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10 Things You Didn’t Know About the VA Home Loan Program

Misconceptions around the benefit can prevent home buyers from taking full advantage of it

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Many veterans are aware that the Department of Veterans Affairs’ home loan program makes it easier for service members and surviving spouses to become homeowners. However, there are many misconceptions about the benefit that may prevent potential home buyers from utilizing the program or taking full advantage of it. ​

Among the main attractions of the VA program: There is often no down payment required; it offers competitively low interest rates; closing costs are limited; and there’s no need for private mortgage insurance.

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“For so many veterans and military families, it is arguably the most powerful loan product on the market and often the most financially advantageous,” said Chris Birk, director of education at Veterans United Home Loans, the top VA mortgage lender.

Nationally, about 8 in 10 veterans who use the benefit buy their home without a down payment. Despite that, these VA loans have had the lowest foreclosure rate for most of the last 15 years, he added.​

Here are 10 aspects of the program that Birk said are commonly overlooked or misunderstood.​

1. You can use the VA home loan benefit more than once.​

​In fact, the benefit can be used over and over throughout a veteran’s lifetime. It’s even possible to have multiple active VA loans at the same time. But the subsequent funding fee is 3.3 percent of the loan amount instead of the 2.15 percent charged to first-time beneficiaries. However, a sizable portion of veterans with disabilities and surviving spouses are exempt from the fee.​

​“It’s tough, because you hear from a veteran who’s in their advancing age, and they’re talking about how excited they are to finally use their benefit. They’ve been holding on to it,” Birk said. “They’ve been waiting to use it because they thought they only had one shot.”​

​2. The VA does not provide the loan.​​

Instead, it’s providing a form of insurance for lenders or private companies.​

​The VA’s view is that if you’re a veteran, you’ve earned this benefit. Therefore, if you have a home loan, it’s backed by the VA — which means that if you default, the VA will typically pay the lender a quarter of the loan amount, Birk said. ​

​As a result, veterans may borrow as much as a lender is willing to offer, provided they can afford to make payments. ​

​3. Lenders typically contact the VA on the veteran's behalf.​

The lender reaches out to the VA to verify that a veteran is eligible for the benefit by obtaining a document called a certificate of eligibility (CoE). The document essentially indicates that the service member met the time and service requirements and is no longer serving. However, it doesn’t guarantee that a veteran can get a VA loan. ​

​“We’ve got a pretty good idea, just based on that initial conversation, whether or not you meet the guidelines,” Birk said. “We’ll start working on getting you preapproved. But it is not something that the veteran needs at the outset.”​

​Local banks may not always be able to obtain the CoE for a home buyer, and what's called a DD214 military service record may be requested.​

​However, if a veteran wants to obtain a CoE on his or her own, he or she can do so by logging in to the government’s e-benefits portal or by calling the VA for mailing instructions. ​

​4. You don’t need great credit for a VA-backed loan.​

​Although it varies by lender, a common FICO credit score range for VA loans is between a 620 and 660 — the maximum credit score is 850 — which is typically lower than what would be required for conventional financing. ​​

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Additionally, if you’ve had a short sale or a recent bankruptcy or foreclosed on a prior VA loan, you may still be eligible to use the benefit again.​

​“One of the biggest benefits of this program, along with no down payment, is that the VA product has really flexible and forgiving credit guidelines,” Birk said. 

​5. Veterans can shop around for the best rate.​

​Since the VA isn’t the entity providing the loan money, veterans may shop around for the best rates and costs.​

“It’s a good principle, in general, for anybody, regardless of what type of home loan they’re looking at to get quotes from multiple lenders, get preapproved from multiple entities, read reviews, learn about the companies that you might be working with, and compare rates and costs among lenders,” Birk said.​

​He noted that while there are 1,200 to 1,300 lenders in the country that make at least one VA loan, almost half of all VA loans are made by 10 to 12 of those lenders. So there are varying degrees of knowledge and expertise about the benefit, which is important to factor in when shopping around. 

​​​6. The benefit can be used to refinance a home.​

​The VA home loan benefit program has two refinance options. One is a cash-out refinance in which you typically tap into your home’s equity and get cash back to use however you want. This is accompanied by the same funding fees as if you were applying for a new VA-backed loan. Note that this refinance option can be used on an existing conventional or Federal Housing Administration (FHA) loan. ​

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​From an underwriting perspective, the cash-out option is similar to a purchase loan because homeowners need to meet credit score, income and appraisal guidelines. ​

The other option is called an Interest Rate Reduction Refinance Loan (IRRRL), also known as the VA Streamline, which can be used to get a lower interest rate on an existing home loan and comes with a 0.5 percent funding fee.​

​7. VA loans are not more expensive, nor do they come with higher interest rates.​

​In reality, VA loans have had the lowest average interest rate on the market in recent years. They also have the lowest average cost and fees when compared with conventional, FHA and USDA loans.​

​8. VA loans do not take significantly longer to close than other home loans.​

​On average, these loans do take a little bit longer to close than conventional loans. But it is a difference of days, not weeks. Over the last seven years, the average VA closing time was 48 days, compared with 45 days on a conventional loan. The closing time also varies depending on the lender and the specific home-buying situation. ​

​9. Homes do not need to be in perfect condition.​

​You can buy a fixer-upper with a VA loan. ​

​“It’s always going to be a case-by-case basis, but there isn’t express prohibition against it,” Birk said. “Both VA and FHA loans have an appraisal process that looks different than conventional loans.”​​

The first piece involves evaluating whether the home is being sold at a fair market value and that the property is safe, sound and sanitary.​

While it’s always a smart idea to invest in a proper home inspection, appraisers licensed by the VA are not home inspectors. They typically look for elements that are tied to local building codes, such as lead in flaking paint on older homes or missing handrails from stairs. They don’t look behind walls or inspect air conditioners up close.​

​“There can be some things that an appraiser notes during their time at the property as an issue that needs to get repaired before the loan can close. But that doesn’t automatically mean the deal is dead,” Birk said.​

​It also doesn’t mean that the seller automatically has to pay to make those repairs. Instead, it becomes a process of negotiation between buyer and seller over what gets done and who pays for it. ​

10. Home adaptability grants are available for service members with service-connected disabilities.​

There are several grants under the home loan benefit for veterans and service members with certain service-connected disabilities that allow them to buy or change a home to age in place. These include such modifications as installing ramps or widening doorways. The grant a veteran is eligible for is based on his or her disability rating. For example, veterans with a high disability rating may be eligible for a Specially Adapted Housing (SAH) Grant, which can provide up to $101,754 to buy, build or change your home. 

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