It’s bad enough that mortgage interest rates and home prices are high at this time, but even worse, industry experts don’t predict a drop in either for some time to come.
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Wannabe homebuyers may be asking themselves how they can afford a home under these conditions. With no major relief in sight — barring congressional interventions — what can a potential homebuyer do to afford a new home?
Experts explain 14 tips that can make your dream of homeownership a reality even in these tough times.
Understand Your Financing Options
“With interest rates expected to remain elevated for the foreseeable future, the best thing you can do right now is understand your financing options,” said Chris Birk, the vice president of mortgage insight at Veterans United Home Loans.
In addition to having a clear understanding of what you can afford based on your own financial situation, he said it’s also important to look for opportunities that make purchasing more affordable.
Comparison Shop
With rates topping 7%, even a small difference in interest rates can add up over multiple years, Birk said, so shop around.
“Shop with multiple lenders, and compare rates,” recommended Birk. “A buyer can save hundreds of dollars a year based on a 0.25% difference in interest rates.”
Birk continued with this example: At 6.75% on a $300,000 mortgage, a buyer can expect to pay $1,946 a month in principal and interest. The same buyer would have a monthly mortgage payment of $1,996 and $2,047 with a mortgage rate of 7% and 7.25%, respectively.
Learn More: Here’s When To Buy a New House, According to Kevin O’Leary
Understand Your Mortgage Options
Birk also suggested getting a comprehensive understanding of the types of mortgages available to you before you make any move.
“Government-backed loan programs come with low or no down payments, and can be a good option,” he said.
“For instance, VA loan rates are typically about 0.25% lower than those of conventional loans, and credit guidelines are more flexible. In addition, the VA benefit never expires, so you can use it every time you purchase a home.”
If you already own a home and are trying to buy another, or sell and buy, Birk said you may be able to refinance your current mortgage or tap into the equity in your current home to buy a new one.
Consider an Assumable Mortgage
A lesser known option is an assumable mortgage, which allows a buyer to purchase a home by taking over the seller’s current mortgage loan, Birk explained.
“VA, USDA and FHA loans are all assumable. Although the downside is often a larger down payment, buyers who assume a mortgage typically have lower closing costs, no appraisal and less debt because the amount of their mortgage is lower,” he added.
Buy Down Your Rate
A rate buy-down allows buyers to reduce their mortgage rate over the life of the loan, which decreases their monthly mortgage payment.
Birk explained, “Buyers can either temporarily or permanently lower their interest rate by purchasing discount points upfront or rolling them into the loan. The buy-down is typically funded by the buyer, seller or builder.
“In fact, some sellers or builders use it as an incentive to make the property more affordable and attractive for buyers.”
Explore Alternative Neighborhoods
According to Alex Coffman, a real estate agent and co-owner of Teifke Real Estate, another option is to expand the areas where you’re looking.
“Consider investigating neighborhoods surrounding your primary area of interest,” Coffman said.
“In many cases, these regions have much lower prices but still offer similar benefits. Specifically, new neighborhoods can present a great opportunity in terms of value as well as appreciation.”
Compromise Your Home Choice
If you’re overly fixated on what your dream house should look like, Coffman warned you might be limiting your options.
“Focus on needs rather than wants,” Coffman recommended. “Be open to properties with some small issues. Occasionally, making minor changes can transform an almost-suitable house into one that is perfect for you.”
Meet With a Financing Mortgage Broker
Don’t try to figure this out alone, Coffman urged. It’s a smart idea to reach out to your mortgage broker and go through all the options available to you.
“Apart from the traditional thirty-year fixed-rate mortgages, there may be adjustable rates or other loan products that are a better fit for your financial circumstances,” he said.
Explore Vendor Financing and Lease-to-Own Programs
Additionally, Coffman explained there may be vendor financing and lease-to-own agreements that offer alternatives when traditional mortgage financing is not possible or desired at this point in time.
He added, “This way, someone may become a homeowner without necessarily getting a conventional mortgage instantly.”
Take on Shared Ownership
If you’re open to purchasing property together with someone you trust, such as a friend, partner or family member, homeownership can be much more affordable.
Coffman said, “Joint ownership makes qualifying for a mortgage quite easy while enabling one to afford his/her preferred household goods or services.”
However, in this case, he warned to take precautions and put together clear agreements and legal documentation that includes state provisions plus obligations.
Seek Government Programs and Local Housing Initiatives
Especially if you’re a first-time home buyer, Coffman recommended looking into government programs and local housing initiatives aimed at helping first-time buyers or people within specific income brackets achieve their homeownership dreams.
“These programs might provide down payment assistance programs, subsidized rates or tax breaks to make homebuying affordable,” he said.
Increase Your Down Payment
On the financial end of things, Coffman shared how saving up to make a larger down payment can often help reduce your monthly mortgage payments and also qualify you for better rates.
Improve Your Credit Score
Improving your credit score can also significantly affect the interest rate lenders offer, leading to more favorable loan terms, according to Coffman.
Consult With Professionals
Lastly, Coffman urged homebuyers to talk to real estate agents, mortgage brokers and financial advisors with insight on what’s happening around the area so they can advise you accordingly. They have the insider expertise and knowledge to help you get to your goal.
While you may have to make some alterations, sacrifices and budget shifts to be able to afford a home right now, it may be more possible than you think.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Mortgage Rates and House Prices Aren’t Dropping — 14 Tips To Afford a Home Anyway
Our writers and editors used an in-house natural language generation platform to assist with portions of this article, allowing them to focus on adding information that is uniquely helpful. The article was reviewed, fact-checked and edited by our editorial staff prior to publication.
Key takeaways
A no-down payment mortgage allows you to buy a home without putting any money down upfront at closing.
USDA and VA mortgages are two types of loans that don’t usually require a down payment.
Some alternatives to no-down payment mortgages include low-down payment loans, such as a conventional or FHA loan, or getting gift money from family or friends.
Buying a home doesn’t necessarily require a large down payment. The conventional wisdom is that you need 20 percent down, but in reality, you don’t have to save that much. In fact, there are no-down payment mortgage options. Here’s what you need to know about these types of loans.
What is a no-down payment mortgage?
A no-down payment mortgage is a home loan that allows you to finance 100 percent of the home’s purchase price without having to put any money down at closing. Zero-down mortgages can be particularly beneficial for those buying a home for the first time or with limited savings.
How to get a mortgage with no money down
The easiest way to avoid a down payment is to qualify for one of the two no-down payment mortgage programs backed by the government: a USDA or a VA loan.
USDA loans
The U.S. Department of Agriculture (USDA) backs USDA home loans, a mortgage guarantee program for those buying a home in designated rural areas. There are many areas you might not consider “rural” that do qualify under USDA guidelines, so be sure to check your eligibility on the USDA website. USDA loans don’t require a down payment, but borrowers must meet credit and income requirements to qualify.
Although there’s no down payment with a USDA loan, there is an upfront guarantee fee of 1 percent of the principal loan amount, as well as an annual fee of 0.35 percent, which borrowers can roll into the cost of the mortgage. While you won’t pay any money initially if you choose to roll these fees into the loan, keep in mind that it adds to the total balance and will accrue interest over the loan term, which means you’ll pay more overall.
VA loans
If you’re a military service member, veteran or surviving spouse, you could be eligible for a VA loan guaranteed by the U.S. Department of Veterans Affairs (VA) with no money down. There is no mortgage insurance requirement with this loan. However, like a USDA loan, you do have to pay an upfront funding fee, which can be rolled into the mortgage. The funding fee ranges from 1.25 percent to 3.3 percent of the loan amount. You can reduce the funding fee by making a down payment.
Another perk: VA loan lenders often offer more competitive rates for these products, which helps you save money over the life of the loan.
Compare: Current VA loan rates
Alternative zero-down mortgage options
In addition to government-backed loans, you might be able to explore:
A low-income loan – These are often geared toward first-time or low-income borrowers, or those in specific areas. For example, Bank of America’s zero-down program aims to help buyers in minority neighborhoods.
A zero-down mortgage through a local credit union – This might be an option especially if the credit union is based on membership in a professional organization. For example, Sunmark Credit Union offers a no-down-payment mortgage option. While these can be relatively rare, it’s still worth looking into.
Gift money from family or friends – If available, you can use gift funds for your down payment. You’ll need to provide your lender with a gift letter that shows you don’t need to pay back the money gifted.
Low-down payment mortgage options
If you don’t qualify for one of the no-money-down home loan options, you might still be able to buy a home with the next best thing: a low-down payment mortgage.
FHA loans
Insured by the Federal Housing Administration (FHA), an FHA loan requires only 3.5 percent down with a credit score as low as 580. (If you have a credit score between 500 and 579, you might be able to qualify with a higher down payment of 10 percent.) It’s a popular option for homebuyers with less-than-perfect credit and not a lot of savings. Like other government-insured programs, FHA loans are offered by private mortgage lenders, so you might also have to meet a lender’s criteria to qualify. Additionally, you’ll have to pay for FHA mortgage insurance, which adds to your monthly payment and the cost of the loan. You’ll pay these premiums for as long as you have the mortgage, in most cases.
Compare: Current FHA loan rates
HomeReady mortgage
Available through many mortgage lenders, the HomeReady program is a conventional loan backed by Fannie Mae. The down payment requirement on a HomeReady loan is just 3 percent. While you’ll have to pay mortgage insurance to compensate for the low down payment, it’s often at a lower price tag compared to other conventional loans.
Home Possible mortgage
Backed by Freddie Mac, Home Possible is a similar mortgage program to HomeReady, with a 3 percent down payment and mortgage insurance requirements.
HomeOne mortgage
Freddie Mac also offers a 3 percent down mortgage option for first-time homebuyers who qualify through its HomeOne program. The main difference between this loan program and Freddie’s Home Possible mortgage is that a HomeOne mortgage does not impose income limits.
1 percent down mortgage programs
Some lenders are now offering mortgage programs for borrowers who qualify that only require a 1 percent down payment. Some examples include Rocket Mortgage’s ONE+ program and United Wholesale Mortgage’s Conventional 1% Down program. For these programs, the lender pays 2 percent of the required 3 percent down payment for a HomeReady or Home Possible loan — or up to a maximum contribution that varies by lender and loan size — and you only need to provide the remaining 1 percent.
Conventional 97 mortgage
A Conventional 97 mortgage is another Fannie and Freddie program that only requires a 3 percent down payment. You might pay more for private mortgage insurance (PMI) with this type of loan, but your payment depends on your financial profile. You can also request to cancel PMI when you reach 20 percent equity in your home.
Good Neighbor Next Door
The Good Neighbor Next Door (GNND) program is for borrowers who work in select public service professions — teachers, firefighters, law enforcement and emergency medical technicians — and are planning to buy a home in a qualifying area.
The program, sponsored by the U.S. Department of Housing and Urban Development (HUD), provides a discount of up to 50 percent on a home with a down payment of just $100. The borrower must qualify for a first mortgage, and the discounted portion of the home comes in the form of another loan. If the borrower continues to meet program requirements, the second mortgage won’t have to be repaid.
Pros and cons of a no-down payment mortgage
The ability to buy a home with no or very little money down can be appealing, but there are drawbacks, too.
Pros of no-down payment mortgages
You can buy a home sooner. When you don’t have to come up with a substantial down payment, it’s easier to buy a home sooner. Alternatively, if you want to take advantage of a good deal or a dip in the market, you can move fast without having to wait for your savings to accumulate.
You can keep more cash on hand. Even if you have enough to make a sizable down payment, you might want to keep that money liquid for emergency savings, remodeling or investing. Whatever the motive, with a low- or no-down payment mortgage, that extra cash remains available to you — not tied up in real estate.
Cons of no-down payment mortgages
You’ll have no or little equity. Home equity is the portion of your home you own outright (not financed by a mortgage). When you start with a low- or zero-down loan, you’ll have little to no equity. If home values fall, you could end up owing more on the home than it’s worth, making it difficult to sell or refinance.
Your interest rate might be higher. You might pay a higher interest rate for a no- or low-money down loan. That’s because with less money tied up in the home, a mortgage lender might view you as more of a risk. Of course, the higher your interest rate, the more you’ll pay overall.
You’ll need a bigger mortgage, which translates to higher costs. The less you put down, the more you’ll need to borrow, which means you’ll pay more in interest over the life of the loan.
You’ll pay fees. Both VA and USDA loans come with fees, which add to the cost of the loan.
Your offer for a home might not look as compelling. The housing market is still competitive in most places around the country. If someone else makes an offer with a large down payment, that buyer might look like a better bet in the seller’s eyes.
Should you get a no-down payment mortgage?
Deciding whether to go for a no-down payment mortgage depends largely on your financial circumstances and goals. Here are a couple of scenarios when a zero-down mortgage might be a good idea:
If you don’t have a lot of cash: Not having to make a large initial payment leaves more in your pocket, obviously, to cover closing costs or living expenses.
If you can afford to pay higher monthly payments: With a smaller down payment comes a bigger loan, which means higher monthly payments. But you might be able to manage a few hundred more month-to-month, even if you couldn’t scrape together a five-figure down payment.
If you plan to stay in the home long-term: When you take out a no-down payment mortgage, you’ll still need to pay closing costs and fees. If you decide to sell your home after a few years for a new one, you’ll have to pay these costs again. Weigh whether it makes financial sense to buy now or save up a little longer.
FAQ on no-down-payment mortgages
The Department of Veteran Affairs and the U.S. Department of Agriculture DA don’t set a minimum credit score requirement for, respectively, their no-money-down VA and USDA loans. However, most lenders offering these loans do, and they’d want them to be at least in the “fair” range: 620 for VA loans, 640 for USDA loans. Because you’re not bringing any cash to the table, and financing virtually all of your mortgage, the lender has to be extra-reassured that you pay your debts fully and on time.
You can explore down payment assistance programs that offer either grants or second mortgages that often become forgivable after several years. You can also solicit gift funds from family or friends. If neither of these is feasible, you may have to put your homeownership dream on hold for a while, while you save up and/or strengthen your credit score.
The main types of mortgages are conventional loans, government-backed loans, jumbo loans, fixed-rate loans and adjustable-rate loans.
There are other types of mortgages for various purposes, such as building or renovating a home or investing in property.
The right mortgage for you depends on the strength of your credit score and finances along with your goals.
Most of us need a mortgage to buy a home, but this type of loan isn’t one-size-fits-all. To help you find the right home loan for your needs, here’s our guide to the five main types of mortgages.
Types of home loans
There are five main kinds of mortgages, each with their own benefits and features.
