VA home loan for first-time buyers: who qualifies, how it works

A VA home loan lets a first-time buyer with qualifying military service buy a home, usually with no down payment. You borrow from a private lender, and the U.S. Department of Veterans Affairs (VA) promises to repay part of the loan if you can't. You don't have to be a first-time buyer. First get a certificate of eligibility from VA, then pick a lender.

Who qualifies for a VA home loan?

You qualify if you served the minimum time on active duty for when you served, or if you were discharged early for a reason VA accepts. The minimum depends on your service dates:

VA has rules for earlier periods too. National Guard and Reserve members can qualify with 6 years of service, among other ways. A discharge for hardship, a service-connected disability or other listed exceptions can shorten the requirement. Some surviving spouses qualify, including those receiving Dependency and Indemnity Compensation, a monthly VA payment to some survivors.

If your discharge was other than honorable, bad conduct or dishonorable, you can still apply, and VA reviews your records to decide. You can also ask for a discharge upgrade, or for a Character of Discharge review, in which VA looks again at how your discharge was labeled.

What is a certificate of eligibility and how do you get one?

A certificate of eligibility shows your lender that you qualify for the VA home loan benefit. It is the first step.

1. Gather your documents. Veterans need their discharge or separation papers, called the DD214. Active-duty service members need a statement of service signed by a commander or personnel officer.
2. Request the certificate online, through your lender's online system, or by mailing VA Form 26-1880, which can take longer.
3. Check the status online. VA reviews the request and tells you its decision.
4. Pick a lender. You borrow from a private bank, mortgage company or credit union, not from VA.

You must also meet VA's and the lender's credit and income standards, and you must live in the home as your main home.

How much can a VA loan cover?

A VA loan can cover the home's full price with no down payment. With full entitlement, VA sets no limit on the loan, as long as you can afford it and the appraisal supports the price. The lender decides how much you can borrow from your credit history, income, debts and assets. The loan can't be more than the purchase price or the appraised value, whichever is lower.

Entitlement is VA's promise to your lender: if you stop paying, VA pays the lender part of what you owe. When the loan is more than $144,000, that part is up to 25% of the whole loan. In most cases, that promise lets you buy with no down payment. Full entitlement means all of that promise is open to you, which is usually the case if you have never used your VA loan benefit. VA does not require a minimum credit score, but some lenders do.

If you used the benefit before and still have that loan, you may have less entitlement left, and a lender may ask for a down payment. Ask the lender: "How much entitlement do I have left, and what down payment does that mean for this home?"

What does the VA funding fee cost?

The funding fee is a one-time payment, a percentage of the loan, that you can pay at closing or add to the loan.

VA's own example. For a first use of the benefit, a $200,000 home with $10,000 down (5%) gives a fee of $2,850, which is 1.5% of the $190,000 loan. With no down payment on a $250,000 loan, the fee is 2.15%, or $5,375.

You do not pay the fee if you receive VA compensation for a service-connected disability (a disability caused or made worse by military service), among other cases VA lists. VA does not require monthly mortgage insurance.

What are the closing costs?

Closing costs are the fees for making the loan and moving the home into your name. On a VA purchase loan, the funding fee is the only cost you can add to the loan. You pay the others on closing day, or ask the seller to pay them.

VA's rule on loan fees lets a lender charge a flat fee of up to 1% of the loan for setting up the loan, called origination. A seller can pay all of your ordinary closing costs. Other help from the seller, such as paying your funding fee or paying off your debts, is limited to 4% of the home's value as VA sets it.

What do the appraisal and property rules require?

A VA-approved appraiser checks that the home meets VA's basic condition rules and sets its value. Your loan can't be more than that value. If the value comes in below the price, you have three options:

1. Ask for a reconsideration of value: your real estate agent sends the lender sales of similar homes that show the home is worth more.
2. Ask the seller to lower the price to the appraised value.
3. Pay the difference yourself at closing.

Put a VA escape clause in your purchase contract. It lets you cancel the purchase if the home appraises below the price. An appraisal is not a home inspection, so VA strongly recommends you also pay for an inspection to find major problems. If you don't qualify for a VA loan, other government-backed loans need little or no down payment. See how the three federal home loans compare.

Can you use a VA loan for a below-market home?

Only if the seller accepts VA loans. For a lower-priced home sold through a city or nonprofit program, the office selling it decides which loans it takes. Ask that office first, then ask a VA-approved lender whether the price and the home's resale rules fit a VA loan.

Is there a VA loan for homes on tribal land?

Yes. If you or your spouse is Native American and the home is on federal trust land, VA can lend to you directly. Its Native American Direct Loan works where your tribal government has an agreement with VA.

What should you do next?

1. Request your certificate of eligibility online.
2. Ask at least two VA-approved lenders for a Loan Estimate, the form that shows each loan's rate and fees.
3. Look for lower-priced homes for sale in our listings and on our pages for affordable housing by place, and use the qualify check to see which fit your household.

If you have a service-connected disability, a VA housing grant can pay to adapt the home you buy. Homeless veterans can get rent help and vouchers instead.