VA Loan 101

What is a VA loan, and is it the right loan for you?

A plain-English breakdown of the benefit you have earned. How it works, what it costs, how it compares to conventional and FHA, and the lesser-known versions including construction loans and the IRRRL refinance most veterans do not know exist.

9 min readLast reviewed May 22, 2026Reviewed by Jeoh Lee, NMLS #2544861

The mechanics

A VA loan is a regular mortgage with a federal guarantee behind it.

A is a mortgage issued by a private lender (a bank, credit union, or mortgage company). The U.S. Department of Veterans Affairs does not actually lend the money. The VA’s role is to a portion of the loan, which lowers risk for the lender and lets them offer better terms.

That guarantee is funded by the , a one-time charge of 2.15% for first-time use that you can roll into the loan. The funding fee is waived entirely for veterans with a service-connected disability rating.

The benefit is yours for life. You can use it once, twice, or many times. You can hold two VA loans at the same time if you have enough left. You can even pass an existing VA loan to another VA-eligible buyer when you sell. That last feature is called assumability: the buyer takes over your loan and your low rate, which matters a lot when new rates are higher than yours.

Eligibility is based on service: 90 days of active wartime, 181 of peacetime, six years for Guard or Reserve, or qualifying surviving spouse status. Your (COE) is the document that proves it, and a lender can pull yours in minutes.

Why use it

Six benefits that make this the strongest mortgage product available to most veterans.

No down payment

With full entitlement, finance 100% of the purchase price. No conventional or FHA option allows this for primary residences.

No mortgage insurance

No monthly mortgage insurance at all: no PMI (the surcharge conventional loans add when you put down less than 20%), no MIP (the FHA version). That saves $120 to $300 a month for the life of the loan.

Lower rates

Typically 0.25 to 0.50 points below conventional. On a $300,000 loan, that's roughly $50 to $100 per month.

Lenient credit

The VA sets no minimum credit score. Most lenders accept 580 to 620. The VA also weighs the cash you have left each month (your residual income) in a way conventional lending does not.

Reusable for life

Use the benefit multiple times. Hold two VA loans at once with sufficient entitlement. Useful for moves, relocations, and rental portfolios.

Funding fee waived for disability

Veterans with any service-connected disability rating pay no funding fee. On a $300,000 loan, that's $6,450 not financed into your balance.

Head to head

VA loans versus conventional and FHA, on the dimensions that actually matter.

A loan with 0% down is not automatically better than 5% down. The comparison that matters is total monthly cost, total cash to close, and what happens if you stay in the home for ten years.

Reading the table: PMI and MIP are monthly mortgage-insurance surcharges (conventional and FHA charge them; VA never does). DTI is the share of your income that can go to debt including the house payment.

	VA Loan ↓	Conventional	FHA
Minimum down payment	0%	3% to 20%	3.5%
Mortgage insurance	None	PMI required if <20% down (~0.5–1.5% annually)	MIP for life of loan in most cases (0.55% annual + 1.75% upfront)
Typical credit minimum	580 to 620	620 to 740	580
DTI guideline	41% + residual income flexibility	~45% (50% with compensating factors)	Up to 50% with compensating factors
Loan limits (with full entitlement)	No limit	$832,750 conforming in 2026 (higher in high-cost counties)	County-based, lower than conventional
Funding / insurance fee	2.15% one-time (financed; waived for disability)	PMI ongoing monthly	1.75% upfront + 0.55% ongoing
Property restrictions	Primary residence (1–4 units, you live in one)	Any (primary, second home, investment)	Primary residence
Assumable	Yes	No	Yes
Prepayment penalty	Never	Rare; allowed in some states	Never

Figures reflect typical lender practice. Specific loan products and rates depend on your file. Not a rate quote.

Other VA products

Three more VA products most veterans don't know about.

The standard VA purchase loan is one tool. There are others: a refinance built for veterans already in a VA loan, a construction loan that closes once instead of twice, and a cash-out refinance that can even pull in a non-VA mortgage. Each one fixes a problem conventional financing creates.

PRODUCT · 01

IRRRL

Interest Rate Reduction Refinance Loan (VA Streamline Refinance)

If you already have a VA loan and rates have come down, an IRRRL lets you refinance into a lower rate without the friction of a normal refinance. No income re-verification in most cases. No new appraisal. Closing costs can be rolled into the new loan.

Available only if you currently have a VA loan
No appraisal required in most cases
No income verification in most cases
Funding fee drops to 0.50%
Net tangible benefit required (must actually save you money)
Cannot take cash out (rate reduction only)

One-Time Close Construction Loan

VA Construction-to-Permanent

Build a new home using your VA benefit, with a single closing instead of two. The construction loan converts to your permanent mortgage automatically when the home is finished, so you do not re-qualify and you do not pay closing costs twice. Few lenders offer this product, so expect to shop around for one.

0% down payment with full entitlement
One closing, before construction begins
No re-qualification after the build
Closing costs paid once, not twice
Builder must be VA-approved and registered with the VA
Home must meet VA Minimum Property Requirements

More on construction loans in the guides →

PRODUCT · 03

VA Cash-Out Refinance

For accessing equity or paying off non-VA loans

The VA cash-out lets you refinance an existing mortgage (VA or otherwise) into a new VA loan and take cash out at closing. Useful for paying off higher-interest debt, funding a major expense, or moving a conventional loan into VA terms. Stricter underwriting than an IRRRL: full income verification and appraisal required.

Available to any veteran with eligibility
Full appraisal and income verification required
Funding fee: 2.15% first use, 3.30% subsequent
Can refinance non-VA loans into VA
Cash limits depend on home equity and lender policy
Net tangible benefit test still applies

Now run the math on your actual buying power.

If the VA loan is the right product for you, the next question is how much home it can finance for your income and debt. Sixty seconds, no spam, no rate calls.

Open the calculator →Browse the guides

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