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VA loans – A veteran’s guide

Chances are that if you are reading this, you are a veteran (i.e. someone who’s served in the military) and is looking for a loan to purchase a home or refinance an existing loan. 

If not, you are likely just a curious individual who heard about a VA loan and wants to know more about it.

In either case, this article is meant to serve as a complete guide to VA loans, including eligibility requirements and the pros and cons of getting a VA loan. 

So let’s dive right in.

What is a VA loan?

VA stands for Veteran Affairs and VA loans are mortgage loans that are backed by the Department of Veteran Affairs, otherwise simply known as the VA.

Backed by the VA means that these loans offer incentives and benefits to eligible individuals and help them become homeowners. 

Eligible individuals include qualified veterans, active service members and their spouses. 

What is the role of the VA?

The VA does not issue these loans. These loans are issued by private lenders but the VA does facilitate them by:

  1. Offering specific guarantees to private lenders.
  2. Determining who is eligible to get these loans.
  3. Approving lenders who are authorized to issue VA loans.

By backing these loans, the VA helps eligible borrowers get a loan for their homes at lower costs.

Benefits of a VA loan

VA loans offer a lot of benefits that other loans, such as Conventional and FHA, don’t. Of course, not everyone is eligible to get a VA loan. 

We’ll talk in detail about eligibility in the next section. But let’s outline the benefits first:

Easier qualification – Because of the backing of the VA, it makes it easier for veterans and other eligible individuals to qualify for a loan, which they otherwise wouldn’t.

Lower Rates – Because a VA loan is backed by guarantees from the VA, the risk to the lender is much lower and hence the rates they offer on these loans are also lower.

Lower closing costs – The VA limits closing costs that the borrowers have to pay to get a VA loan.

No monthly mortgage insurance – In many ways, a VA loan offers similar benefits as FHA. But the fact that a VA loan does not require a monthly mortgage insurance payment makes it a winner.

No down payment required – Although it helps to make a down payment, you can get a VA loan without making any down payment.

Financing of Funding Fee – In exchange for all the benefits mentioned above, the VA requires borrowers to pay an upfront fee. To make it easier though, the VA allows borrowers to finance this fee, i.e. add it to the loan amount and pay over time.

Assumability – The VA allows a VA loan to be transferred to another VA-eligible buyer. That makes it easier to sell a home when rates are rising, because the new buyer can get the old, lower rate.

Who is eligible for a VA loan?

VA loans are available not only to veterans, but also to many other large classes of members of the military, namely:

  • Veterans
  • Active-duty service members
  • Surviving spouses of veterans
  • Members of the National Guard
  • Reservists
  • Cadets at the U.S. Military, Air Force or Coast Guard Academy
  • Officers at the National Oceanic & Atmospheric Administration
  • Midshipmen at the U.S. Naval Academy 

The member must have completed a minimum term to be eligible. The minimum term is a function of when the member was in service (i.e. which years) and whether the service was provided during war or peacetime. 

For active-duty service members, the requirement could be as short as 90 days to as long as 24 months. For reserves and national guard, the requirement is 6 years of service. To see your exact scenario, you can refer to VA website.

How does one prove eligibility?

To be able to prove to the lender your eligibility for getting a VA Loan, you will need a COE (Certificate of Eligibility). 

What is a COE?

A COE is a document that proves to the mortgage lender that the borrower is eligible for a VA loan. If one is above to demonstrate proof of service, getting a COE should not be a problem. 

The COE that one needs to submit varies based on whether the individual is a veteran, an active-duty military member, a surviving spouse, national guard, reserve etc.

Veteran: A copy of their discharge or separation papers (DD Form 214).

Active-duty Service member: A statement of service, signed by their commander, adjutant, or personnel officer.

Current (or former) activated National Guard or Reserve member: A copy of their discharge or separation papers (DD Form 214).

Current member of the National Guard or Reserves who has never been activated: A statement of service signed by their commander, adjutant, or personnel officer.

Discharged member of the National Guard who was never activated:  Report of Separation and Record of Service (NGB Form 22) for each period of National Guard service, and Retirement Points Statement (NGB Form 23) and proof of the character of service.

Discharged member of the Reserves who was never activated: Latest annual retirement points, and Proof of your honorable service.

Surviving spouse of a Veteran who died on active duty or who had a service-connected disability: A copy of the Veteran’s discharge documents (DD214), and One or more forms such as 21P-534-ARE or 26-1817 or 21P-534EZ.

How does one qualify for a VA loan?

What you saw above only shows whether you are eligible for a VA loan. Being eligible does not mean you will qualify as well.

To qualify for a VA loan, there are additional requirements that have to be met before an individual is approved to get a VA loan. These requirements depend on the individual’s income, assets, credit, loan amount etc.

Let’s go through these factors in more detail:

Debt-To-Income (DTI) ratio

  • DTI ratio is the ratio of all your monthly debt payments (home, auto, credit card, education etc) to your total monthly gross income
  • For VA loan qualification, most lenders require that the DTI should be less than 41%

Credit Score

  • VA does not require a minimum credit score 
  • However, a lot of lenders require a score of 620 or above
  • VA guidelines require the borrower to have made all debt payments in the last 12 months
  • In case of a bankruptcy, the borrower has to wait at least 2 years, or show 12 months of on-time payments


  • A VA loan is only granted for owner-occupied properties. The only exception is when you refinance a rental unit that you used to occupy in the past, but no longer do.
  • For qualification, the borrower has to move to the new home within 60 days
  • Multi-unit properties are eligible as long as the borrower occupies one of the units

Down payment

  • There is no minimum down payment requirement for a VA loan.
  • If you make no down payment, many lenders might have a minimum credit score requirement.
  • Making a higher down payment though helps the borrower secure more favorable terms

Funding Fee

  • Because VA loans are riskier, there is an upfront fee required for qualification 
  • This fee is called the Funding Fee
  • The funding fee varies based on the down payment, transaction type (purchase vs. cash-out refinance vs. IRRRLs etc) and whether you are getting your first VA loan
  • The fee typically varies between 0% to 3.6%, depending on the down payment and whether the loan is a first use or subsequent use.
  • For specific details, visit the VA website

Assets and Reserve Funds

  • There is no requirement from VA on this
  • But many lenders want to see at least 2 months of reserves to be able to make mortgage payments after the loan closes.

Property Type

  • Most standard home types such as single family homes, townhomes, condos, including multifamily (1-4 unit) owner-occupied properties.
  • Vacant Land and Co-operatives are not eligible.
  • For manufactured and mobile homes, there are no specific restrictions from the VA, but many lenders may not grant a VA loan on such properties.

Is the VA loan right for you?

While a VA loan offers a lot of benefits, it may not alway be the right product for everyone depending on your situation. Moreover, there are questions about eligibility and qualification.

Our goal when writing this was to provide as much information as we can to help you make an informed decision. But you might have specific questions about your own situation and may have further questions about eligibility or benefits.

At Stem Lending, we want to help our Veterans become homeowners. For all the great work you do to keep us and our country safe, that’s the least we can do. Get a quote today:

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