Conventional loan: Best for borrowers with good credit scores
Jumbo loan: Best for borrowers with good credit looking to buy a more expensive home
Government-backed loan: Best for borrowers with lower credit scores and minimal cash for a down payment
Fixed-rate mortgage: Best for borrowers who’d prefer a predictable, set monthly payment for the duration of the loan
Adjustable-rate mortgage: Best for borrowers who aren’t planning to stay in the home for an extended period, prefer lower payments in the short term or are comfortable with possibly having to pay more in the future
1. Conventional loan
Conventional loans, the most popular type of mortgage, come in two flavors: conforming and non-conforming.
Conforming loans: A conforming loan “conforms” to a set of Federal Housing Finance Agency (FHFA) standards, including guidelines around credit, debt and loan size. When a conventional loan meets these standards, it’s eligible to be purchased by Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that back much of the mortgage market.
Non-conforming loans: These loans do not meet one or more of the FHFA’s standards. One of the most common types of non-conforming loan is a jumbo loan, a mortgage in an amount that exceeds the conforming loan limit. Non-conforming loans can’t be purchased by the GSEs, so they’re considered a riskier prospect for lenders.
Pros of conventional loans
Available from the majority of lenders
Can be used to finance primary residences, second or vacation homes and investment or rental properties
Can put down as little as 3% for a conforming, fixed-rate loan
Cons of conventional loans
Need a credit score of at least 620 to qualify
Lower debt-to-income (DTI) ratio threshold compared to other types of mortgages
Need to pay private mortgage insurance (PMI) premiums if putting less than 20% down
Who are conventional loans best for?
If you have a strong credit score and can afford to make a sizable down payment, a conventional mortgage is the best pick. The 30-year, fixed-rate option is the most popular choice for homebuyers. Compare conventional loan rates.
2. Jumbo loan
Jumbo mortgages are home loans in an amount that surpasses FHFA’s conforming loan limits. In 2024, that means any loan over $766,550, or $1,149,825 in higher-cost areas. Because these are bigger loans ineligible to be purchased by the GSEs, they can present more risk.
Pros of jumbo loans
Can finance a more expensive home
Competitive interest rates, nowadays on par with those on conforming loans
Often the only option in areas with high home values
Cons of jumbo loans
Not available with every lender
Higher credit score requirement, often a minimum of 700
Higher down payment requirement, often 10% to 20%
Who are jumbo loans best for?
If you’re looking to finance a home with a purchase price exceeding the latest conforming loan limits, a jumbo loan is the best route. Compare jumbo loan rates.
3. Government-backed loan
The U.S. government isn’t a mortgage lender, but it does play a role in making homeownership accessible to more Americans by backing three main types of mortgages:
FHA loans: Insured by the Federal Housing Administration (FHA), FHA loans can be had with a credit score as low as 580 and a 3.5 percent down payment, or a score as low as 500 with 10 percent down. FHA loans also require you to pay mortgage insurance premiums, adding to your costs. These premiums help the FHA insure lenders against borrowers who default. In addition, you can’t borrow as much money with an FHA loan; its ceiling is much lower than those on conventional conforming loans.
VA loans: Guaranteed by the U.S. Department of Veterans Affairs (VA), VA loans are for eligible members of the U.S. military (active duty, veterans, National Guard and Reservists) as well as surviving spouses. There’s no minimum down payment, mortgage insurance or credit score requirement, but you’ll need to pay a funding fee ranging from 1.25 percent to 3.3 percent at closing.
USDA loans: Guaranteed by the U.S. Department of Agriculture (USDA) loans help moderate- to low-income borrowers buy homes in rural, USDA-eligible areas. These loans don’t have a credit score or down payment requirement, but do charge guarantee fees.
Pros of government-backed loans
Much more flexible credit and down payment guidelines
Help borrowers who wouldn’t otherwise qualify
Cons of government-backed loans
Additional cost for FHA mortgage insurance, VA funding fee and USDA guarantee fees
Limited to borrowers buying a home priced within FHA loan limits or in a rural area, or servicemembers
Who are government-backed loans best for?
If your credit or down payment prevents you from qualifying for a conventional loan, an FHA loan can be an attractive alternative. Likewise, if you’re buying a home in a rural area or are eligible for a VA loan, these options might be easier to qualify for. Compare FHA loan rates and VA loan rates.
4. Fixed-rate mortgage
Fixed-rate mortgages maintain the same interest rate over the life of your loan, which means your monthly mortgage payment (the loan principal and interest) always stays the same. Fixed loans typically come in terms of 15 years or 30 years, although some lenders offer flexible term lengths.
Pros of fixed-rate mortgages
Fixed monthly mortgage payment
Easier to budget for
Cons of fixed-rate mortgages
Interest rates usually higher than introductory rates on adjustable-rate loans
Need to refinance to get a lower rate
Who are fixed-rate mortgages best for?
If you’re planning to stay in your home for some time and looking for the stability of a monthly payment that doesn’t change (notwithstanding homeowners insurance premium and property tax increases), a fixed-rate mortgage is right for you. Compare current mortgage rates.
5. Adjustable-rate mortgage (ARM)
In contrast to fixed-rate loans, adjustable-rate mortgages (ARMs) come with interest rates that change over time. Typically with an ARM, you’ll get a lower, fixed introductory rate for a set period. After this period, the rate changes, either up or down, at predetermined intervals for the remainder of the loan term. A 5/6 ARM, for example, has a fixed rate for the first five years; the rate then increases or decreases based on economic conditions every six months until you pay it off. When your rate goes up, your monthly mortgage payment does as well, and vice versa.
Pros of ARMs
Lower introductory rates
Could pay less over time if prevailing interest rates fall
Cons of ARMs
Ongoing risk of higher monthly payments
Tougher to plan your budget as rate changes
Who are adjustable-rate mortgages best for?
If you don’t plan to stay in your home beyond a few years, an ARM could help you save on interest payments. However, it’s important to be comfortable with a certain level of risk that your payments might increase if you’re still in the home. Compare ARM loan rates.
Other types of home loans
In addition to these common kinds of mortgages, there are other types you might encounter when shopping around for a loan:
Construction loans
If you want to build a home, a construction loan can be a good financing choice — especially a construction-to-permanent loan, which converts to a traditional mortgage once you move into the residence. These short-term loans are best for those who can make a higher down payment.
Interest-only mortgages
With an interest-only mortgage, the borrower makes interest-only payments for a set period – usually five or seven years — followed by payments for both principal and interest. You won’t build equity as quickly with this loan since you’re initially only paying back interest. These loans are best for those who know they can sell or refinance, or reasonably expect to afford the higher monthly payment later.
Piggyback loans
A piggyback loan, also referred to as an 80/10/10 loan, involves two loans: one for 80 percent of the home price and another for 10 percent. You’ll make a down payment for the remaining 10 percent. These loan products are designed to help the borrower avoid paying for mortgage insurance, but also require two sets of closing costs. You’ll also accrue interest on two loans, making this unconventional arrangement best for those who’ll actually save money using it.
Balloon mortgages
A balloon mortgage requires a large payment at the end of the loan term. Generally, you’ll make payments based on a 30-year term, but only for a short time, such as seven years. When the loan term ends, you’ll make a large payment on the outstanding balance, which can be unmanageable if you’re not prepared. These loans are best for those who have the stable financial resources needed to make a large balloon payment once the loan term ends.
Portfolio loans
While most lenders sell the loans they make to investors (more on that here), some choose to keep them in their portfolio, or “on the books.” Because the lender holds onto these loans, they don’t have to adhere to FHFA or other standards. As such, they might have more lenient qualifying requirements.
Renovation mortgages
If you want to purchase a home that needs major work, you could use a renovation loan. These loans combine the costs of purchasing and renovation into one mortgage.
Physician loans
Because doctors often have large amounts of medical school debt, qualifying for a traditional mortgage can be hard, even with a good-paying job. Enter physician loans, which help doctors, nurses and other health professionals buy a home.
Non-qualifying loans
Non-qualifying mortgages or non-QM loans don’t meet certain standards set by the Consumer Financial Protection Bureau, so they offer more lenient credit and income requirements. This might appeal to a borrower with unique circumstances, such as an inconsistent income. Some non-QM loans, however, come with higher down payments and interest rates.
How to choose the right type of mortgage loan for you
Depending on your credit and finances, more than one type of mortgage could make sense for you. Likewise, you might be able to strike some loan types off your list immediately. You can’t get a VA loan, for example, if you or your spouse haven’t served in the military.
As you think about which type of mortgage to get, consider:
Your credit score – Which loan types do you qualify for from a credit standpoint?
Your anticipated down payment – Do you need a low- or no-down payment loan? What about down payment assistance? Will you be using gift funds from family or friends?
Your debt and income – After debt payments, is your monthly income sufficient to cover a mortgage?
Your appetite for risk – Do you need a stable monthly payment? Do you expect to earn more money in the future?
Your future plans – Do you plan to move in the short term? Do you want to pay off your mortgage sooner than 30 years?
Once you’ve weighed these questions, compare mortgage lenders and talk to a loan officer. They can help you pinpoint the best fit. Here’s more on how to get a mortgage.
*Rates and APYs are subject to change. All information provided here is accurate as of March 28, 2024.
Our writers and editors have invested thousands of hours analyzing and vetting lenders offering VA loans. Through exhaustive research, we’ve come up with a list of the best VA mortgage lenders for military members and their families, including Navy Federal, Rocket Mortgage and Veterans United. Read on for our Best VA loan lender reviews and a comprehensive lending guide on how to find and apply for a VA loan.
Money’s Main Takeaways
VA loans are one of the main benefits the federal government offers to retired and active-duty members of the military
Borrowers can qualify for a VA loan with a lower credit score and 0% down payment compared to conventional loans
There is no private mortgage insurance, but borrowers will be required to pay a funding fee
VA loans offer competitive interest rates compared to other loan options
Our Top Picks for Best VA Loan Lenders of April 2024
Best VA Loan Lenders Reviews
Lowest fees on our list
Non-VA mortgage options that require no down payment
356 branches worldwide
No lender fees
Small number of branches within the U.S.
Membership strictly limited to military members, spouses, family members, veterans and the Department of Defense
Customized rates only offered to members
HIGHLIGHTS
Sample rate
5.750% (6.223% APR) on a 30-year fixed-rate purchase loan of $300,000
Minimum credit score
Unstated, VA recommendation of 620 is suggested
Minimum down payment
0% for qualifying borrowers
Availability
Continental U.S.
Pre-approval time
Approximately 3 business days
Mobile app
Yes
NMLS ID
399807
Why we chose it: A combination of low lender fees, several loan assistance programs and a wide selection of mortgage loans make Navy Federal Credit Union our best VA loan lender overall.
Navy Federal Credit Union offers military families low rates on financial products, such as personal loans, auto loans and credit cards. The credit union’s VA home loan program features a fast pre-approval process and loan options with no down payment. No PMI is required, either. Navy Fed also recently introduced its no-refi rate drop, where you could qualify for an interest rate reduction without going through the refinancing process.
Additionally, Navy Federal’s Shop & Lock feature allows you to lock in your rate for up to 60 days while you shop for a home, plus an additional 60-day lock once you’ve submitted a purchase agreement. Other perks include up to $9,000 cash back for working with a real estate agent at RealtyPlus, the credit union’s real estate service and a rate match guarantee where Navy Federal will match a better rate offered by another lender or give you $1,000 if all qualifying conditions are met.
Membership is required to use Navy Federal’s services. All active duty, retired and veteran service members of all armed forces branches — plus their families, immediate relatives and some household members — are eligible. Membership is also open to Department of Defense civilian personnel. To become a member, you simply open a savings account with a minimum of $5.
Access to your loan information is available 24/7 with the proprietary mobile app
Credit scores as low as 580 accepted
Debt-to-income ratios as high as 60% accepted
No HELOCs offered
No USDA loans offered
No physical locations for in-person service
HIGHLIGHTS
Sample rate
5.99% (6.429% APR) with 2.125 points purchased ($5,843.75) on a purchase loan of $275,000
Minimum credit score
580
Minimum down payment
0% for qualifying borrowers
Availability
All 50 U.S. states
Pre-approval time
10-15 minutes
Mobile app
Yes
NMLS ID
3030
Why we chose it: Rocket Mortgage’s (formerly Quicken Loans) fully online application and closing process, along with its multiple tools for keeping track of your in-process and existing loans make it our pick for best online VA loan lender.
Rocket Mortgage is an online lender that stands out for its relatively seamless online mortgage application process. While the experience may vary depending on each borrower’s situation, Rocket Mortgage’s website and mobile app allow you to submit all of your paperwork digitally and track every step of your loan’s processing.
While you have the option of speaking with a live representative, you can also communicate with Rocket Mortgage through online or mobile messaging.
Although Rocket Mortgage doesn’t have the broadest loan offering, it does work with all the major VA loans (purchase, refinance, IRRRL) and considers credit scores as low as 580 and debt-to-income ratios as high as 60%. Borrowers buying a home through Rocket Homes and financing through Rocket Mortgage could get a 1.25% closing credit, up to a maximum of $10,000.
For more detailed information, read our full review of Rocket Mortgage (Quicken Loans).
Broader selection of veteran-focused loans than competitors
Offers real estate services for veterans
Customer support is available 24/7
No HELOC products offered
Only 26 affiliate branches across 17 states
HIGHLIGHTS
Sample rate
5.875% (6.307% APR) with 1.5630 points purchased ($4,610.85) on a 30-year fixed-rate purchase loan of $295,000
Minimum credit score
600
Minimum down payment
$0 for qualifying borrowers
Availability
All U.S. states
Pre-approval time
Not stated
Mobile app
Yes
NMLS ID
1907
Why we chose it: Veterans United offers more veteran-focused mortgage options than the standard purchase, refinance and streamline products, making it our choice for best VA loan lender for VA loan variety.
Veterans United guarantees more loans than any other VA-approved lender, according to The Department of Veterans Affairs. The VA compiles a list each month of the top lenders, and Veterans United Home Loans hasn’t budged from its number-one spot in more than six months.
In addition to its reasonable qualifying credit score and income requirements, Veterans United offers a wide variety of loan types: purchase, refinance, IRRRL (streamline) VA loans, Jumbo VA loans, VA energy-efficient mortgages and VA cash-out refinance loans.
Jumbo VA loans can be a good option for veterans who no longer have their full VA entitlement, which means that their VA loans have a limit placed on the total amount borrowed (unlike veterans with full entitlement). Energy-efficient mortgages are not common to VA loans and are a good option for anyone looking to add energy-efficient improvements to their new home.
Second-lowest fees of any lender we’ve reviewed
Loan amounts up to $1 million
No PMI insurance required
Alternative or non-traditional credit and income data not considered for loan applications
Funding fee required
HIGHLIGHTS
Sample rate
5.75% (6.024% APR) with 1.125 points purchased on a 30-year fixed-rate purchase loan of $450,000
Minimum credit score
620
Minimum down payment
0% for qualifying borrowers
Availability
All U.S. states
Pre-approval time
Within three business days
Mobile app
Yes
NMLS ID
401822
Why we chose it: PenFed currently offers the lowest mortgage rate for a 30-year fixed-rate loan, which makes it our pick for the best VA loan lender for competitive rates.
