to your current one, a VA home loan could provide a way to meet mortgage eligibility requirements and take advantage of opportunities for savings.

Types of VA Home Loans

While all VA home loans share the same core benefits, each type serves a different purpose and may come with its specific requirements. Here’s a breakdown of VA loan options and how they can help.

VA Purchase Loans

For eligible borrowers, a VA purchase loan can be a great way to buy a home. VA purchase loans are ideal for first-time buyers looking to avoid a down payment and repeat buyers seeking more affordable home financing.

A VA purchase loan can reduce some of the upfront barriers associated with other mortgage loans and offer terms that are often easier to qualify for than conventional mortgages.

Plus, you benefit from the security that the home must meet VA Minimum Property Requirements (and be your primary residence) to qualify for a VA purchase loan.

VA Interest Rate Reduction Refinance Loan (IRRRL)

Also known as a VA streamline refinance, VA IRRRLs let homeowners refinance their existing VA loan to benefit from a lower interest rate or switch from an adjustable-rate to a fixed-rate mortgage. This option is for homeowners who already have a VA loan and want a quick, simplified refinance that lowers their monthly payment.

In addition to a “streamlined,” simpler process that often requires no appraisal or income verification, VA IRRRLs also have a reduced VA funding fee.

To qualify, the loan must provide a clear financial benefit, such as a reduced rate or improved loan terms, and you must have previously lived in the home you’re refinancing.

VA Cash Out Refinance

A VA cash out refinance loan lets you refinance your existing mortgage, whether it’s a VA loan or not, and access your home equity. Home equity is commonly used by those who want to complete home improvements, consolidate debt to a lower interest rate, or pay off major expenses.

With VA cash out refinances, you can typically refinance up to 90% of your home’s appraised value, while traditional conventional cash out refis only let you borrow up to 80%.

Unlike an IRRRL, this loan requires full underwriting and a home appraisal, and you must meet VA residual income rules and verify the property is your primary residence.

VA Renovation Loan

A VA renovation loan is a single mortgage that combines financing, so you can buy or refinance a home and have the renovation costs rolled into the same loan. This type of VA loan could be a good option for those who want to buy a fixer-upper or renovate their existing home without having to take out a separate loan.

VA renovation loans aren’t designed for aesthetic or cosmetic upgrades—they’re for renovations that improve a home’s livability and safety, such as roofing, flooring, HVAC updates, or accessibility modifications. A VA-approved contractor must complete these home improvements.

How to Choose Your VA Loan

To narrow down your VA loan options, you’ll want to start by knowing the basics about who qualifies, what lenders look for, and what costs you might face along the way.

1. Review Your VA Eligibility Requirements

Before applying, make sure you meet the VA loan eligibility requirements that help ensure borrowers satisfy basic service, credit, and program requirements before benefiting from the advantages of VA-backed financing:

• Service requirements: To qualify for a VA loan, you must meet minimum active-duty service time and discharge conditions set by the VA. Eligibility typically depends on when you served in the military and the length of your service, and it also extends to certain surviving spouses.
• Certificate of Eligibility (COE): You’ll have to obtain your VA Certificate of Eligibility (COE) to confirm your eligibility, which can be done online at the VA’s website or by mail. Freedom Mortgage can also help you with your COE when you are interested in a VA loan.

2. Understand Your Financial Qualifications

Next, look at your credit and income. This will give you a sense of what lenders are looking for and help you understand which loans you’re most likely to qualify for.

• Credit and income standards: While the VA doesn’t set a minimum qualifying credit score requirement, mortgage lenders often require a score of 620 or higher. Freedom Mortgage, however, offers VA loans for Americans with credit scores as low as 550. You must also show proof of a stable income to afford the monthly mortgage payments.

3. Compare Costs and Borrowing Limits

Considering the costs and limitations of VA loans can help you know what to expect and then choose the option that works for your budget.

• VA funding fee: Most VA loan borrowers are required to pay a VA funding fee in place of PMI. The amount varies depending on if there’s a down payment, the loan type, and whether it’s your first or subsequent use of your VA loan benefit. Some veterans with service-connected disabilities (with a disability recognized by the VA) and certain surviving spouses are exempt from the VA loan funding fee. The funding fee can range from 0.5% - 3.3% of the loan amount (depending on the type of loan).
• Closing costs: VA loans include standard closing costs, such as appraisal, title, and recording fees. VA appraisals can be slightly more expensive than other appraisals because they must determine minimum living standards of the homes (in addition to determining fair market value). Depending on the situation, these expenses may be negotiated to be paid by the seller, offset through lender credits, or rolled into your loan amount.
• VA loan limits: If you have full VA entitlement, you don’t have to worry about VA loan limits, meaning you can borrow as much as your lender approves based on your credit and income. But if you have limited remaining entitlement, loan limits may apply based on your county’s conforming loan limit.

Final Thoughts: Find the Right VA Loan for Your Goals

VA loans make homeownership more accessible and affordable for those who’ve served, thanks to flexible requirements, competitive rates, and no down payment. Whether you’re buying your first home, refinancing for savings, or making home improvements, there’s a VA loan program designed to fit your needs and save you money.

Ready to explore your options? Get prequalified today to see which VA loan type you qualify for and how much home you could afford with your earned benefit.