Guide № 03 · VA loan basics

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 other products in the program, from construction loans to the IRRRL refinance.

9 min readLast reviewed August 4, 2026Reviewed by Jeoh Lee, NMLS #2544861

TLDR - The Short Version

A VA loan is an ordinary mortgage from an ordinary lender. The VA doesn't lend you the money. It guarantees part of the loan, and that guarantee is why a bank will finance the whole purchase price with nothing down and no monthly mortgage insurance, for a buyer with full entitlement.

The guarantee gets paid for by the funding fee. You pay it once and you can roll it into the loan: 2.15% on a first use with less than 5% down. Veterans receiving VA disability compensation for a service-connected condition pay none of it, and neither do several other categories.

Eligibility runs on service. Generally 90 days of active wartime service, 181 days in peacetime, six years in the Guard or Reserve, or qualifying surviving spouse status. The Certificate of Eligibility is the proof, and a lender can pull yours electronically.

The benefit is yours for life. Use it once or many times. Hold two VA loans at the same time if you have the entitlement for it. You can even hand your loan to the buyer when you sell, which is called assumability, subject to lender and VA approval of that buyer. It matters a great deal when new rates sit above yours.

Next to conventional and FHA, the differences that show up in real money are the down payment, the mortgage insurance and who sets the credit floor. The VA sets no minimum score; each lender sets its own. And with full entitlement there's no loan limit at all.

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 you can roll into the loan: 2.15% for first use with less than 5% down. The funding fee is waived entirely for veterans who receive VA disability compensation for a service-connected condition, and for several other categories.

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 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 electronically.

Why use it

Six benefits no other loan program combines.

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). The one-time funding fee takes its place, so nothing recurring shows up on the statement.

Assumable by the next buyer

A qualified buyer can take over your existing VA loan when you sell instead of financing the purchase from scratch, subject to lender and VA approval of that buyer. A conventional loan carrying a due-on-sale clause cannot be handed over without the lender's consent, because the clause lets the lender call the balance when the home changes hands. If the buyer who assumes your loan is not VA-eligible, your entitlement stays tied to the loan until it is paid off.

Lenient credit

The VA sets no minimum credit score. Individual lenders set their own floors, so a denial from one lender is that lender's answer rather than the VA's. 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 and for rental portfolios.

Funding fee waived for disability compensation

Veterans who receive VA disability compensation for a service-connected condition pay no funding fee, as do several other categories including surviving spouses receiving DIC. A 0% rating is non-compensable and does not qualify on its own. The funding fee guide lists every exemption.

Source on assumption (card 03): VA Home Loan Guaranty Buyer’s Guide, “Loan Assumption” section: “Anyone, even a non-Veteran, can assume your loan, but in such case your entitlement remains with the loan,” benefits.va.gov, checked August 2026.

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 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.

Feature	VA Loan ↓	Conventional	FHA
Minimum down payment	0%	3% on the programs that allow it, such as Fannie Mae's HomeReady or Freddie Mac's Home Possible	3.5%
Mortgage insurance	None	PMI required if less than 20% down	MIP required, and it can run for the life of the loan
Who sets the credit floor	Not VA, which sets no minimum score; the lender sets its own	The lender, within the rules of the investor it sells to	An FHA program floor, with the lender's own overlay on top
DTI guideline	41% + residual income flexibility	45% ceiling for manually underwritten loans at both Fannie Mae and Freddie Mac, which Fannie Mae reaches from a 36% base on credit score and reserves; up to 50% through Fannie Mae's automated underwriting, and Freddie Mac's Loan Product Advisor assesses the ratios on the submitted data	43% manually underwritten, up to 50% with two compensating factors
Loan limits (with full entitlement)	No limit	$832,750 conforming in 2026 (higher in high-cost counties)	County-based
Funding / insurance fee	2.15% one-time, first use with less than 5% down (financed; waived for disability compensation)	PMI, as in the mortgage-insurance row above	Mortgage insurance premiums, as in the mortgage-insurance row above
Property restrictions	Primary residence (1–4 units, you live in one)	Any (primary, second home, investment)	Primary residence
Assumable	Yes, subject to lender and VA approval of the buyer	Not without the lender's consent, where a due-on-sale clause applies	Yes, subject to the lender's creditworthiness review of the buyer
Prepayment penalty	Never	Allowed in some states	Never

Reading the columns: the VA column states VA’s own program rules, and its funding fee renders from this site’s verified fee schedule. The conventional column is checked against Fannie Mae’s Selling Guide and Freddie Mac’s Single-Family Seller/Servicer Guide (both as read in August 2026), plus the FHFA’s 2026 conforming loan limit; where the two investors’ rules differ, the cell says which rule is whose. Two rows sit outside both guides: the prepayment-penalty row turns on state law, and the assumable row turns on the loan’s own security instrument together with the federal law that lets a lender enforce a due-on-sale clause. The FHA column is checked against HUD Handbook 4000.1 (Update 17, revised November 2025). Every lender adds its own rules on top of any of these programs, so confirm your own file with a lender. Not a rate quote.

On the credit row: lender overlays are the whole subject of guide № 08, Credit for VA loans, including why a denial from one lender is that lender’s answer rather than VA’s.

Other VA products

Three more VA products.

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 refinances it into a lower rate with lighter documentation than a standard refinance. VA generally does not require income re-verification or a new appraisal, with named exceptions: a payment increase of 20% or more, a delinquent loan being refinanced, and cases that turn on a loan-to-value figure. Closing costs can be rolled into the new loan.

Available only if you currently have a VA loan
No appraisal required in most cases (exceptions: a 20%+ payment increase, a delinquent loan, or a case turning on loan-to-value)
No income verification in most cases (same three exceptions apply)
Funding fee drops to 0.50%
Two benefit requirements apply at once: the statute obligates your lender to give you a net tangible benefit test and sets a minimum drop in the interest rate, plus any one item on VA's own regulatory benefit list (lower payment, shorter term, a fixed rate replacing an adjustable one, and others), not simply “costs less per month”
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. VA's description is that the permanent financing is set before construction starts and the loan's final terms are modified to those permanent terms when the build is finished, so there is no second closing. Ask a lender whether they offer VA construction financing before going far with them.

Same guaranty amount and percentage as a VA purchase, which is not a promise that nothing is due at closing
One closing, before construction begins
VA's published two-time-close process for buyers includes a step qualifying the borrower again; the one-time-close process list does not contain that step. The borrower qualifies up front, at the maximum rate. Both lists describe what VA asks for, and a lender may still add re-verification of its own.
No second closing, so no second set of closing costs
You choose the builder: no provision of 38 CFR part 36 establishes VA approval or certification of builders for its home loan guaranty program
Separately, VA no longer requires a VA builder ID for a VA-guaranteed loan (Circular 26-25-1, March 2025, checked August 2026). State and local licensing still applies, and a lender may add its own requirements. What VA asks of a builder
Home must meet VA Minimum Property Requirements

VA Cash-Out Refinance

Turning equity into cash proceeds, including from a non-VA mortgage

The VA cash-out refinance replaces the loan secured by your existing lien, VA or otherwise, with a new VA-guaranteed loan, and it can produce cash proceeds at closing. Stricter underwriting than an IRRRL applies: 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
New loan amount capped at 100% of the home's reasonable value as VA determines it (90% in one case); the cash proceeds are what is left after the loan being refinanced is paid off and costs come out, and individual lenders may set a lower cap
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. Prefer to read the math first? The full affordability guide walks through both tests.

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