When it comes to VA loans and mortgages, PenFed Credit Union stands out for offering some of the lowest rates across the board on conventional, FHA, VA, Jumbo and adjustable-rate mortgages. Eligible borrowers may qualify for zero down payment. Additionally, PenFed doesn’t require borrowers to acquire private mortgage insurance (PMI).
You must be a member of PenFed to use PenFed’s VA loan services, but joining is an easy process: Simply open a savings account at the credit union with a minimum of $5.
For more detailed information, read our full review of Penfed.
Accepts credit scores as low as 600
Variety of mortgage products available
Self-employment and nontraditional income accepted
Physical branches only in Missouri
Other fees apply
HIGHLIGHTS
Sample rate
6.625% (6.864% APR) on a 15-year fixed-rate purchase loan of $300,000
Minimum credit score
600
Minimum down payment
0% for qualifying borrowers
Availability
All U.S. states
Pre-approval time
Not stated
Mobile app
Yes
NMLS ID
400039
Why we chose it: North American Savings Bank is dedicated to servicing customers in the Kansas City, MO area, but it extends its mortgage services to individuals all over the U.S. Notably, NASB works with borrowers with credit scores as low as 600, lower than what other many lenders allow.
No origination fees are charged on VA loans from NASB, but a VA loan funding fee may be required. Many loans don’t require a down payment, either. NASB offers a loan payment calculator on its site where borrowers can see potential VA home loan rate scenarios.
In addition to standard VA loan products (purchase, IRRRL, cash-out refinance), North American Savings Bank offers the widest variety of mortgage options for individuals who are unable to provide “traditional” credit and income data, such as people who are self-employed.
VA Cash-out refinance, IRRRL and Jumbo IRRRL available
Discounts for bundling services (e.g. home and auto insurance)
Variety of discounts through USAA Perks (car rental, travel, shopping)
Requires membership in USAA
No home equity loans or lines of credit
HIGHLIGHTS
Sample rate
6.125% (6.447% APR) with 0.801 points purchased for a fixed-rate purchase loan and 5.875% (6.196% APR) with 0.933 points purchased for a VA Jumbo purchase loan
Minimum credit score
620
Minimum down payment
0% for qualifying borrowers
Availability
All U.S. states
Pre-approval time
Not disclosed
Mobile app
Yes
NMLS ID
401058
Why we chose it: For those looking to refinance their existing VA loan, USAA offers all of the possible options with competitive rates and terms.
USAA stands out as a VA loan refinance leader for offering all the available options: VA Interest Rate Reduction Refinance Loans (IRRRL), VA Jumbo Interest Rate Reduction Loans, VA Cash-Out Refinance Loans and Jumbo VA Cash-Out Refinance Loans. With either cash-out refinance, you can refinance up to 90% of your home’s value. With IRRRLs, you can refinance up to 100%.
However, rates at USAA aren’t the lowest among the lenders in our top picks. Still, the company’s rates are within the typical range for the market and the option to finance your VA funding fee into your total loan amount is available with all four refinance types.
USAA offers additional financial products and services, such as insurance, banking and investing. All of its products are available only to members. Military members, veterans, their spouses, children, and pre-commissioned officers are eligible.
Members also get discounts for bundling (e.g. home and auto insurance) as well as discounts on car rentals, travel packages, home security, moving services, select retailers and more.
*USAA does not disclose the credit score, loan amount or down payment of its advertised rates. To get a better estimate of your potential monthly payment, use the USAA VA Home Loan Mortgage Payment Calculator.
Allows you to compare multiple mortgage lenders’ rates at the same time
Over 1,500 partnered lenders in its network
Offers credit monitoring tools
Limited contact options
Customer support does not address issues with the lender of your choice
Does not service loans
HIGHLIGHTS
Minimum credit score
Varies by lender
Minimum down payment
Varies by lender
Availability
Varies by lender
Pre-approval time
Varies by lender
Mobile app
Yes
NMLS ID
1136
Why we chose it: LendingTree is an online marketplace that allows you to compare rates on multiple products, from mortgages to personal loans and even credit cards, making it our pick for the best marketplace for comparing VA loan rates.
LendingTree stands out from its competition due to its more than 1,500 partnered mortgage lenders and easy-to-use mobile app.
Borrowers can request multiple quotes (up to three at the same time), which include projected rates and closing costs all in one place. It is also free to use and doesn’t impact your credit score.
The only notable downside to LendingTree’s services is that the company is not a loan servicer or originator, meaning that its customer support will not handle most issues that may come up during your loan process.
LendingTree does not provide sample rates for VA loans specifically. However, you can use the online marketplace’s mortgage comparison tool to check potential rates.
For more details read our full review of Lending Tree.
Minimum credit score is 580
“I CAN” loan offers customizable loan terms
Buydown option to lower interest rate for first 1-3 years
No interest rate or APR info publicly available
Must enter contact info to get rate estimates
HIGHLIGHTS
Sample rate
6.250% (6.563% APR) with 3 points purchased on a 30-year fixed-rate for a purchase loan of $726,200
Minimum credit score
580
Minimum down payment
0% for qualifying borrowers
Availability
All 50 U.S. states
Pre-approval time
Within 24 hours
Mobile app
Yes
NMLS ID
6606
Why we chose it: New American Funding is our top pick for low credit score requirements for VA loans. While its 580 minimum credit score requirement is not unique on the list, it has a vast selection of mortgage loans. Beyond the VA Purchase Loan, there’s also a VA Native American Direct Loan, VA Energy Efficient Mortgage, VA Streamline Refinance Loan and VA Cash-Out Refinance.
Notably, it offers what NAF refers to as an “I CAN” loan, which allows you to choose a custom fixed loan term between eight and 30 years. It also offers a “buydown mortgage” option for VA loans, which allows borrowers to reduce the interest rate on their mortgage for the first one to three years of their loan.
To get a quote, you must contact a representative online or by phone, which requires providing personal information — first and last name, email address and phone number.
For more detailed information, read our full review of New American Funding.
Over 400 branches across 48 states
Accepts credit scores as low as 580
Offer specialized mortgages for physicians
No branches in Alaska or West Virginia
Rates not disclosed unless you call or submit an online form requesting a callback
Phone customer service hours (M-F, 8:30 am-5 pm CST) may be too restrictive for some
HIGHLIGHTS
Sample rate
Unavailable
Minimum credit score
580
Minimum down payment
0% for qualifying borrowers
Availability
Licensed in all 50 U.S. states; in-person service available in ll U.S. states except Alaska and West Virginia
Pre-approval time
Undisclosed
Mobile app
Yes
NMLS ID
2289
Why we chose it: Fairway Independent Mortgage’s presence in 48 out of 50 U.S. states makes it our top pick for in-person mortgage loan servicing.
Fairway Independent Mortgage is notable for its many branches across all but two U.S. states (Alaska and West Virginia), making it an ideal choice for individuals who prefer in-person service. The company offers VA mortgage loans with 100% financing if you have full VA entitlement.
A down payment will be required if you don’t have full VA entitlement or the loan exceeds the VA county limits. Like other VA loan lenders, Fairway Independent Mortgage also considers factors such as credit score and income when determining loan terms.
Fairway also offers a broad range of mortgage products which can be helpful for those who are unable to qualify for a VA loan. Among these loan products are specialized physician loans aimed at medical professionals still working through repaying their student loans.
For more detailed information, read our full review of Fairway Independent.
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Other VA loan lenders we considered
While there are many mortgage lenders with outstanding products and features, they don’t necessarily have everything that could make them one of our top picks.
We reviewed the following lenders, and while they meet some of our criteria for “Best VA home loan lenders” (low rates, VA loan experience, good customer service), they ultimately didn’t make the cut.
Freedom Mortgage
550 credit score minimum is the lowest on our list
Fully online loan process
Variety of calculators and educational resources on their site
Rates are only provided by calling for an estimate or signing up for online alerts
High number of CFPB complaints
Does not offer HELOCs
Why Freedom Mortgage didn’t make the cut: The lender has over 2,800 complaints lodged with the Consumer Financial Protection Bureau since March 2021. The Better Business Bureau has received over 1,200 complaints about the lender in the last three years and its accreditation was revoked.
Freedom Mortgage is a fully online lender that offers standard mortgage products such as conventional purchase and refinance loans, FHA, VA and USDA loans. What makes it stand out is its credit score requirement of 550 for VA loans, which is the lowest of any lender we considered.
Veterans First
Fully online loan process, helpful for military members deployed overseas
Educational resources
Specializes in VA loans
Higher credit score requirements than any lenders we’ve reviewed (mid-600s)
Offers no home equity loans
No rate information on its website
Why Veterans First didn’t make the cut: The higher-than-average credit score requirement (mid-600s) was a deciding factor in keeping it out of our top list.
Thanks to its fully online mortgage process, Veterans First (NMLS ID 449042) is a great choice for military members deployed overseas. Its focus on VA loans also means that the company is better prepared to attend to the specific needs of military members and veterans during the mortgage process.
Paramount Bank
Origination fees waived for VA loans
No prepayment penalties for VA loans
No fee or rate information on its website
No information on loan requirements on its website (minimum credit score, DTI, etc.)
Why Paramount Bank didn’t make the cut: Its general lack of upfront information about rates, fees and credit score requirements kept it out of our top lenders.
Paramount Bank (NMLS ID 551907) waives the lender’s origination fee ($1095) on all of its VA loans, making it an option worth considering. There are no prepayment penalties, either.
Flagstar Bank
Considers credit scores as low as 580 for VA loans
Collaborates with down payment assistance and other special mortgage programs
Large selection of mortgage products for those who don’t qualify for a VA loan
Branches located in only 28 states
$75 annual fee for home equity line of credit (HELOC) loans
High number of complaints with CFPB in the last three years (1,000+)
Why Flagstar Bank didn’t make the cut: Flagstar’s lack of branches in almost half of the U.S. and limited rate and fee information on its website kept it out of our top picks. For more details, read our full review of Flagstar Bank.
Flagstar Bank (NMLS ID 417490) is a notable mortgage lender thanks to its wide variety of mortgage loans offered and its collaboration with several special mortgage programs such as down payment assistance and home loan grants.
PNC
Mortgage rate calculator allows for scenarios with credit scores as low as 620
Individuals with credit scores under 620 may be offered alternative loan options
Mortgage rates are only slightly above average (~0.2%)
Relatively small selection of loan products
No specialized VA loans
Contact information and branch locations are not easy to locate
Why PNC didn’t make the cut: While full details aren’t available without speaking to an agent, PNC’s rate calculator shows rates slightly higher than many of our top picks.
PNC (NMLS ID 446303) has a standard offering of mortgage products, including conventional, FHA, VA, refinance and HELOC loans. PNC only offers a partially online loan application process. You can perform a digital income and asset verification, but you must speak with a loan officer to go over your loan details.
LoanDepot
Strong focus on digital mortgage processing allows a fully online mortgage experience
Over 200 affiliate branches nationwide
Credit score minimums and loan eligibility criteria are not disclosed upfront
Relatively small loan offering
No HELOCs offered
Why LoanDepot didn’t make the cut: Its website doesn’t disclose credit score and other loan eligibility requirements. For more details, read our full review of LoanDepot.
LoanDepot (NMLS ID 174457) is a primarily online mortgage loan lender with several affiliate branches across the U.S. Its loan products include conventional purchase mortgages, FHA, VA, ARM (adjustable-rate) and 203k (FHA home renovation) loans. LoanDepot’s digital income and assets verification tools can significantly speed up the loan approval process in some cases.
Guild Mortgage
Broad mortgage loan offering, including energy-efficient home mortgages
Accepts down payment assistance programs
Services its own loans
Rates are only disclosed after reaching out to Guild
No branches in IN, KY, MI, MN, MS, NY, or WV
Why Guild Mortgage didn’t make the cut: No rate information is publicly available; you must contact Guild for details. For more information, read our full review of Guild Mortgage.
Guild Mortgage (NMLS ID 3274) offers a variety of mortgage options beyond VA loans, including bridge mortgages that can help you sell your current home while shopping for a new one and energy-efficient mortgages.
Guild is also a good choice for people who prefer in-person service, since they have branches in all but seven U.S. states. Notably, Guild services its loans, which is something that not all mortgage loan originators do.
Guaranteed Rate
Housing market research tool available
Home valuation tool available
Credit scores as low as 580 accepted for VA loans
Conventional mortgage rates are higher than average (around 0.7% higher)
Limited offering of VA loan products
Why Guaranteed Rate didn’t make the cut: Its VA loan product offerings are limited.
Guaranteed Rate (NMLS ID 2611) is a mortgage lender that allows borrowers to fully process their loan applications online, from start to finish. Individuals who prefer in-person service can also go to one of its 500+ locations across 46 states.
Movement Mortgage
Offers several high-balance mortgage products (jumbo loans)
Considers credit scores as low as 580 for VA loans
Down payment assistance options available
Streamlined underwriting process that can close loans in as little as a week
Mortgage rates can only be obtained after contacting Movement
No 24/7 customer service
No physical locations
Why Movement Mortgage didn’t make the cut: Rate information isn’t publicly available to potential borrowers; you must contact the company for details. For more information, read our full review of Movement Mortgage.
Movement Mortgage (NMLS ID 39179) is an online mortgage lender that claims to be able to fully close on a loan in under two weeks, though these results will depend on each borrower’s situation. Notably, Movement considers credit scores as low as 580 for VA loan applications, well under the VA’s suggested 620.
Besides its VA loan products, Movement also has several down payment assistance and high-balance mortgage options, which are helpful for individuals looking to purchase in high cost-of-living areas.
NBKC Bank
Provides nationwide mortgage service, despite being a regional bank
Mortgage rate calculator allows credit scores in the 300s
Offer specialized mortgages for pilots
Only four branches split between Kansas and Missouri
Mortgage rates can be as much as 1.5% higher than our top picks
Mortgage rate calculator is not easy to access
Why NBKC Bank didn’t make the cut: Its VA loan rates are a bit higher than those of our top picks. For more details, read our full review of NBKC.
NBKC Bank (NMLS ID 409631) is a Kansas/Missouri regional bank that extends its mortgage services nationwide. While its loan offerings are standard (conventional, FHA, VA), it offers specialty home loans for pilots.
Notably, it is one of the few lenders that allows customers to obtain mortgage rates for credit scores under 500, although you’re not guaranteed results below that threshold. Its mortgage rates are also considerably higher than average (up to 1.5% higher).
