A VA loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs and issued by a private lender, such as a bank, credit union, or mortgage company. A VA loan can make it easier to buy a home because it typically doesn’t require a down payment. Only qualified U.S. veterans, active-duty military personnel, and some surviving spouses are eligible for VA loans. The GI Bill of Rights created the VA home loan program in 1944 to help veterans get a foothold in civilian life after World War II.

The VA’s guarantee means the government will repay the lender a portion of a VA loan if the borrower doesn’t make payments. This assurance reduces the risk for lenders, which makes it possible for them to offer favorable terms and require no down payment. If eligible, you can complete the VA mortgage application process through a lender of your choice. Many, but not all, lenders offer VA loans, and some lenders specialize in serving VA loan borrowers.

VA Loan Requirements

First of all, you need to make sure you’re eligible for a VA loan. The government has service requirements for veterans or those on active duty, and also offers opportunities for certain military spouses to qualify for VA loans. You can get more information from the government’s website, but the basic requirements include:

• You’re currently on active military duty, or you’re a veteran who was honorably discharged and met the minimum service requirements;

• You served at least 90 consecutive active days during wartime or at least 181 consecutive days of active service during peacetime; or

• You served for more than six years in the National Guard or Selective Reserve.

• If your spouse dided in the line of duty, you may qualify for a VA loan.

In order to apply, you need to obtain a VA Certificate of Eligibility or COE. Without this certificate, you won’t be able to get your loan.

Other Requirements

In addition to making sure you’re eligible for a VA loan, you must meet occupancy requirements. You must live in the home you’re financing as a primary home — the money cannot be used for an investment property or vacation home. It’s also possible to refinance a VA loan, and the VA offers a program designed to help you refinance to a lower-rate loan.

Credit Score

While there is no minimum credit score requirement, borrowers might have a hard time getting approved by a lender if they don’t have at least a 620 FICO Score.

What are VA entitlements

There are two types of entitlement:

• Basic entitlement: up to $36,000 for loans worth less than $144,000, or 25 percent for loans of that amount or more.
• Bonus entitlement: Up 25 percent of the Federal Housing Finance Agency (FHFA) loan limit, minus the basic entitlement.

For those who need to purchase a home that costs more than $144,000, the bonus entitlement can be used. For example, in most counties in the U.S., the FHFA conforming loan limit in 2021 is $548,250 and $647,200 in 2022. In that case, 25 percent of the loan amount would be $137,062.50 in 2021 or $161,800 in 2022. However, for the total entitlement, you need to subtract out the basic entitlement, leaving you with $101,062.50 in bonus entitlement money for 2021 and $125,800 in 2022.

Many lenders are willing to loan those who qualify for a VA loan up to four times the amount of their entitlement, so you might be able to get a loan for $144,000 on the basic entitlement of $36,000.

For those who live in high-cost areas, the bonus entitlement is figured in the same way but based on the higher FHFA conforming loan limit, which is based on the county where the house is located. Before applying, check the FHFA website for more information on the loan limits in your area.

Other Key Features

Closing Costs: As with any mortgage, different lenders have various closing costs. You might need to pay for discount points, a credit check, VA appraisal fees, title insurance, and other costs, including local and state taxes.

PMI: You don’t need to worry about PMI. Due to the entitlement, which usually amounts to more than 20 percent of the home’s value, you don’t need to pay PMI on a VA loan.

VA Funding Fee: While you don’t have to worry about PMI, you do have to pay a VA funding fee. Your VA funding fee depends on the size of your VA loan down payment, and whether it’s your first-time use of the benefit.