VA Home Loan: Eligibility and Process

Eligibility requires: 90 consecutive days of active service during wartime, 181 consecutive days of active service during peacetime, 6 or more years in the National Guard or Reserves, or you are the spouse of a service member who died in the line of duty or from a service-connected disability. If you were discharged, your discharge must be under conditions other than dishonorable. Current active duty members are eligible after 90 continuous days of service. Reservists activated for federal service follow active duty requirements. These requirements have not changed since the VA loan program was established.

The COE proves to lenders that you are eligible for a VA loan and shows your remaining entitlement. Three ways to get it: your VA-approved lender can pull it electronically through the VA's Web LGY system (fastest, often instant), apply online through eBenefits (va.gov, takes 5-10 business days), or mail VA Form 26-1880 (takes 4-6 weeks). Most lenders can pull your COE in minutes during the pre-approval process. You need your DD-214 (discharged veterans) or a statement of service from your commanding officer (active duty). Your COE shows your full entitlement, any previously used entitlement, and restoration status.

Basic entitlement: 36,000 USD (the VA guarantees the lender this amount). Bonus entitlement: additional guarantee that allows loans above 144,000 USD. Since 2020, eligible veterans with full entitlement have no loan limit (you can borrow any amount with 0% down as long as the lender approves you). If you have previously used VA loan benefits and have not restored your entitlement, your remaining entitlement determines your no-down-payment borrowing capacity. VA entitlement can be restored by paying off a previous VA loan and selling the property, or through a one-time entitlement restoration.

VA loan benefits: 0% down payment (the biggest advantage, saving 60,000-100,000 USD on a 300,000-500,000 USD home compared to conventional 20% down), no private mortgage insurance (PMI saves 100-300 USD per month compared to conventional loans with less than 20% down), competitive interest rates (typically 0.25-0.5% lower than conventional rates), no prepayment penalty, and limited closing costs (the VA restricts what fees lenders can charge). Over a 30-year loan, the combined savings from no PMI and lower rates can exceed 50,000-100,000 USD compared to a conventional loan.

The VA funding fee is a one-time fee charged on all VA loans to offset the program's cost to taxpayers. First-time use with 0% down: 2.15% of the loan amount (10,750 USD on a 500,000 USD loan). Subsequent use with 0% down: 3.3%. The fee decreases with larger down payments (1.5% with 5% down, 1.25% with 10% down). The funding fee can be rolled into the loan (so you pay nothing upfront). Exemptions: veterans receiving VA disability compensation (any rating, even 0%), surviving spouses receiving DIC, and Purple Heart recipients on active duty. If you are exempt, you pay zero funding fee.

The VA limits what lenders can charge borrowers. Restricted fees include: the 1% origination fee cap (lenders cannot charge more than 1% of the loan amount for origination), no attorney fees charged to the buyer in most states, and no broker commissions charged to the buyer. Sellers can pay up to 4% of the purchase price in concessions (covering your closing costs, prepaid taxes, and insurance). In practice, VA loan closing costs average 1-3% of the purchase price, compared to 2-5% for conventional loans. Negotiate seller concessions to minimize your out-of-pocket costs at closing.

Not all mortgage lenders are equally experienced with VA loans. VA loans have unique requirements (VA appraisal, minimum property requirements, specific documentation) that unfamiliar lenders handle slowly or incorrectly. Lenders specializing in VA loans: Veterans United (the largest VA lender by volume), USAA (for members), Navy Federal Credit Union, and PenFed Credit Union. Local lenders with VA experience are also good options. Ask: How many VA loans did you close last year? What is your average time from application to closing for VA loans? VA-experienced lenders close in 30-40 days; inexperienced lenders may take 50-60 days.

VA loan rates vary by lender just like conventional loans. Get quotes from at least 3 lenders on the same day (rates change daily). Compare the Annual Percentage Rate (APR), which includes the interest rate plus all fees, rather than the interest rate alone. A lower rate with higher fees can cost more over time than a slightly higher rate with lower fees. Also compare: lender credits (some lenders offer credits that offset closing costs in exchange for a slightly higher rate), processing times, and customer service reputation. A 0.25% rate difference on a 400,000 USD loan equals approximately 60 USD per month.

VA pre-approval involves the lender reviewing your credit score (VA loans have no official minimum, but most lenders require 580-620), debt-to-income ratio (VA guideline is 41% but many lenders accept higher with compensating factors), employment verification, and income documentation. Pre-approval takes 1-3 days. Once pre-approved, your agent can write offers that include a VA loan pre-approval letter. Some sellers prefer conventional offers over VA offers due to misconceptions about VA appraisals and timelines. An experienced buyer's agent can help counter these biases.

The VA appraisal serves two purposes: determining the home's market value and ensuring it meets VA Minimum Property Requirements (MPRs). MPRs include: safe and sanitary living conditions, structurally sound, working heating, plumbing, and electrical systems, no peeling paint (for homes built before 1978, due to lead concerns), and adequate roofing. If the appraised value is lower than the purchase price, you can: negotiate the seller down to the appraised value, pay the difference in cash, or walk away with your earnest money (the VA appraisal acts as a built-in price protection). VA appraisals cost 400-800 USD depending on location.

VA loan closing is similar to conventional closing. Bring: government-issued photo ID, certified funds (cashier's check or wire transfer) for any closing costs not covered by seller concessions, and proof of homeowner's insurance. You sign the loan documents, the deed is recorded, and you receive your keys. VA loans close in 30-45 days on average. There is no prepayment penalty, so you can make extra payments or refinance at any time. After closing, your VA entitlement is reduced by the amount guaranteed. When you sell or refinance, your entitlement can be restored for future VA loan use. This guide is informational only, not financial or legal advice.