VA Loans Guide
A VA loan is a home loan issued by private lenders and backed by the U.S. Department of Veterans Affairs (VA). Read on to learn more about VA home loans, their pros and cons, the associated costs and how to apply.
How does a VA loan work?
VA loans are one of the main benefits the government provides to active duty and retired members of the armed forces. Eligibility will depend on the borrower’s years of service. There are also property requirements that must be met. Read more on VA loans to find full details and see how a VA loan can help you achieve your homeownership goal.
Beyond military service requirements, some VA loan lenders require specific standards of creditworthiness. These details will vary by lender, but can include a credit score of 620 or higher and a debt-to-income ratio of 41% or less. (You can calculate your specific percentage using our debt-to-income ratio calculator.)
VA loans offer two big advantages for qualifying homebuyers. There is no required down payment, and the mortgage rates tend to be lower than those on conventional mortgages or FHA loans. Both of these features make a VA loan a more affordable financing option, especially for first-time homebuyers.
The VA no longer places maximum loan limits, but your VA mortgage lender might. In most U.S. counties, the maximum loan amount for 2024 is $766,550, but it can be as high as $1,149,825 in more expensive areas. Jumbo loans will have a higher limit.
Types of VA loans
The U.S. Department of Veterans Affairs offers four different types of mortgages — VA purchase loan, interest rate reduction refinance loan (IRRRLs), cash-out refinance loan, and Native American direct loan — each with its own set of requirements and limitations. Evaluate all loan options before deciding which best VA mortgage lender suits your needs.
Purchase loan
Purchase loans are used to finance the buying of a primary residence, make energy-efficient upgrades to an existing home or buy property to build a house. They cannot be used to buy investment properties, vacation homes, rental properties or fixer-uppers in need of significant repairs.
To learn more, read our guide on VA purchase loans.
Interest Rate Reduction Refinance Loan (IRRRL)
Designed to refinance an existing VA mortgage, a streamlined refinance can get you a lower interest rate, reduce the loan term, or go from a variable-rate to a fixed-rate mortgage.
Cash-out refinance loan
A VA cash-out refinance allows you to access the equity you’ve built up in your home by applying for a new mortgage with a higher balance. The proceeds of the new loan will pay off your old mortgage and you’ll receive the excess amount in the form of a lump sum payment.
Learn more about how to tap into your home equity with a VA cash-out refinance or read our guide on on how to refinance a VA loan to get more information on refinancing.
Native American Direct Loan (NADL)
NADL is the only VA loan managed and funded directly by the government entity. Veterans who are Native American (or whose spouses are Native American) are eligible for this loan. Borrowers can use this loan to buy, build, or improve a home on federal trust land.
As of this writing, there is no limit to the amount of money that can be borrowed with this program (aside from the limitations imposed by creditworthiness, DTI, and general Fannie Mae/Freddie Mac conforming limits, though borrowers can access higher limits if they choose to make a down payment).
Additional VA-backed loan programs
VA Energy Efficient Mortgage (EEM)
Finance energy efficient home improvements, such as a solar water heater, solar panels, storm doors on windows and furnace efficiency modifications, through an EEM. Ineligible home upgrades include A/C units, vinyl siding and new roofing or shingles.
VA renovation loan
Also called a VA rehab loan or a reno loan, a VA renovation loan is a way to include the cost of home repairs and improvements in your VA home loan amount. No luxury upgrades are allowed. This loan is intended for repairs such as heating and cooling system replacement, upgrades to make the home more accessible for people with disabilities and the replacement of old appliances.
VA loans for manufactured homes
You can get financing for a manufactured home, also known as a mobile home or a modular home. However, there is a 25-year maximum loan term on larger units, and a 20-year loan term limit on smaller units. Lender credit requirements for VA mobile home loans may also be higher than loans for conventional homes. The mobile home must also have a permanent foundation and comply with safety standards set by the U.S. Department of Housing and Urban Development (HUD).
To explore other home loan options or check out current mortgage rates, our page of the best mortgage lenders can be an excellent place to start.
There are specific requirements you must meet to qualify for a VA home loan.
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How to qualify for a VA Loan
There are specific requirements you must meet to qualify for a VA home loan.
The VA home loan program and its military benefits are available for:
Active-duty military members
Veterans
Past and present members of the National Guard
Surviving spouses of military personnel who died in combat
A VA home loan does not have a minimum credit score requirement, but most participating VA loan lenders require a minimum credit score of 620. Our advice? Always check your credit report and debt-to-income ratio before applying for a loan and improve it if you can. (Be sure to read our guide on how to dispute your credit report.)
Service requirements
VA loan eligibility depends on the length of service of the applicant. These are the requirements as set by the VA:
Veterans and active-duty service members must have served at least 90 days during wartime or 181 days during peacetime.
National Guard members must have served at least 90 days of active-duty service during wartime or six years of creditable service in the Select Reserves or Guard.
Two kinds of discharges from military service may affect eligibility determination: Other Than Honorable (OTH) and Bad Conduct.
The specific circumstances of a veteran’s discharge will be considered, which could take Veterans Affairs (VA) months to evaluate.
In all cases, once deemed eligible, you must apply for a Certificate of Eligibility (COE). The COE proves to the VA mortgage lender that you meet the VA’s eligibility requirements.
How to apply for a VA home loan
After confirming eligibility for a VA loan, take the following steps to apply:
Shop around for a lender and compare rate quotes before settling on the one that best fits your needs.
Submit your loan application. The lender will request a VA appraisal of the house. The lender reviews the appraisal, your credit history and income and decides if it accepts your loan application.
Apply for your COE and contact your state’s regional VA loan center to start the process directly with the government, in the case of Native American Direct Loans.
Once your lender accepts your application, they’ll work with you to select a title company (or entity) to close on the house.
If you have any questions that your lender can’t answer, please call your VA regional loan center at 877-827-3702. You can also watch a video on the official U.S. Dept. of Veteran Affairs’ YouTube page to learn more about VA home loans and how to apply.
How to get a VA loan with bad credit
Some lenders will issue a VA loan to veterans and service members with credit scores as low as 580 or lower. Freedom Mortgage, for example, will accept a credit score as low as 550. However, most lenders will require a minimum credit score of 620.
If you don’t meet the minimum credit score required, you should work on improving your personal finances. Paying the bills on time, paying off any debt you currently have and contacting the reporting agency to fix any errors are some steps that can help improve your score.
More About VA Mortgage Loans
Best VA Loan Lenders FAQs
What is a VA home loan?
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A VA loan is a no-down-payment mortgage military benefit partially backed by the Department of Veterans Affairs (VA). Borrowers can use the loans for the purchase of a primary residence or to refinance an existing mortgage.
Who qualifies for a VA loan?
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To qualify for a VA loan, you or your spouse must meet the basic service requirements set by the Department of Veterans Affairs (VA), have a valid Certificate of Eligibility, and meet the lender’s income and credit requirements.
How many times can you use a VA loan?
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You can use a VA loan more than once but only to purchase or refinance a principal residence, provided you meet the availability requirements. However, you may be able to use a partial entitlement for a second loan if you haven’t used it all on your first mortgage. Remember that using a partial entitlement may mean you’ll need to shell out a down payment and a higher VA funding fee.
Are VA loans assumable?
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Because VA loans are backed by the U.S. government, they can be assumed by a new lender even if they are not active military or veterans. In order to assume a VA loan, the new borrower must have a minimum credit score of 580, a DTI of 45% or lower, pay the VA funding fee and ensure the home will be their primary residence. In some cases, a down payment may also be required.
How long does it take to close a VA loan?
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VA loans typically take a little longer than a traditional mortgage loan to close. Although the experience may vary from one person to another, VA loans take about 50 to 55 days to close on average. However, it is possible to close on a VA in as little as 30 days in some cases.
Does a VA loan require mortgage insurance?
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No, VA loans do not require private mortgage insurance or any other type of mortgage insutance that is required by other loan types, such as conventional and FHA loans. The lack of an insurance requirement is one of the main benefits of obtaining a VA loan, along with not having to make a down payment.
Do VA loans have closing costs?
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Yes, VA loans have closing costs, which can amount to 3% to 6% of the loan amount. These costs include fees associated with the loan origination and underwriting, title insurance and recording fees and the VA appraisal fee, among others. The VA funding fee, which ranges between 1.25% and 3.3% of the loan amount, is also due at closing but can be rolled into the loan. The home seller can pay up to 4% of the closing costs on a VA loan.
How We Chose the Best VA Loan Lenders
Given that many mortgage lenders offer similar products across the board, we narrowed our search criteria to three factors: rates, experience and customer service.
Rates – We chose VA loan lenders that offered the lowest rates to ensure your mortgage payments fall in line with your budget.
Experience in VA Loans – We prioritized VA mortgage lenders that process many VA loans. Having a VA mortgage lender who is familiar with this process ensures that every step of your home purchase is taken care of on time.
Customer Service – We highlighted VA mortgage lenders that excel in customer satisfaction and provide first-time homeowners step-by-step guidance throughout the pre-approval, application and loan closing.
We also made sure that our picks are registered with the Nationwide Multistate Licensing System and Registry (NMLS) and meet the minimum certification requirements for mortgage lending.
Though we always try to include accurate and up-to-date information on regulatory and legal actions, we don’t claim this information is complete or fully up to date. Interest rates and annual percentage rates are subject to change. As always, we recommend you do your own research as well.
Summary of Money’s Best VA Home Loan Lenders of April 2024
The VA home loan: Unbeatable benefits for veterans
For many who qualify, VA home loans are some of the best mortgages available.
Verify your VA loan eligibility. Start here
Backed by the U.S. Department of Veterans Affairs, VA loans are designed to help active-duty military personnel, veterans and certain other groups become homeowners at an affordable cost.
The VA loan asks for no down payment, requires no mortgage insurance, and has lenient rules about qualifying, among many other advantages.
Here’s everything you need to know about qualifying for and using a VA loan.
In this article (Skip to…)
Top 10 VA loan benefits
1. No down payment on a VA loan
Most home loan programs require you to make at least a small down payment to buy a home. The VA home loan is an exception.
Verify your VA loan eligibility. Start here
Rather than paying 5%, 10%, 20% or more of the home’s purchase price upfront in cash, with a VA loan you can finance up to 100% of the purchase price.
The VA loan is a true no-money-down home mortgage opportunity.
2. No mortgage insurance for VA loans
Typically, lenders require you to pay for mortgage insurance if you make a down payment that’s less than 20%.
This insurance — which is known as private mortgage insurance (PMI) for a conventional loan and a mortgage insurance premium (MIP) for an FHA loan — would protect the lender if you defaulted on your loan.
VA loans require neither a down payment nor mortgage insurance. That makes a VA-backed mortgage very affordable upfront and over time.
3. VA loans have a government guarantee
There’s a reason why the VA loan comes with such favorable terms.
The federal government guarantees these loans — meaning a portion of the loan amount will be repaid to the lender even if you’re unable to make monthly payments for whatever reason.
This guarantee encourages and enables private lenders to offer VA loans with exceptionally attractive terms.
4. You can shop for the best VA loan rates
VA loans are neither originated nor funded by the VA. They are not direct loans from the government. Furthermore, mortgage rates for VA loans are not set by the VA itself.
Instead, VA loans are offered by U.S. banks, savings-and-loans institutions, credit unions, and mortgage lenders — each of which sets its own VA loan rates and fees.
This means you can shop around and compare loan offers and still choose the VA loan that works best for your budget.
5. VA loans don’t allow a prepayment penalty
A VA loan won’t restrict your right to sell the property partway through your loan term.
There’s no prepayment penalty or early-exit fee no matter within what time frame you decide to sell your home.
Furthermore, there are no restrictions regarding a refinance of your VA loan.
You can refinance your existing VA loan into another VA loan via the agency’s Interest Rate Reduction Refinance Loan (IRRRL) program, or switch into a non-VA loan at any time.
6. VA mortgages come in many varieties
A VA loan can have a fixed rate or an adjustable rate. In addition, you can use a VA loan to buy a house, condo, new-built home, manufactured home, duplex, or other types of properties.
Or, it can be used for refinancing your existing mortgage, making repairs or improvements to your home, or making your home more energy-efficient.
The choice is yours. A VA-approved lender can help you decide.
Verify your VA loan eligibility. Start here
7. It’s easier to qualify for VA loans
Like all mortgage types, VA loans require specific documentation, an acceptable credit history, and sufficient income to make your monthly payments.
But, compared to other loan programs, VA loan guidelines tend to be more flexible. This is made possible because of the VA loan guarantee.
The Department of Veterans Affairs genuinely wants to make the loan process easier for military members, veterans, and qualifying military spouses to buy or refinance a home.
8. VA loan closing costs are lower
The VA limits the closing costs lenders can charge to VA loan applicants. This is another way that a VA loan can be more affordable than other types of loans.
Money saved on closing costs can be used for furniture, moving costs, home improvements, or anything else.
9. The VA offers funding fee flexibility
VA loans require a “funding fee,” an upfront cost based on your loan amount, your type of eligible service, your down payment size, and other factors.
Funding fees don’t need to be paid in cash, though. The VA allows the fee to be financed with the loan, so nothing is due at closing.
And, not all VA borrowers will pay it. VA funding fees are normally waived for veterans who receive VA disability compensation and for unmarried surviving spouses of veterans who died in service or as a result of a service-connected disability.
10. VA loans are assumable
Most VA loans are “assumable,” which means you can transfer your VA loan to a future home buyer if that person is also VA-eligible.
Assumable loans can be a huge benefit when you sell your home — especially in a rising mortgage rate environment.
If your home loan has today’s low rate and market rates rise in the future, the assumption features of your VA become even more valuable.
VA loan rates
The VA loan is viewed as one of the lowest-risk mortgage types available on the market.
Verify your VA loan eligibility. Start here
This safety allows banks to lend to veteran borrowers at lower interest rates.
Today’s VA loan rates*
Loan Type
Current Mortgage Rate
VA 30-year FRM
% (% APR)
Conventional 30-year FRM
% (% APR)
VA 15-year FRM
% (% APR)
Conventional 15-year FRM
% (% APR)
*Current rates provided daily by partners of the Mortgage Reports. See our loan assumptions here.
VA rates are more than 25 basis points (0.25%) lower than conventional rates on average, according to data collected by mortgage software company Ellie Mae.
Most loan programs require higher down payment and credit scores than the VA home loan. In the open market, a VA loan should carry a higher rate due to more lenient lending guidelines and higher perceived risk.
Yet the result of the Veterans Affairs efforts to keep veterans in their homes means lower risk for banks and lower borrowing costs for eligible veterans.
VA mortgage calculator
Eligibility
Am I eligible for a VA home loan?
Contrary to popular belief, VA loans are available not only to veterans, but also to other classes of military members.
