VA Loan Guide
What Is a VA Loan?
Mike Starr
Founder, MortgageWizardTools · M.S. Organizational Management
VA Loan Overview
A VA loan is a mortgage benefit available to eligible veterans, active-duty service members, members of the National Guard and Reserve, and certain surviving spouses. Authorized by the Servicemen's Readjustment Act of 1944 — the GI Bill — the VA home loan program has helped more than 27 million Americans purchase or refinance a home since its inception.
Unlike FHA or USDA loans, the VA does not lend money directly. Instead, the U.S. Department of Veterans Affairs guarantees a portion of the loan made by a private lender. This guarantee protects the lender against loss if the borrower defaults, which is why lenders can offer VA loan borrowers favorable terms that are not available on conventional loans.
How the VA Loan Guarantee Works
The VA guarantees up to 25% of the loan amount (up to the conforming loan limit) for eligible borrowers. This guarantee replaces the need for private mortgage insurance. If a borrower defaults and the lender suffers a loss, the VA reimburses the lender for up to the guaranteed amount.
This backstop is what allows lenders to offer the program's most significant benefits: zero down payment and no PMI. From the lender's perspective, the VA guarantee reduces risk to a level comparable to a conventional loan with 20% down.
Core VA Loan Benefits
No Down Payment
Purchase a home with zero down — one of the only loan programs to offer this.
No PMI
No private mortgage insurance, saving hundreds per month compared to conventional loans with low down payments.
Competitive Rates
VA loans typically carry interest rates 0.25–0.5% lower than comparable conventional loans.
Limited Closing Costs
The VA limits which closing cost fees lenders can charge. Sellers can pay all of the buyer's closing costs.
No Prepayment Penalty
Pay off your loan early — in whole or in part — without any fee.
Assumable Loan
Eligible buyers can assume your VA loan, which can be a selling advantage when rates are high.
What Types of Properties Are Eligible?
VA loans can be used to purchase or refinance:
- •Single-family homes
- •Condominiums in VA-approved projects
- •2–4 unit properties (borrower must occupy one unit)
- •Manufactured homes on permanent foundations
- •New construction
The property must be the borrower's primary residence. VA loans cannot be used for investment properties or vacation homes. The home must also meet the VA's Minimum Property Requirements (MPRs), which ensure the property is safe, sound, and sanitary.
The VA Funding Fee
The one cost unique to VA loans is the VA funding fee — a one-time fee that helps sustain the loan program for future veterans. The fee ranges from 1.25% to 3.3% of the loan amount depending on your down payment, whether it's your first VA loan, and the loan type. It can be financed into the loan or paid upfront at closing.
Veterans with a service-connected disability rating of 10% or more are exempt from the funding fee entirely, as are surviving spouses of veterans who died in service or from a service-connected disability.
VA Loan vs. Other Loan Types
| Feature | VA | FHA | Conventional |
|---|---|---|---|
| Min. Down Payment | 0% | 3.5% | 3% |
| Mortgage Insurance | None (funding fee) | MIP (may be permanent) | PMI (removable at 80% LTV) |
| Min. Credit Score | No VA minimum (lenders ~620) | 580 | 620 |
| Who Qualifies | Veterans / service members | Most borrowers | Most borrowers |
| Loan Limits | No limit (with full entitlement) | County-based limits | Conforming limits |
See our full VA vs. FHA vs. Conventional comparison for a deeper analysis.
Frequently Asked Questions
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