VA Loan Basics

A VA-backed home loan is made by a private lender and partly guaranteed by the VA. That guaranty is why lenders can offer these terms.

Key benefits

• No down payment in most cases, as long as the sales price doesn't exceed the appraised value.
• No private mortgage insurance (PMI) or monthly mortgage insurance.
• Limited closing costs; sellers can pay closing costs, and seller concessions are capped at 4% of reasonable value.
• No prepayment penalty.
• Reusable benefit; you can use it more than once.

Entitlement

Entitlement is the amount the VA guarantees to repay your lender if the loan goes into default. Basic entitlement is $36,000; bonus entitlement covers larger loans. Since 2020, if you have full entitlement there is no VA loan limit. You can borrow what a lender approves without a down payment. If you have remaining entitlement (for example, a current VA loan you haven't paid off), county conforming loan limits are used to figure how much you can borrow with no money down.

Residual income

Beyond debt-to-income ratio (41% is a guideline, not a hard cap), VA lenders check residual income: the money left each month after major expenses. VA publishes minimum amounts based on region, family size, and loan amount. It's a big reason VA loans perform well.

Occupancy

VA loans are for a home you'll live in as your primary residence, generally within a reasonable time after closing (typically 60 days). A spouse can satisfy occupancy if you're deployed.

Funding fee

Most borrowers pay a one-time VA funding fee, which can be financed. Many Veterans with service-connected disability are exempt. See current rates.

Sources: VA home loan types · Purchase loan · Loan limits · Funding fee and closing costs