Find and lock a low VA loan rate today. Start here
The list of eligible VA borrowers includes:
Active-duty service members
Members of the National Guard
Reservists
Surviving spouses of veterans
Cadets at the U.S. Military, Air Force or Coast Guard Academy
Midshipmen at the U.S. Naval Academy
Officers at the National Oceanic & Atmospheric Administration.
A minimum term of service is typically required.
Minimum service required for a VA mortgage
VA home loans are available to active-duty service members, veterans (unless dishonorably discharged), and in some cases, surviving family members.
To be eligible, you need to meet one of these service requirements:
You’ve served 181 days of active duty during peacetime
You’ve served 90 days of active duty during wartime
You’ve served six years in the Reserves or National Guard
Your spouse was killed in the line of duty and you have not remarried
Your eligibility for the VA home loan program never expires.
Veterans who earned their VA entitlement long ago are still using their benefit to buy homes.
The VA loan Certificate of Eligibility (COE)
What is a COE?
In order to show a mortgage company you are VA-eligible, you’ll need a Certificate of Eligibility (COE). Your lender can acquire one for you online, usually in a matter of seconds.
Verify your VA home loan eligibility. Start here
How to get your COE (Certificate of Eligibility)
Getting a Certificate of Eligibility (COE) is very easy in most cases. Simply have your lender order the COE through the VA’s automated system. Any VA-approved lender can do this.
Alternatively, you can order your certificate yourself through the VA benefits portal.
If the online system is unable to issue your COE, you’ll need to provide your DD-214 form to your lender or the VA.
Does a COE mean you are guaranteed a VA loan?
No, having a Certificate of Eligibility (COE) doesn’t guarantee a VA loan approval.
Your COE shows the lender you’re eligible for a VA loan, but no one is guaranteed VA loan approval.
You must still qualify for the loan based on VA mortgage guidelines. The guarantee part of the VA loan refers to the VA’s promise to the lender of repayment if the borrower defaults.
Qualifying for a VA mortgage
VA loan eligibility vs. qualification
Being eligible for VA home loan benefits based on your military status or affiliation doesn’t necessarily mean you’ll qualify for a VA loan.
You still have to qualify for a VA mortgage based on your credit, debt, and income.
Verify your VA loan eligibility. Start here
Minimum credit score for a VA loan
The VA has established no minimum credit score for a VA mortgage.
However, many VA mortgage lenders require minimum FICO scores of 620 or higher — so apply with many lenders if your credit score might be an issue.
Even VA lenders that allow lower credit scores don’t accept subprime credit.
VA underwriting guidelines state that applicants must have paid their obligations on time for at least the most recent 12 months to be considered satisfactory credit risks.
In addition, the VA usually requires a two-year waiting period following a Chapter 7 bankruptcy or foreclosure before it will insure a loan.
Borrowers in Chapter 13 must have made at least 12 on-time payments and secure the approval of the bankruptcy court.
Verify your VA loan home buying eligibility. Start here
VA loan debt-to-income ratios
The relationship of your debts and your income is called your debt-to-income ratio, or DTI.
VA underwriters divide your monthly debts (car payments, credit cards, and other accounts, plus your proposed housing expense) by your gross (before-tax) income to come up with your debt-to-income ratio.
For instance:
If your gross income is $4,000 per month
And your total monthly debt is $1,500 (including the new mortgage, property taxes and homeowners insurance, plus other debt payments)
Then your DTI is 37.5% (1500/4000=0.375)
A DTI over 41% means the lender has to apply additional formulas to see if you qualify under residual income guidelines.
VA residual income rules
VA underwriters perform additional calculations that can affect your mortgage approval.
Factoring in your estimated monthly utilities, your estimated taxes on income, and the area of the country in which you live, the VA arrives at a figure which represents your “true” costs of living.
It then subtracts that figure from your income to find your residual income (e.g. your money “left over” each month).
Think of the residual income calculation as a real-world simulation of your living expenses.
It is the VA’s best effort to ensure that military families have a stress-free homeownership experience.
Here is an example of how residual income works, assuming a family of four which is purchasing a 2,000 square-foot home on a $5,000 monthly income.
Future house payment, plus other debt payments: $2,500
Monthly estimated income taxes: $1,000
Monthly estimated utilities at $0.14 per square foot: $280
This leaves a residual income calculation of $1,220.
Now, compare that residual income to for a family of four:
Northeast Region: $1,025
Midwest Region: $1,003
South Region: $1,003
West Region: $1,117
The borrower in our example exceeds VA’s residual income standards in all parts of the country.
Therefore, despite the borrower’s debt-to-income ratio of 50%, the borrower could get approved for a VA loan.
Verify your VA loan eligibility. Start here
Qualifying for a VA loan with part-time income
You can qualify for this type of financing even if you have a part-time job or multiple jobs.
You must show a 2-year history of making consistent part-time income, and stability in the number of hours worked. The lender will make sure any income received appears stable. See our complete guide to getting a mortgage when you’re self-employed or work part-time.
VA funding fees and loan limits
About the VA funding fee
The VA charges an upfront fee to defray the costs of the program and make it sustainable for the future.
Veterans pay a lump sum that varies depending on the loan purpose and down payment amount.
The fee is normally wrapped into the loan. It does not add to the cash needed to close the loan.
Find out if you qualify for a VA loan. Start here
VA home purchase funding fees
Type of Military Service
Down Payment
Fee for First-Time Use
Fee for Subsequent Use
Active Duty, Reserves, and National Guard
None
2.3%
3.6%
5% or more
1.65%
1.65%
10% or more
1.4%
1.4%
VA cash-out refinance funding fees
Type of Military Service
Fee for First-Time Use
Fee for Subsequent Uses
Active Duty, Reserves, and National Guard
2.3%
3.6%
VA streamline refinances (IRRRL) & assumptions
Type of Military Service
Fee for First-Time Use
Fee for Subsequent Uses
Active Duty, Reserves, and National Guard
0.5%
0.5%
Manufactured home loans not permanently affixed
Type of Military Service
Fee for First-Time Use
Fee for Subsequent Uses
Active Duty, Reserves, and National Guard
1.0%
1.0%
VA loan limits in 2024
VA loan limits have been repealed, thanks to the Blue Water Navy Vietnam Veterans Act of 2019.
There is no maximum amount for which a home buyer can receive a VA loan, at least as far as the VA is concerned.
However, private lenders may set their own limits. So check with your lender if you are looking for a VA loan above local conforming loan limits.
Verify your VA loan eligibility. Start here
Eligible property types
Houses you can buy with a VA loan
VA mortgages are flexible about what types of property you can and can’t purchase. A VA loan can be used to buy a:
Detached house
Condo
New-built home
Manufactured home
Duplex, triplex or four-unit property
Find out if you qualify for a VA loan. Start here
You can also use a VA mortgage to refinance an existing loan for any of those types of properties.
VA loans and second homes
Federal regulations limit loans guaranteed by the Department of Veterans Affairs to “primary residences” only.
However, “primary residence” is defined as the home in which you live “most of the year.”
Therefore, if you own an out-of-state residence in which you live for more than six months of the year, this other home, whether it’s your vacation home or retirement property, becomes your official “primary residence.”
For this reason, VA loans are popular among aging military borrowers.
Buying a multi-unit home with a VA loan
VA loans allow you to buy a duplex, triplex, or four-plex with 100% financing. You must live in one of the units.
Buying a home with more than one unit can be challenging.
Mortgage lenders consider these properties riskier to finance than traditional, single-family residences, so you’ll need to be a stronger borrower.
VA underwriters must make sure you will have enough emergency savings, or cash reserves, after closing on your house. That’s to ensure you’ll have money to pay your mortgage even if a tenant fails to pay rent or moves out.
The minimum cash reserves needed after closing is six months of mortgage payments (covering principal, interest, taxes, and insurance – PITI).
Your lender will also want to know about previous landlord experience you’ve had, or any experience with property maintenance or renting.
If you don’t have any, you may be able to sidestep that issue by hiring a property management company. But that’s up to the individual lender.
Your lender will look at the income (or potential income) of the rental units, using either existing rental agreements or an appraiser’s opinion of what the units should fetch.
They’ll usually take 75% of that amount to offset your mortgage payment when calculating your monthly expenses.
VA loans and rental properties
You cannot use a VA loan to buy a rental property. You can, however, use a VA loan to refinance an existing rental home you once occupied as a primary home.
For home purchases, in order to obtain a VA loan, you must certify that you intend to occupy the home as your principal residence.
If the property is a duplex, triplex, or four-unit apartment building, you must occupy one of the units yourself. Then you can rent out the other units.
The exception to this rule is the VA’s Interest Rate Reduction Refinance Loan (IRRRL).
This loan, also known as the VA Streamline Refinance, can be used for refinancing an existing VA loan on a home where you currently live or where you used to live, but no longer do.
Check your VA IRRRL eligibility. Start here
Buying a condo with a VA loan
The VA maintains a list of approved condo projects within which you may purchase a unit with a VA loan.
At VA’s website, you can search for the thousands of approved condominium complexes across the U.S.
If you are VA-eligible and in the market for a condo, make sure the unit you’re interested in is approved.
As a buyer, you are probably not able to get the complex VA-approved. That’s up to the management company or homeowner’s association.
If a condo you like is not approved, you must use other financing like an FHA or conventional loan or find another property.
Note that the condo must meet FHA or conventional guidelines if you want to use those types of financing.
Veteran mortgage relief with the VA loan
The U.S. Department of Veterans Affairs, or VA, provides home retention assistance. The VA intervenes when a veteran is having trouble making home loan payments.
The VA works with loan servicers to offer loan options to the veteran, other than foreclosure.
Find out if you qualify for a VA loan. Start here
In fiscal year 2019, the VA made over 400,000 contact actions to reach borrowers and loan servicers. The intent was to work out a mutually agreeable repayment option for both parties.
More than 100,000 veteran homeowners avoided foreclosure in 2019 alone thanks to this effort.
The initiative has saved the taxpayer an estimated $2.6 billion. More importantly, vast numbers of veterans and military families got another chance at homeownership.
When NOT to use a VA loan
If you have good credit and 20% down
A primary advantage to VA home loans is the lack of mortgage insurance.
However, the VA guarantee does not come free of charge. Borrowers pay an upfront funding fee, which they usually choose to add to their loan amount.
The fee ranges from 1.4% to 3.6%, depending on the down payment percentage and whether the home buyer has previously used his or her VA mortgage eligibility. The most common fee is 2.3%.
Find out if you qualify for a VA loan. Start here
On a $200,000 purchase, a 2.3% fee equals $4,600.
However, buyers who choose a conventional mortgage and put 20% down get to avoid mortgage insurance and the upfront fee. For these military home buyers, the VA funding fee might be an unnecessary expense.
The exception: Mortgage applicants whose credit rating or income meets VA guidelines but not those of conventional mortgages may still opt for VA.
If you’re on the “CAIVRS” list
To qualify for a VA loan, you must prove you have made good on previous government-backed debts and that you have paid taxes.
The Credit Alert Verification Reporting System, or “CAIVRS,” is a database of consumers who have defaulted on government obligations. These individuals are not eligible for the VA home loan program.
If you have a non-veteran co-borrower
Veterans often apply to buy a home with a non-veteran who is not their spouse.
This is okay. However, it might not be their best choice.
As the veteran, your income must cover your half of the loan payment. The non-veteran’s income cannot be used to compensate for the veteran’s insufficient income.
Plus, when a non-veteran owns half the loan, the VA guarantees only half that amount. The lender will require a 12.5% down payment for the non-guaranteed portion.
The Conventional 97 mortgage, on the other hand, allows down payments as low as 3%.
Another low-down-payment mortgage option is the FHA home loan, for which 3.5% down is acceptable.
The USDA home loan also requires zero down payment and offers similar rates to VA loans. However, the property must be within USDA-eligible areas.
If you plan to borrow with a non-veteran, one of these loan types might be your better choice.
Explore your mortgage options. Start here
If you apply with a credit-challenged spouse
In states with community property laws, VA lenders must consider the credit rating and financial obligations of your spouse. This rule applies even if he or she will not be on the home’s title or even on the mortgage.
Such states are as follows.
Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin
A spouse with less-than-perfect credit or who owes alimony, child support, or other maintenance can make your VA approval more challenging.
Apply for a conventional loan if you qualify for the mortgage by yourself. The spouse’s financial history and status need not be considered if he or she is not on the loan application.
Verify your VA loan home buying eligibility. Start here
If you want to buy a vacation home or investment property
The purpose of VA financing is to help veterans and active-duty service members buy and live in their own home. This loan is not meant to build real estate portfolios.
These loans are for primary residences only, so if you want a ski cabin or rental, you’ll have to get a conventional loan.
If you want to purchase a high-end home
Starting January 2020, there are no limits to the size of mortgage a lender can approve.
However, lenders may establish their own limits for VA loans, so check with your lender before applying for a large VA loan.
Spouses and the VA mortgage program
What spouses are eligible for a VA loan?
What if the service member passes away before he or she uses the benefit? Eligibility passes to an unremarried spouse, in many cases.
Find and lock a low VA loan rate today. Start here
For the surviving spouse to be eligible, the deceased service member must have:
Died in the line of duty
Passed away as a result of a service-connected disability
Been missing in action, or a prisoner of war, for at least 90 days
Been a totally disabled veteran for at least 10 years prior to death, and died from any cause
Also eligible are remarried spouses who married after the age of 57, on or after December 16, 2003.
In these cases, the surviving spouse can use VA loan eligibility to buy a home with zero down payment, just as the veteran would have.
VA loan benefits for surviving spouses
Surviving spouses have an additional VA loan benefit, however. They are exempt from the VA funding fee. As a result, their loan balance and monthly payment will be lower.
Surviving spouses are also eligible for a VA streamline refinance when they meet the following guidelines.
The surviving spouse was married to the veteran at the time of death
The surviving spouse was on the original VA loan
VA streamline refinancing is typically not available when the deceased veteran was the only applicant on the original VA loan, even if he or she got married after buying the home.
In this case, the surviving spouse would need to qualify for a non-VA refinance, or a VA cash-out loan.
A cash-out mortgage through VA requires the military spouse to meet home purchase eligibility requirements.
If this is the case, the surviving spouse can tap into the home’s equity to raise cash for any purpose, or even pay off an FHA or conventional loan to eliminate mortgage insurance.
Qualifying if you receive (or pay) child support or alimony
Buying a home after a divorce is no easy task.
If, prior to your divorce, you lived in a two-income household, you now have less spending power and a reduced monthly income for purposes of your VA home loan application.
With less income, it can be harder to meet both the VA Home Loan Guaranty’s debt-to-income (DTI) guidelines and the VA residual income requirement for your area.
Receiving alimony or child support can counteract a loss of income.
