VA Loan Eligibility Criteria: A Comprehensive Overview

VA home loans, which are often overshadowed by conventional and FHA loans, are often the unsung heroes of the mortgage world. They carve out a unique position for veterans and active military personnel, with advantages like zero down payment and exemption from mortgage insurance. This distinct offering sets the VA loan program apart, providing a…

Written by

Tyler Arnaiz

Published on

May 7, 2024

VA home loans, which are often overshadowed by conventional and FHA loans, are often the unsung heroes of the mortgage world.

They carve out a unique position for veterans and active military personnel, with advantages like zero down payment and exemption from mortgage insurance. This distinct offering sets the VA loan program apart, providing a tailored experience that marks them as a standout choice for eligible borrowers.

The key types of VA loan benefits include purchase loans, Interest Rate Reduction Refinance Loans (IRL), and Cash-Out Refinance options, each known for their specific advantages.

VA-backed purchase loans, in particular, shine by offering veterans the chance to buy a home with no down payment

The following sections will detail each VA loan type’s benefits, eligibility criteria, and application process. We’ll help you understand what makes VA loans an invaluable resource for veterans and active service members.

What is a VA Loan?

A VA loan is a specialized financial tool uniquely crafted for veterans, active service members, and select military spouses. This mortgage option, backed by the US Department of Veterans Affairs (VA), is engineered to make homeownership more attainable for those who have dedicated themselves to military service.

Distinct from conventional loans, VA loans come with a suite of benefits that significantly lower the barriers to homeownership. These benefits include lack of down payment, an absence of a private mortgage insurance (PMI) requirement, and competitive interest rates. Such advantages underscore the program’s role not just as a loan offering but as a gesture of national gratitude, facilitating a smoother transition for service members into civilian life and helping secure their part in the American dream.

Who is eligible for the VA Loan Program?

Many individuals connected to the military can qualify for a VA loan, including the following:

  • Active duty service members currently serving the nation
  • Veterans who have completed their service and received an honorable discharge
  • Reservists and National Guard members, provided they have completed a minimum of six years of service
  • Surviving spouses who have not remarried, as a gesture of recognition for the sacrifices made by their partners.

These criteria are thoughtfully designed to ensure that the benefits of the VA loans are extended to those who have dedicated themselves to the service of the United States. And the broad eligibility criteria and significant number of beneficiaries annually underscore the VA loans’s critical role in supporting the housing needs of the military community.

Program Reach and Impact

In 2023 alone, the VA loans have assisted over 600,000 veterans, active service members, and their families in purchasing or refinancing their homes. And in the first quarter of fiscal year 2024, the loans facilitated almost 70,000 home purchases. These figures underscore the significant impact and reach of the program, demonstrating its vital role in facilitating homeownership within the military community.

Service members on active duty

Service members engaged in active duty across branches like the US Army, Navy, Air Force, Marines, or Coast Guard are eligible for VA loans. These members may currently live in military housing, on a military base, or overseas on deployment.

Veterans with honorable discharge

Veterans who have concluded their service with an honorable discharge qualify for VA loans. Honorable discharge typically includes service members who either voluntarily or involuntarily ended their enlistment due to a medical obstacle, failed training, or other hardship.

Reservists and National Guard with six years

Reserves or National Guard members augment active-duty military branches and help with military operations nationwide. Members of the Reserves or the National Guard achieve eligibility for VA loans after dedicating six years to service, which helps ensure long-term commitment.

Surviving spouses not remarried

Surviving spouses of military personnel who have not entered a new marriage are also eligible for VA loan benefits.

What are the minimum service requirements for VA Loans?

The service requirements for obtaining a VA loan are set to honor the dedication of military personnel. Those on active duty need to serve 90 consecutive days during wartime or 181 days during peacetime. Reservists and National Guard members face a different criterion, requiring six years of service.

These stipulations ensure that the VA loans are reserved for individuals who have made substantial commitments to their military careers, acknowledging their service with the significant benefit of homeownership.

What are the qualifications to assume a VA loan?

To assume a VA loan, the person taking over the loan must qualify based on VA credit and income standards, similar to the requirements for a new VA loan.

Additionally, the lender must approve the loan assumption; in some cases, the assumptor may need to pay a funding fee to the VA.

90 consecutive days during wartime

For active duty service members, a minimum of 90 consecutive days of service during wartime is required to qualify for a VA loan. This reflects the heightened commitment and potential sacrifices associated with wartime service, acknowledging such dedication with the opportunity for homeownership.

181 days during peacetime

During periods of peacetime, eligibility for a VA loan necessitates 181 days of continuous service. This extended requirement during non-combat times emphasizes the importance of maintaining national security and rewards service members with access to VA loans.

