Should I Get a VA Home Loan?

By: Jilly Pretzel

A VA home loan is a mortgage for those who have served (or who are currently serving) in the U.S. military. It’s backed by the Department of Veterans Affairs (VA) and came into effect in 1944 with the GI Bill of Rights.

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In this loan program, the VA backs mortgage loans made by private lenders (such as mortgage companies, banks, etc.) and was designed so that veterans, active duty military, or surviving spouses do not need a down payment to purchase a home.

Here is a quick guide to help you find out if you’re eligible for a VA loan and decide if it’s right for you.

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1. What are the Benefits?

Of course, the biggest benefit of the VA loan is allowing military personnel to buy a house without payment up front. But there are other perks. Here are just a few more benefits:

a. There’s no limit on the number of times a veteran can use the loan program. So, if you’re a veteran who buys a house with a VA loan, sells the house, and wants to buy another home, you can use the VA loan again, as many times as you like.

b. The veteran will receive a negotiable and competitive interest rate.

c. The VA may provide assistance to help borrowers avoid default. So, if at some point you find you aren’t able to make your payments, the VA may be able to step in.

2. What are the drawbacks?

When it comes to drawbacks, the VA loan has very few. Still, it’s good to be aware of the stipulations.

a. There’s a limit to the price of the house. The VA won’t limit which house you want to buy or where you want to live but know that there is a maximum for the loan. The VA guarantees a maximum of 25 percent of a home loan up to $113,275. That means the maximum price of the house must be $453,100. If you do go over, the loan program won’t reject you, but you’ll have to start paying out of pocket.

b. The borrower may be required to pay closing costs. However, in some special cases these costs can be paid by the seller.

c. Not every veteran will be eligible for a VA loan. The veteran must meet both a required service time as well as a credit and income requirement. The credit requirement can vary from lender to lender, but you might expect that number to hover around 620.

When it comes to income requirements, there are a lot of stipulations that you might want to check out on the military’s website but essentially the lender wants you to prove that you’ll eventually be able to pay off the loan you’re applying for.

3. Who's Eligible?

As stated above, not every veteran is eligible for the loan program. Not only does the borrower have to meet credit score and income requirements but there is a required service time.

The VA requires active duty for at least 90 days during wartime, or 181 days during peacetime, or six years of service in the Reserves or National Guard. Surviving military spouses may also be eligible and may apply.

Eligible veterans are able to use the loan program as many times as they like. There’s no limit on the number of times a borrower can use this benefit as long as they meet the income and credit score requirements.

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4. Paying off the Loan

While the VA loan will certainly make it easier to buy a home, all loans have to be paid off eventually. Luckily, the VA makes it easy if you run into hard times or, if in good times, you’re able to pay off the loan sooner than expected.

If the veteran falls behind on payments, the VA might be able to help avoid default. If the veteran passes away before paying off the loan, the surviving spouse (or co-borrower) can continue to pay the remainder of the loan.

In addition, if the veteran is able to pay off the loan before it’s due, there won’t be a penalty (which has become increasingly common for similar loans).