Mortgage lenders will not require you to provide information about your divorce agreement’s alimony or child support terms, but if you’re willing to disclose, it can count toward qualifying for a home loan.
Different VA-approved lenders will treat alimony and child support income differently.
Typically, you will be asked to provide a copy of your divorce settlement or other court paperwork to support the alimony and child support payments.
Lenders will then want to see that the payments are stable, reliable, and likely to continue for another 36 months, at least.
You may also be asked to show proof that alimony and child support payments have been made in the past reliably, so that the lender may use the income as part of your VA loan application.
If you are the payor of alimony and child support payments, your debt-to-income ratio can be harmed.
Not only might you be losing the second income of your dual-income households, but you’re making additional payments that count against your outflows.
VA mortgage lenders make careful calculations with respect to such payments.
You can still get approved for a VA loan while making such payments — it’s just more difficult to show sufficient monthly income.
VA loan assumption
What is VA loan assumption?
One benefit for home buyers is that VA loans are assumable. When you assume a mortgage loan, you take over the current homeowner’s monthly payment.
Verify your VA loan home buying eligibility. Start here
That could be a big advantage if mortgage rates have risen since the original owner purchased the home. The buyer would be able to acquire a low-rate, affordable loan — and it could make it easier for the seller to find a willing buyer in a tough market.
VA loan assumption savings
Buying a home via an assumable mortgage loan is even more appealing when interest rates are on the rise.
For example:
Say a seller-financed $200,000 for their home in 2013 at an interest rate of 3.25% on a 30-year fixed loan
Using this scenario, their principal and interest payment would be $898 per month
Let’s assume current 30-year fixed rates averaged 4.10%
If you financed $200,000 at 4.10% for a 30-year loan term, your monthly principal and interest payment would be $966 per month
Additionally, because the seller has already paid four years into the loan term, they’ve already paid nearly $25,000 in interest on the loan.
By assuming the loan, you would save $34,560 over the 30-year loan due to the difference in interest rates. You would also save roughly $25,000 thanks to the interest already paid by the sellers.
That comes out to a total savings of almost $60,000!
How to assume (take on) a VA loan
There are currently two ways to assume a VA loan.
The new buyer is a qualified veteran who “substitutes” his or her VA eligibility for the eligibility of the seller
The new home buyer qualifies through VA standards for the mortgage payment. This is the safest method for the seller as it allows the loan to be assumed knowing that the new buyer is responsible for the loan, and the seller is no longer responsible for the loan
The lender and/or the VA needs to approve a loan assumption.
Loans serviced by a lender with automatic authority may process assumptions without sending them to a VA Regional Loan Center.
For lenders without automatic authority, the loan must be sent to the appropriate VA Regional Loan Center for approval. This loan process will typically take several weeks.
When VA loans are assumed, it’s the servicer’s responsibility to make sure the homeowner who assumes the property meets both VA and lender requirements.
VA loan assumption requirements
For a VA mortgage assumption to take place, the following conditions must be met:
The existing loan must be current. If not, any past due amounts must be paid at or before closing
The buyer must qualify based on VA credit and income standards
The buyer must assume all mortgage obligations, including repayment to the VA if the loan goes into default
The original owner or new owner must pay a funding fee of 0.5% of the existing principal loan balance
A processing fee must be paid in advance, including a reasonable estimate for the cost of the credit report
Find out if you qualify for a VA loan. Start here
Finding assumable VA loans
There are several ways for home buyers to find an assumable VA loan.
Believe it or not, print media is still alive and well. Some home sellers advertise their assumable home for sale in the newspaper, or in a local real estate publication.
There are a number of online resources for finding assumable mortgage loans.
Websites like TakeList.com and Zumption.com give homeowners a way to showcase their properties to home buyers looking to assume a loan.
With the help of the Multiple Listing Service (MLS), real estate agents remain a great resource for home buyers.
This applies to home buyers specifically searching for assumable VA loans as well.
How do I apply for a VA loan?
You can easily and quickly have a lender pull your certificate of eligibility (COE) to make sure you’re able to get a VA loan.
Most mortgage lenders offer VA home loans. So you’re free to shop and compare rates with just about any company that catches your eye.
Getting a VA loan for your new home is similar in many ways to securing any other purchase loan. Once you find an ideal home in your price range, you make a purchase offer, and then undergo VA appraisal and underwriting.
VA appraisal ensures that the home meets its minimum property requirements (MPRs) and is structurally sound and safe for occupancy.
What’s more, VA-specific mortgage lenders are actually some of the highest-rated (and lowest-priced) on the market. Here are a few we’d recommend checking out.
Time to make a move? Let us find the right mortgage for you
If you’ve served in the military and need a mortgage, then a VA loan might be right for you, whether you’re buying a home or refinancing. Here’s what to know.
What is a VA home loan?
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 1944 GI Bill of Rights established the VA home loan program to help veterans get a foothold in civilian life after World War II.
You might find it helpful to go with a lender and a real estate agent who have experience working with VA borrowers. The home will be subject to a VA appraisal, and an experienced agent will help you avoid homes that won’t meet the minimum required standards.
How does a VA home loan work?
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.
VA loan rates are typically lower than offers you’d find for conventional loans. The rate could be fixed, meaning payments will remain the same, or adjustable, meaning that payments could change over time. Adjustable-rate mortgages (ARMs) come with some risk, as you’ll pay more if rates rise.
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. It’s a good idea to apply with multiple lenders in order to compare rate offers.
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VA home loan eligibility
You’re an active-duty military member or veteran who meets length-of-service requirements (90 days of service during wartime or 181 days of service during peacetime).
You served in the National Guard or Reserve for at least six years, or served 90 days (with at least 30 of them being consecutive) in active duty under Title 32 orders.
You’re the surviving spouse of a service member who died while on active duty or from a service-connected disability and you have not remarried. Surviving spouses can retain eligibility if they remarried after the age of 57 and after Dec. 16, 2003. Spouses of prisoners of war or service members missing in action are also eligible.
You meet the lender’s requirements for credit and income. The VA doesn’t set a minimum credit score for VA loans, but lenders can set their own minimum standards. The lender will also consider your income and debts to evaluate your ability to repay the mortgage.
The property you want to buy meets safety standards and building codes and will be your primary residence. Borrowers are typically required to occupy the residence within 60 days, though this may be extended to 12 months under certain circumstances.
How to apply for a VA home loan
Obtain a certificate of eligibility: A VA certificate of eligibility shows a mortgage lender that your military service meets the requirements for a VA loan. A VA-approved lender can obtain the document for you, which is needed before the loan can close. You can also request the certificate from the VA online or by mail.
Find the right lender: Some VA lenders consider borrowers with lower credit, while others offer a larger variety of VA loan types. Get preapproved with more than one VA mortgage lender to compare their qualification requirements and mortgage rates. Preapproval is nonbinding, but it will give you an idea of what kind of mortgage you qualify for and how much you may be eligible to borrow. Getting preapproved also shows sellers that you are motivated to buy and can qualify for a mortgage.
Find a home: An experienced real estate agent can help you find a home that meets minimum property requirements regarding cleanliness, safety and structural soundness. After you work with your agent to make an offer, the mortgage lender will evaluate your finances and order a VA appraisal to make sure the home meets all the requirements. If your application and appraisal are approved, the final steps are to close on the loan and move into the house. The application process will be essentially the same as when you applied for preapproval, except now you’ll be applying with a specific property in mind.
Pros and cons of VA home loans
Like any type of loan, VA loans have their advantages and disadvantages. Borrowers who may benefit from a VA loan will have to contend with specific fees and eligibility requirements in exchange for features like low rates and no minimum down payment requirements.
Pros
No down payment or mortgage insurance required. Other loan types require down payments and can include an extra cost for mortgage insurance. FHA loans require mortgage insurance regardless of the down payment amount, and conventional loans usually require mortgage insurance if the down payment is less than 20%.
Lower rates. VA loans usually have lower rates than conventional mortgages.
Limited closing costs.Closing costs are the various fees and expenses you pay to get a mortgage. The Department of Veterans Affairs limits the lender’s origination fee to no more than 1% of the loan amount and prohibits lenders from charging some other closing costs.
VA loans can be assumed. This means that when you’re ready to sell your home, you have the option of allowing the buyer to take over your existing mortgage. This can be a selling point if your rate is lower than the current average mortgage rate.
Cons
VA loan funding fee. Although VA loans don’t require mortgage insurance, they come with an extra cost called a funding fee. The fee is set by the federal government and covers the cost of foreclosing if a borrower defaults. As of April 7, 2023, the fee ranges from 1.25% to 3.3% of the loan, depending on your down payment and whether it’s your first VA loan. You can pay the fee upfront or fold it into the loan.
Purchase loans are only for primary homes. You can’t use a VA loan to buy an investment property or a vacation home.
Not all properties are eligible. A VA-approved appraiser will evaluate the home you want to buy to estimate the value and make sure it meets minimum property requirements. Some fixer-uppers may not meet the VA’s minimum standards.
What is the VA loan limit?
The VA loan limit is the maximum amount you can borrow without having to make a down payment. In 2020, limits were eliminated for current members of the military and veterans who have access to their full VA loan entitlement. However, loan limits still apply to borrowers who already have a VA loan or have defaulted on a VA loan.
In 2024, the standard VA loan limit is $766,550 for a single-family home in a typical U.S. county, but it can run as high as $1,149,825 in high-cost areas. It’s possible to get a VA loan even if the home price exceeds the county limit, but you’ll be required to make a down payment. You can use NerdWallet’s search tool below to find the loan limit for your county.
Refinancing a VA home loan
You can refinance an existing VA loan with a standard (also called a “streamline”) refinance loan. This is formally called a VA Interest Rate Reduction Refinance Loan (VA IRRRL). Just as it sounds, the intention behind these loans is to change the rate of your VA loan, either by qualifying for a lower rate or by switching from an adjustable rate to a fixed rate.
Borrowers who want to access some of their equity or who want to convert their conventional mortgage to a VA loan may be interested in a VA cash-out refinance. This would involve taking on a larger loan, paying off your original mortgage, and pocketing the difference. It’s typically recommended that you use this extracted equity to finance wealth-building expenses, like renovations or repairs to the home.
Types of VA home loans
The VA loan program offers a variety of options, including purchase and refinance mortgages, rehab and renovation loans and the Native American Direct Loan. Here’s an overview.
How many times can you use a VA home loan?
Getting a VA loan isn’t a one-time deal. After using a VA mortgage to purchase a home, you can get another VA loan if:
You sell the house and pay off the VA loan.
You sell the house, and a qualified veteran buyer agrees to assume the VA loan.
You repay the VA loan in full and keep the house. Just once, you can get another VA loan to purchase an additional home as your primary residence.
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Frequently asked questions
What is a VA loan and how does it work?
A VA home loan is backed by the Department of Veterans Affairs, and it offers competitive interest rates with no minimum down payment. They’re offered by lenders such as banks, credit unions and mortgage companies to borrowers who meet the VA’s qualifications. These criteria include length-of-service requirements (with separate requirements for surviving spouses) and minimum standards for property. The lender will also have its own financial requirements, such as a minimum credit score and a maximum amount of existing debts.
How much does a VA loan let you borrow?
The maximum amount that you can borrow with a VA loan comes down to how much your lender is willing to approve. However, there is a ceiling for how much you can borrow with a 0% down payment if you already have an active VA loan or if you defaulted on a VA loan in the past. This figure is $766,550 in most areas and $1,149,825 in high-cost areas.
What is the minimum credit score for a VA loan?
There is no minimum credit score required by the Department of Veterans Affairs. However, individual lenders will have their own qualifying criteria. Borrowers with credit scores of 620 or higher will have an easier time getting approved.
Affordability headwinds continued in the mortgage industry with mortgage rate lock volume remaining virtually flat in October. Both purchase and refinance volumes continued to wane in the face of the highest mortgage rates in over two decades, according to Optimal Blue’s originations market monitor report.
Rate-lock-dollar volume was also flat in October, ticking up 0.5% month over month. However, when adjusting for the extra business day, volume fell 4%.
Purchase-dollar volume rose 1% but slumped 3% after the same adjustment. Refinance-dollar volume declined, with cash-outs falling 3% and rate-and-term refinances down 6%.
Purchase lock counts – which exclude the impact of rising/falling home prices – fell 23% year over year and 43% from pre-pandemic levels in 2019. The refinance share of lock volume remained at current-cycle lows of 12%.
“In October, we saw conventional, conforming volume fall to its lowest point since March, dropping to 56% of the total lock production,” said Brennan O’Connell, data solutions manager at Optimal Blue.
“The lost market share was primarily picked up by FHA production, which rose to 22% of total volume. FHA market share is now at the highest level seen since 2017. Non-agency and VA production finished October at 11.5% and 10.3%, respectively,” O’Connell added.
According to Optimal Blue’s mortgage market indices (OBMMI), the 30-year conforming rate peaked at 7.83% in October before clawing back to 7.78%, climbing 37 basis points (bps) from the end of September, the report showed.
“The mortgage rate spread to Treasuries also grew in October as investors sought safe-haven assets amongst geopolitical concerns in Europe and the Middle East. The spread widened by 8 basis points to finish the month at 290 basis points,” O’Connell said.
Jumbo mortgage rates climbed above 8% before finishing the month at 7.94%, up 35 bps month over month. FHA and VA loan rates rose 26 bps and 40 bps, respectively, both finishing the month at 7.4%.
The steep surge in mortgage rates pushed more borrowers toward adjustable-rate mortgages (ARMs) in October, with the share of adjustable-rate locks rising to 7.9%, up from 6.8% in September.
The average loan amount dropped slightly to $352,500 in October from $353,200 the month prior, and the average purchase price fell to $449,000.
Although production trended lower nationally, certain warmer or more temperate markets saw month-over-month growth due to less seasonality in those climates, the report noted.
The Austin-Round Rock, Texas and Tampa-St. Petersburg-Clearwater, Florida metropolitan statistical areas (MSAs) both showed double-digit, month-over-month growth in mortgage rate lock volume in October.
VA loans are available to active-duty military members, veterans, reservists, National Guard members, and certain surviving spouses. They require no down payment or mortgage insurance and typically come with lower interest rates than other types of mortgages. If you think you might qualify for a VA loan, it’s worth comparing the costs to those of a conventional loan.
What Is a VA Home Loan?
VA loans were created in 1944 as part of the G.I. Bill, and they have grown in popularity since. They are one way to buy a house with no money down.
Most VA loans are VA-backed loans. Approved private lenders issue the loans, part of which the U.S. Department of Veterans Affairs agrees to repay if the borrower stops making the payments. That guarantee incentivizes lenders to offer VA loans with attractive terms.
The VA issues direct loans to Native American veterans or non-Native American veterans married to Native Americans. The agency also refinances VA and other mortgages.
