More than 25 million VA loans have been issued since the program was established in 1944, including more than one million in 2020. If you’re a service member, veteran, or surviving spouse who meets the VA’s eligibility rules, then the VA loan program could be the mortgage for you. A VA loan requires no down payment and no private mortgage insurance, giving it a clear advantage over alternatives like conventional loans and FHA loans.
Here’s everything you need to know about VA loans, including our list of the top 3 VA mortgage lenders in 2021.
A VA home loan is a mortgage loan backed by the federal government’s Department of Veteran Affairs (the VA) and provided by VA-authorized mortgage lenders. A VA loan may be used buy, build, repair, retain, or refurbish a primary residence. There are five types of VA loan: VA purchase loan, VA jumbo loan, VA cash-out refinance loan, VA Interest Rate Reduction Refinance Loan (IRRRL), and Native American Direct Loan (NADL).
The VA guarantees a quarter of the loan up to the limit set by the Federal Housing Finance Agency (FHFA). In 2021 the FHFA set the conforming limit at $548,250 in most of the country (except in a small number of high-priced areas such as New York and San Francisco, where the limit is higher). Therefore, in most of the country, the limit for a VA loan is $548,250, of which the VA guarantees $137,063.
The following people may be eligible for a VA home loan:
- Veterans who have served at least 90 consecutive days of active service in wartime or 181 days of active service in peacetime;
- Members of the National Guard and Reserve who have served at least 6 years; and
- Spouses of veterans who died in the line of duty or as a consequence of a service-related injury.
Before applying for a VA home loan, you must first obtain a Certificate of Eligibility (COE) from the VA. A COE can be obtained from the VA e-Benefits website, by mail, or by filling out VA Form 26-1880. Some lenders offer free assistance with obtaining a COE.
A VA loan has no down payment requirement and no private mortgage insurance requirement. However, there is a VA funding fee of 1.4%-3.6% of the loan amount, with the exact amount determined by the type of VA loan and size of the down payment (if you choose to put money down). Some borrowers are exempt from the VA funding fee, such as surviving spouses and veterans receiving VA disability compensation.
It’s not for nothing that most service members, veterans, and surviving spouses take up the offer of a VA loan when buying or refinancing: VA loans have fewer upfront fees than conventional mortgages and FHA loans, and the VA promises assistance for borrowers struggling to pay back their loan. More than one thousand authorized lenders offer VA loans, so always compare your options.