How Does a VA Home Loan Work?
To receive a VA loan, a veteran, service member, reservist, National Guard member, or surviving spouse first has to apply for a Certificate of Eligibility. Once you have your COE and have decided what you wish to spend on a home, you’ll seek out a lender. Most lenders charge a flat 1% fee for VA loans but there may be other fees as well.
Once you have a lender and find a home to purchase, you’ll need to have the home appraised by a VA-approved appraiser to ensure it meets the minimum qualifications for a VA loan. If it does, you’re on your way to moving day.
Types of VA Home Loans
VA loans are available to help eligible borrowers buy, build, renovate, or refinance. Here are the main programs.
VA-Backed Loans
VA-backed home loans are full of advantages. They require no down payment or mortgage insurance, and have fairly loose rules about qualifying.
The home must be a primary residence, but up to a four-unit multifamily property may be purchased if one unit will be owner-occupied.
Approved condos and manufactured homes classified as real property are eligible.
VA Direct Home Loans
If either a veteran or their spouse is Native American, they may qualify for a Native American Direct Loan (NADL) to purchase, construct, or improve a home on federal trust land.
The VA issues these loans directly to borrowers who meet credit standards and whose tribal government has an agreement with the VA.
VA Refinancing
The VA offers an interest rate reduction refinance loan (IRRRL) and a cash-out refinance.
An IRRRL, or VA Streamline Refinance, refinances an existing VA-backed home loan. No verification of credit, income, or employment is required, and you might not need a home appraisal.
The VA-backed cash-out refinance can be used to convert any type of home loan to a VA mortgage with cash back at closing. (Cash back is optional: You can also use a VA cash-out refi to switch to a VA loan, shed mortgage insurance, and possibly lower your mortgage rate.)
VA Renovation and Construction Loans
The VA renovation loan is Veterans Affairs’ answer to the FHA 203(k) loan. It allows eligible borrowers to purchase and repair a property using a single VA loan with no down payment.
VA construction loans can help borrowers finance land and the construction of a home without a down payment. The hitch is, few lenders offer these loans.
Some states also administer their own loan programs for qualified veterans. California, for example, may have a high cost of living but it does offer its own home loan program to veterans.
Who Should Apply for a VA Home Loan
Eligible applicants for a VA loan are:
• Current service members who have served for 90 consecutive days.
• Veterans who served after 1990 for 24 continuous months or for the full period (at least 90 days) when called or ordered to active duty. (Those who served prior to 1990 may also be eligible; check VA.gov for detailed requirements.)
• Service members who served at least 90 days of active duty in the Reserves or the National Guard after 1990. (Those who served prior to 1990 may also be eligible; visit VA.gov for details.)
• Spouses of service members who died in the line of duty or from a service-connected disability, or who are missing or are prisoners of war.
VA Home Loan Requirements for Buying a House
If you apply and meet the requirements for a VA loan, you’ll receive a certificate of eligibility. Approved lenders can check eligibility quickly, or potential borrowers can contact va.gov.
The document indicates “full entitlement.” For full entitlement, at least one of these must be true:
• You’ve never used your home loan benefit
• You’ve paid a previous VA loan in full and sold the property
• You’ve used your home loan benefit but had a foreclosure or short sale and repaid the VA in full
Credit, Income, Debt
For a VA loan, the lender will determine how much of a mortgage you can afford based on your credit history, income, debts, and assets.
The VA does not have a minimum credit score, but most mortgage lenders will want to see a FICO credit score above 620. Some may go lower.
According to VA residual-income guidelines, borrowers should have a certain amount of discretionary income left over each month after paying major expenses.
The VA does not name a maximum debt-to-income ratio, but it does suggest placing more financial scrutiny on borrowers with a DTI of more than 41%, which includes the projected mortgage payments.
VA Loan Rates
For VA-backed loans, approved private lenders set their own VA loan rates and fees. It’s smart to contact more than one lender when shopping for a mortgage and compare offers.
VA Funding Fee
There will be no mortgage insurance on a VA loan, but most borrowers will pay a one-time funding fee for a VA-backed or VA direct home loan. The fee can be rolled into the loan.
For the first use of a VA-backed purchase or construction loan, the funding fee is 2.3% of the loan amount if the borrower is putting less than 5% down.
The NADL funding fee for a home purchase is 1.25%.
A few borrowers, including those who are receiving VA compensation for a service-connected disability, do not have to pay the funding fee.
Benefits of VA Home Loans
Here are the main selling points of VA loans:
• No down payment.
• More attractive interest rates and terms than loans from some mortgage lenders.
• Possibly lower closing costs. The VA allows lenders to charge up to 1% of the loan amount to cover origination, processing, and underwriting costs. Sellers can pay all of your loan-related closing costs, but yes, that’s a big ask. VA loans have an appraisal fee that is set by area. Buyers may purchase mortgage points to reduce the interest rate.
• There’s no limit to the amount that can be borrowed with a VA home loan. However, there is a limit to the amount of the loan that the VA will guarantee.
• No minimum credit score requirement (although some lenders may still not lend to those with lower credit scores).
• A VA home loan can be for first-time homebuyers or repeat buyers.
• VA loans are assumable, meaning the loan could be taken over by the home’s next purchaser.
Downsides of VA Home Loans
Although there are many benefits to VA loans, there are a few potential pitfalls to keep in mind.
The main one is the funding fee. If rolled into the loan, this increases monthly payments as well as total interest paid over the life of a loan.
Others:
• VA loans can’t be used to purchase investment properties or vacation homes.
• Some approved condos are eligible, but co-op properties are not.
• Zero down payment is a nice option, but if the housing market falters, borrowers may be paying more on their home than it’s worth.
What Is the VA Loan Limit?
As of 2020, if you have full entitlement, you don’t have a VA loan limit.
If you have a remaining entitlement (e.g., you have a VA loan you’re still paying back), you can use your remaining entitlement — on its own or with a down payment — to take out another VA loan.
In that case, the VA loan limit is based on the county conforming loan limit where you live. (In most of the country, the 2023 conforming loan limit for one-unit properties is $726,200.)
VA Loan vs Traditional Mortgage
After comparing the pros and cons of VA loans, some borrowers may find that a conventional loan with a low down payment is a better fit for their long-term financial goals. Even if they save money upfront, in the long term, VA loan borrowers often end up paying more.
Conventional loans can be used for vacation homes or investment properties. They don’t include the VA funding fee.
And some borrowers who put less than 20% down may be able to avoid PMI.
The Takeaway
VA loan requirements are more flexible than some others, and VA loan rates may be slightly lower. VA loans have benefits, but it might pay to get loan estimates for conventional loans, too, and compare. For one thing, nothing down means starting out with no equity.
Applying for a home mortgage loan with SoFi requires as little as 3% down for qualifying first-time homebuyers. The fixed rates are competitive. SoFi finances primary homes, second homes, and investment properties.
Check out SoFi Mortgages and get your rate with no obligation.
FAQ
What are the disadvantages of a VA loan?
The main downside of a VA loan is its funding fee. VA loans also can’t be used to purchase investment or vacation properties, or co-ops (although some condos are eligible).
What is the difference between a VA loan and a regular loan?
The main difference between a VA loan and a conventional loan is that VA loans do not require a down payment or mortgage insurance. And, of course, VA loans are only available to qualified service members, veterans, and certain spouses.
Do you pay a VA loan back?
Yes. A VA loan is a loan, not a gift, and It must be repaid. A homeowner who doesn’t make payments could lose their home and any equity they had built up in it.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
According to a weekly survey of 100+ lenders by Freddie Mac, the average mortgage interest rates increased week over week — 30-year fixed rates went up (6.67% to 6.71%) as did 15-year fixed rates (6.03% to 6.06%).
VA rates are no different. In fact, when compared to other loan types — conventional and FHA, for example — VA home loans offer consistently lower rates than for the average consumer.
Shop and compare your personalized rates with multiple lenders (Jul 3rd, 2023)
VA Mortgage Rates 2023
VA
Conventional
FHA
May 2023
6.22%
6.43%
6.49%
April 2023
6.03%
6.34%
6.35%
March 2023
5.96%
6.27%
6.22%
February 2023
6.17%
6.36%
6.36%
January 2023
6.56%
6.81%
6.66%
December 2022
6.62%
6.90%
6.73%
Source: Economic Research Federal Reserve Bank of St. Louis
How to find your lowest interest rate
The interest rate available to you will depend on the specifics of your financial situation. Shopping for the best interest rate isn’t just a matter of looking at the rates lenders have posted online because those rates won’t necessarily be available to all borrowers.
The rate lenders can offer you will depend on:
Your credit score and credit history
The size of your down payment or existing equity
Your loan-to-value ratio (LTV)
Your debt-to-income ratio (DTI)
You will need to fill out a loan application to find out what interest rate the lender can offer you. After the lender has verified your financial information, they can give you a quote for an interest rate that reflects your financial situation.
It’s best to get at least three to five of these quotes and compare them. You should look for the lowest interest rate — but you’ll also want to consider APR and estimated closing costs.
Shopping around for the best mortgage rate available to you can help you to save thousands of dollars over the life of your mortgage.
What does it mean to “lock” a mortgage rate?
A mortgage lock involves a commitment by you and your lender. When you request a lock, your lender agrees to give you that rate, even if interest rates increase. On the other hand, you are also making a commitment to close at that rate, even if interest rates fall.
What does it cost to lock your rate?
The longer your rate lock, the higher the risk to the mortgage lender, which means you’ll pay to lock a mortgage rate. With most lenders, the standard lock period is 30 days. They quote rates assuming a 30-day lock.
By locking 7 to 15 days before closing, you will typically get better pricing. For instance, one national lender’s rate sheet charges .15 percent more for a 30-day lock than it does for a 15-day lock, and .25 percent more for a 45-day lock.
For a $300,000 home loan, it would cost an extra $750 to lock a rate for 45 days instead of 15.
The cost can get even higher if you choose to lock your rate for 60 days or more.
What about “free” rate lock?
When lenders were experiencing very high volume, refinance processing suffered. Purchases get priority with most lenders, and refinance transactions can end up on the back burner.
This can result in “blown locks” for refinances. To counter this and avoid angering customers, some lenders offered “free” locks of up to 90 days. However, they weren’t really free, because the rate for those loans was slightly higher than it was for purchases.
When you get mortgage quotes for a refinance or purchase, make sure you know what lock period you’re getting on your quote. That way you can make a valid comparison.
When should I lock in my mortgage rate?
The best strategy for locking in your mortgage rate will depend on a couple of factors and your own preferences. You have a few options. There are three schools of thought about locking in a mortgage rate.
Some borrowers like to “set and forget” their rate, and they are averse to risking a higher rate in order to perhaps obtain a lower one. These borrowers are likely to lock their rate when they see an acceptably low rate.
Other borrowers are willing to take a little more risk for the chance of getting a lower rate — watching rates carefully to see if they drop.
Finally, there are the ones who want it all. These borrowers buy a “float down” option, which allows them to lock in a rate, protecting them from potential rate increases. However, if interest rates fall while their loan is in process, they can get a lower rate.
Float downs: Know what you’re buying
There are rules for float downs. Some lenders only let you exercise the float down option the day they draw your closing documents. Others allow you to lock in a lower rate anytime during the process.
Still, others require the new rate to be at least a certain percentage lower than your locked rate before they let you switch — typically .125 to .25 percent.
Read your documents carefully, and understand what a float down will cost you since these agreements are not standardized.
Find the right mortgage rate for you
Ultimately, the best mortgage rate for you is going to depend on the circumstances of your financial situation and market conditions. By comparing your options and speaking to different lenders, you can ensure that you’re getting the right mortgage. for your home goals.
Shop and compare your personalized rates with multiple lenders (Jul 3rd, 2023)
Serving our nation is a tough job, but it does have its perks. One of them? Being able to finance your home purchase through a VA loan.
VA loans are backed by the U.S. Department of Veterans Affairs and are available to veterans — including service members, National Guard members and prisoners of war (POWs) — and eligible surviving spouses who want to buy their first home or another property, or who are looking to refinance their home.
The program allows those who qualify to take advantage of a unique set of benefits, including $0 down payment, low interest rates and closing costs and the ability to forgo private mortgage insurance, just to name a few.
Below we’ve put together a useful list of VA loan tips to help you achieve your dream of homeownership. Though the process closely mirrors that of getting a conventional loan, there are some key differences of which you need to be aware. Learn more in this veterans home buying guide.
Table of contents
You can get started without the Certificate of Eligibility (COE)
Your credit score still matters, but it’s not everything
Make sure you have enough saved
Pay the VA funding fee
Shop for a VA lender and get pre-approved
Hire a real estate agent that’s VA-savvy
Choose a property that’s VA-approved
Close the deal only when you’re ready to move in
1. You can get started without the Certificate of Eligibility (COE)
The Certificate of Eligibility or COE is issued by the U.S. Department of Veterans Affairs as proof that you have fulfilled the minimum military service requirements to be eligible for the VA home loan benefit. In other words, the COE is your golden ticket to getting a VA loan.
However, it’s not absolutely necessary to have the COE before you start. According to John Bell, deputy director of the VA’s Veterans Benefits Administration, prospective homeowners can still get pre-approved without a COE since it’s usually verified during the loan process itself.
It’s also a common misconception that you have to procure the document yourself. Bell says mortgage lenders can get the COE for you. Roughly 80% of the time, they can get it instantly. Otherwise, it can take up to five business days.
But if you want to be cautious and make sure you meet the service requirements before applying for the loan, you can always request a copy of your COE through the VA’s eBenefits portal or by reaching out to one of the VA regional loan centers in your area.
2. Your credit score still matters, but it’s not everything
True, VA loans generally offer lower interest rates and better loan terms than conventional loans, even if you don’t have stellar credit. That being said, though the VA does not set a minimum credit score, your credit score will have some bearing on what rate and terms you’ll receive.
Isabel Williams, broker-owner of We Save Loans, a Florida-based mortgage company that specializes in VA mortgages, says that VA loan lenders will still need to check your credit score to approve you for the loan and determine your interest rate, just as with a conventional loan.
And as with any loan, the higher your credit score, the better the deal. With VA loan rates already so favorable, a good credit score will allow you to get a rock bottom variable or fixed rate and mortgage payment, allowing you to make the most out of your hard-earned entitlement.
If your score isn’t the greatest, don’t lose heart. According to Williams, lenders tend to be more flexible with VA loans and look at your overall financial picture.
“They are more holistic,” Williams says. “They look at what your credit history looks like, and what your income versus debt looks like.” VA lenders will look at your residual income, which is how much money you have left after paying taxes, debt-to-income ratio and other necessary expenses.
Regardless of your credit score, it’s a good idea to pull up a copy of your credit report so there are no surprises before you apply. These could take the form of negative marks like delinquencies and accounts in collection you may not have known about.
You can get a free copy of your report from all three major bureaus (Experian, Equifax and TransUnion) by visiting AnnualCreditReport.com.
If, after checking your report, anything seems amiss, you can contact the bureaus directly to get any inaccuracies removed from your credit report. You can also hire a credit repair company to help you do this if you don’t feel confident enough to repair your credit yourself.
3. Make sure you have enough saved
It’s a common misconception that because VA loans don’t require a down payment, buyers won’t be required to pay anything upfront out of pocket. “People hear this a lot,” Williams says. But it couldn’t be further from the truth.
Even if you don’t need a down payment, you’re still responsible for certain closing costs, including the following:
Loan origination fees
Application fees
Discount points (if applicable)
Hazard insurance
Real estate taxes
Title insurance
Recording fees
Appraiser fees
Home inspection fees
Other third-party fees, like brokerage fees and termite reports, are absorbed by the seller with VA loans.
4. Pay the VA funding fee
Most folks will have to pay the VA funding fee. The funding fee is a one-time payment you make which enables VA loans to have favorable terms, such as no down payments or monthly mortgage insurance. The fee varies depending on whether you are a first-time homebuyer and if you make a down payment. It can be up to 3.3% of your loan amount.
Some of these costs can be rolled up into your loan, but that will result in a higher monthly payment. That’s why Williams recommends building a nest egg to pay these fees upfront at closing before beginning the home-buying process.
There are a couple of ways you can prevent your funding fee from impacting the monthly cost of your VA loan:
You can choose to pay your funding fee upfront to mitigate monthly costs for your VA loan. However, veterans and their surviving spouses might not be able to find the money to cover this fee. If you go down this road, you must pay your funding fee by the date your property closes.
Although a downpayment is not required for VA loans, you can put money down on your property to reduce your loan amount and, therefore, your funding fee. For example, a borrower who makes a 10% down payment on a $1 million property will reduce their loan amount to $900,000. If the funding fee is 3%, this down payment will reduce that amount from $30,000 to $27,000.
Although a funding fee can impact how much you pay every month for your VA loan, this type of finance doesn’t require PMI, often offers lower interest rates and has closing cost limits. Therefore, the overall cost of purchasing a property with a VA loan will likely still work out to be cheaper than buying a home with a conventional loan, purchase loan or another type of mortgage finance.
Plus, some people, like borrowers who receive VA compensation for a service-connected disability and service members with a proposed or memorandum rating before their loan closes that entitles them to compensation, don’t have to pay a funding fee. You can also get a refund for your funding fee if awarded VA compensation for a service-connected disability in the future.
Not everyone has to pay the VA funding fee. You don’t have to worry about this cost if any of the following apply to you:
You receive VA compensation for a disability connected to your service
You’re eligible to receive VA compensation for a service-connected disability but receive active-duty or retirement pay instead
You’re a service member with a proposed or memorandum rating before your loan closing date that entitles you to get compensation due to a pre-discharge claim
You receive Dependency and Indemnity Compensation (DIC) because you are the surviving spouse of a veteran
You’re on active duty and provide evidence of receiving the Purple Heart before or on your loan closing date
You might get a refund for the VA funding fee if you are awarded VA compensation for a disability connected to your service in the future. Your compensation must have a retroactive effective date that’s before the date you closed your loan. You can’t get a refund for the VA funding fee if you receive a proposed or memorandum rating after your closing date.
You can apply for a refund or check eligibility requirements by calling your local VA center at 877-827-3702.
5. Shop for a VA lender and get pre-approved
Fact: Shopping for lenders isn’t as fun as house hunting. However, it’s a necessary step in order to secure the best terms and interest rates and make sure you save money down the line.
There are different types of companies offering VA loans these days, so how do you choose the right one?
First, there are many reputable private lenders that exclusively cater to military members, veterans, military spouses and their families. Veterans United, USAA and Navy Federal all have vast experience servicing VA loans and can help make the application and lending process smoother.
Still, it pays to shop around and compare offers from multiple lenders. You can always use a rate comparison website, like LendingTree or Credible, which feature VA loans and are completely free.
You can also get multiple offers from a mortgage broker. Independent mortgage brokers do charge a fee for their services, but Williams says that sometimes you can compare mortgage rates from as many as 100 lenders with just one credit inquiry, saving you time and minimizing the impact on your credit.
Getting many offers can sometimes lead to the situation where you have more than several contenders offering similar rates and fees. In these cases, you need to check out who has the best track record. You can do this by looking them up in the Nationwide Multistate Licensing System (NMLS) or the Consumer Financial Protection Bureau’s database.
Once you’ve chosen your lender, it’s time to get pre-approved. This will allow you to know how much house you can afford.
Here’s a list of the things you’ll have to provide the loan officer for this process:
An official form of identification, such as your driver’s license or passport
Your social security number
Proof of income in the form of paystubs, W2s or your two most recent tax returns
Statements of assets (savings accounts, IRAs, etc.)
Statements of debts
Pre-approval is essential in today’s highly competitive market, as it will allow you to make an offer faster to secure your new home.
Note: The Department of Veterans Affairs provides a loan guaranty on VA loans purchased through a private lender. If you default on your mortgage, the government will pay a portion of your debt to the lender.
There are a few key differences you should keep in mind when shopping around and comparing VA loans and conventional mortgages.
No down payment
While most conventional loans require a downpayment of anywhere from 5% to 20% and above, VA loans allow you to finance up to 100% of the purchase price of a property. That can make it easier for you to afford a home.
No private mortgage insurance
As well as no down payment requirement, you don’t need to purchase private mortgage insurance (PMI) with VA loans. PMI is required on conventional loans when a borrower can’t provide a down payment of more than 20% of the property price. The cost of PMI is around 0.5% to 1.5% of the loan amount on a property per year, so removing this requirement for VA loans will definitely save you money.
Closing costs cap
With all home loans, you pay closing costs to cover loan origination, processing, underwriting and other expenses. The VA also limits or prohibits certain fees associated with closing, such as certain inspection fees and attorney fees. Though it depends on the property price, veterans and their surviving spouses typically pay less in closing costs than people taking out conventional loans.
More flexible credit requirements
There is no minimum credit score requirement for a VA loan, and the Department of Veterans Affairs requires lenders to evaluate a borrower’s entire loan profile when assessing their application for a mortgage. That means you might qualify for a VA loan even if you fail to meet the credit requirements for a conventional loan.
Lower interest rates
VA loans typically come with a lower interest rate than conventional loans, allowing borrowers to pay off their properties in a quicker time frame. Although interest rates change daily, you can expect to pay around 0.25% less in interest rates on a VA loan compared to a comparable FHA loan or other type of mortgage.
VA loans with a lower interest rate than regular VA loans are available for veterans or their spouses who are Native American. The Native American Direct Loan (NADL) program helps these borrowers get a loan to purchase, build or improve a property on federal trust land. The Department of Veterans Affairs reduced the interest rate for NADLs from 6% to 2.5% in March 2023. This reduced rate will be available for no more than 24 months.
Refinancing options
If you want to refinance your current home, you can apply for VA cash-out refinance, which lets you borrow up to 90% of the value of your property. Cash-out refinance is different from a home equity loan, where you borrow money against the value of your home minus the amount of the mortgage on your property.
Renovation loans
VA renovation loans are made up of two loans. A home purchase loan finances the purchase price of your property up to its current market value. An additional home improvement loan can help cover renovation costs to improve your property. The amount you can get for renovation costs will depend on the lender. Just like conventional VA loans, you won’t have to provide a downpayment or take out PMI with a rehab loan. However, not as many lenders offer this type of loan compared to regular VA mortgages.
6. Find a real estate agent that’s VA-savvy
It’s also important to find a realtor who is an expert in VA loans, according to Williams.
“It’s already a pretty tough market, and not having someone that understands the VA loan process or how to actually put together that offer could possibly hurt you” she says.
To be eligible for a VA loan, the chosen home must meet certain property requirements (see tip #7 ahead). So, having a real estate agent that knows the market, what’s allowed by the VA and how to draft a successful offer is crucial to getting the best deal on the home you want.
There are also various other VA loan products a VA loan specialist would be the most familiar with, including VA loan refinance, cash-out refinancing and interest rate reduction refinance loans (IRRRL).
To find a VA-savvy agent, contact your VA regional loan center to see if they have someone they can recommend in your area. Some lenders, like Veterans United, also have their own division of real estate agents that specialize in finding VA-approved homes.
VA loans have different terms and requirements than regular mortgages, making it important to work with a real estate agent who has knowledge of this type of finance. There are a few things you should look for when hiring a real estate agent.
VA loan experience
Agents should have experience working with veterans and their spouses and understand the terms and conditions of the VA loan program. For example, VA-savvy agents should know about the VA’s minimum property requirements (MPRs), which set standards for which homes can qualify for loans.
An MRP certification
Real estate agents with a Military Relocation Professional (MRP) certification have knowledge about working with veterans and their families, making them a good choice for helping you find a home. These professionals can also help you claim all the VA benefits you are entitled to when purchasing a property. You can find agents in your area with an MRP certification on the National Association of Realtors website.
Communication skills
Active-service duty members might have busy schedules that prevent them from looking for and visiting properties. VA-savvy agents understand this and should be prepared to communicate with borrowers outside of regular business hours and via various technologies. For example, someone in the military serving abroad might not be able to communicate with an agent over the phone, requiring the agent to send property information via email.
Links with VA lenders
Many real estate agents that work with veterans have connections with lenders who offer VA finance, which speeds up the home-buying process. Agents can recommend specific loan products based on the borrower’s requirements and forward details to recommended lenders.
Local knowledge
A borrower might need a property in a specific area away from a big city, such as close to a military base. In these circumstances, agents should know about local areas and services and provide this information to borrowers and their families to improve the home-buying process.
7. Choose a property that’s VA-approved
To use a VA loan, the property you want to purchase must be VA-approved. In general, the VA requires a home to be safe, sanitary and structurally sound.
All properties must also pass a VA appraisal for VA loan eligibility. This appraisal is conducted by someone chosen by the VA, and its main purpose is to determine whether the property is in good livable condition and that its selling value is in accordance with other similar properties. There are some other requirements that the property you want to buy may have to meet.
Multiunit homes
While duplexes, triplexes and four-plexes are eligible for VA loans, these properties can’t solely be used for rental or investment purposes. You must occupy one of the units as your main residence.
Mobile homes
To qualify for a VA loan, mobile homes must be properly attached to a permanent foundation. Single-wide mobile homes must be at least 400 square feet, while double-wide homes must be at least 700 square feet. All mobile homes must have permanent cooking, sleeping, eating and sanitary facilities.
New-build homes
New constructions are eligible for VA loans, but three separate inspections are required to ensure builders, plans and building sites are VA-approved. Builders also have to provide at least a one-year warranty for new-build homes.
Modular homes
These homes must be affixed to a permanent foundation to qualify for a VA loan. A modular home must also be constructed according to Department of Housing and Urban Development (HUD) guidelines or receive a certification from the state in which it was built.
Condominiums
For condos to be VA-approved, the following must apply:
Condo buildings must have more than one unit
No single person, investor or company can own more than 10% of the units in a building
Only 50% of units in a condo building can be rented to tenants
85% of condo owners must be up to date with their homeowners’ association fees
It’s important to check whether a condo is VA-approved before applying for finance. You can do this by requesting a customized condo report on the VA website.
Remember we said that not all properties can be financed through a VA loan? Well, here’s why.
John Bell, from the VA’s Veterans Benefits Administration, says that the VA home loan program was designed as an “owner-occupied program.” This means that you can’t use a VA loan to purchase a vacation home or an investment property. It must be the borrower’s primary residence. Additionally, not all condominiums can be financed through a VA loan.
“Condominiums must meet certain requirements to be eligible for VA lending,” Bell says. “Some of those requirements are things like first right of refusal when you go to sell the property,” he adds.
If you already have your eyes on a specific condo, you can find out if it is VA-approved by looking it up on the VA’s condo database. If it isn’t, don’t fret. Bell says you can always contact the VA to request an evaluation of the complex to see if it can be added to the list. This process can take as little as two weeks.
All properties must also pass a VA appraisal for VA loan eligibility. This appraisal is conducted by someone chosen by the VA and its main purpose is to determine whether the property is in good livable condition and that its selling value is in accordance with other similar properties.
8. Close the deal only when you’re ready to move in
In order to be eligible for a VA loan, you must complete the VA’s minimum occupancy requirement at closing. This is a document in which “you must certify that you intend to occupy the property as your home.”
The VA considers 60 days from your closing date as a reasonable timeframe for you to occupy the property (although, in some circumstances, this period may be extended up to 12 months). If you’re an active-duty service member, your spouse or a dependent family member may satisfy this requirement for you by moving in first.
VA Loan Tips FAQs
How does a VA loan differ from a conventional mortgage?
Unlike traditional mortgages, VA loans are specifically designed for eligible veterans, including active-duty members and their surviving spouses who want to buy a property. The government and select private lenders back these loans. Unlike conventional mortgage loans, VA loans don’t require a down payment and don’t require private mortgage insurance even if you put less than 20% down. VA loans also offer lower interest rates, lower closing costs and more flexible credit requirements compared to conventional loans.
How does the funding fee impact the cost of a VA loan?
Generally, you’ll need to pay a funding fee for a VA loan (unless you meet requirements for exemption), and this fee can impact the cost of your loan if you roll it into your loan amount. Say you take out a VA loan with a 30-year term for $500,000, and your funding fee is $15,000 (3% of the loan amount). You’ll have to pay an extra $41.66 every month (plus interest) alongside your regular mortgage repayment.
Can I use a VA loan to purchase a home that needs repairs or renovations?
Regular VA loans only finance your property based on its current market value, meaning you won’t have additional cash to make repairs. You can solve this problem by applying for a VA renovation loan (or rehab loan) to purchase a property that requires renovations.
What should I look for in a VA-savvy real estate agent?
VA loans have different terms and requirements than regular mortgages, making it important to work with a real estate agent who knows about these types of loans. You should also look for a real estate agent who has a Military Relocation Professional (MRP) certification. It can also be helpful to work with an agent who is knowledgeable about the areas near military bases if you are looking for property near a base in an area you aren’t familiar with.
How can I determine if a property is VA-approved?
The Department of Veterans Affairs requires all homes that qualify for VA loans to be safe, sanitary and structurally sound. However, there are more specific criteria for condos because these property types have communal spaces that might impact the value of a home. Mobile homes, modular homes and multiunit homes also have other requirements you should know about before you start house hunting.
Summary of the 7 VA Loan Tips:
You can get started without the Certificate of Eligibility (COE)
Your credit score still matters, but it’s not everything
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