Six years for Reservists and National Guard

Reservists and National Guard members must serve six years to meet the eligibility criteria for a VA loan. This six-year service requirement highlights their valued contribution and readiness, offering them the chance to benefit from VA loans.

Minimum duty requirements

The minimum duty requirements for the VA loans are designed to recognize and reward the commitment of military personnel. For those on active duty, eligibility hinges on serving at least 90 days during wartime or 181 days during peacetime. These thresholds distinguish the varying levels of commitment required under different circumstances.

For Reservists and National Guard members, a longer term of six years of service is necessary, reflecting their enduring readiness and contribution to the military’s operational capacity.

90 days for active-duty wartime

For active-duty service members, a minimum of 90 days of service during wartime is essential to qualify for a VA loan. This requirement acknowledges the intense commitment and potential sacrifices made during periods of conflict.

181 days for active-duty peacetime

In times of peace, active-duty personnel must serve 181 days to meet the VA loan eligibility criteria.

Six years for Reservists and National Guard

Reservists and National Guard members must complete a six-year service term to qualify for a VA loan.

Certificate of Eligibility (COE) basics

The Certificate of Eligibility (COE) initiates the VA loan process, serving as proof that an applicant satisfies the service criteria necessary for loan qualification. Securing a COE is the first step for anyone seeking a VA loan, as it signals to lenders that the individual is entitled to the program’s unique benefits. Potential applicants can obtain this certificate through various means: directly from the Department of Veterans Affairs, online via the VA’s eBenefits portal, or through a VA-approved lender.

For prospective borrowers, the COE marks the beginning of their journey toward homeownership via VA loans.

Step-by-Step Guide to Obtaining a COE

The following step-by-step guide will help make the COE application process as straightforward as possible for veterans, active service members, and surviving spouses who want to access the benefits of VA loans.

  1. Determine Your Eligibility: Before applying for a COE, ensure that you meet the VA loan eligibility criteria (outlined in the above “Who is eligible for a VA loan?” section).
  2. Gather Necessary Documentation: Depending on your status (e.g., veteran, active service member, surviving spouse), gather relevant documentation, such as your DD-214 (for veterans), statement of service (for active military members), or marriage and death certificates (for surviving spouses).
  3. Choose Your Application Method:
    1. Apply Online: Log into your eBenefits account on the VA’s eBenefits portal, navigate to the VA loan section, and follow the prompts to apply for your COE.
    2. Mail using VA Form 26-1880: Download and complete VA Form 26-1880. Mail the form along with your supporting documentation to the VA Loan Eligibility Center.
    3. Apply through a VA-approved lender: Many lenders can obtain your COE on your behalf. Provide your lender with the necessary documentation, and they will handle the application process.
  4. Submit Your Application: Depending on the method chosen, submit your application online, by mail, or through your lender.
  5. Wait for Processing: Depending on which method of application you choose, processing times can vary, from an immediate decision to a couple of weeks.
  6. Receive Your COE: Once processed, you will receive your COE. This document will indicate your entitlement and eligibility for a VA loan.
  7. Proceed with Your VA Loan Application: With your COE in hand, you can proceed with the VA loan application process, working with your lender to find the best VA loan option for your needs.

Applying for a COE

Securing a Certificate of Eligibility (COE) is essential for moving forward with a VA loan, and fortunately, the application process is designed to be user friendly. Understanding the estimated processing times for each method can help set expectations for applicants, ensuring they choose the route that best suits their timeline and needs.

Below is a detailed comparison of the three primary methods for applying for a COE, including estimated processing times and necessary steps:

MethodStepsEstimated Processing TimeNotes
Online through the VA’s eBenefits portal1. Log in or create an account on the eBenefits portal. 2. Navigate to the VA loan section. 3. Submit the required information.Immediate to a few hoursFastest method; requires internet access.
Mail using VA Form 26-18801. Download and complete VA Form 26-1880. 2. Mail the form to the VA loan Eligibility Center. 3. Wait for processing and mail-back.Four to six weeksSuitable for those preferring or requiring a paper application.
Through a VA-approved lender1. Contact a VA-approved lender. 2. Provide the necessary information for the lender to obtain the COE on your behalf.A few hours to a few daysLenders may expedite the process; ideal for those ready to proceed with the loan application.

Each of these methods aims to ensure that eligible individuals can easily obtain their COE, marking the first step toward leveraging the VA loan’s benefits for homeownership. Your preferred method may depend on your access to online resources, preference for digital versus paper processes, and desired application speed.

Restoring eligibility

Restoring eligibility for a VA loan is a critical step for individuals who have previously capitalized on this benefit and are looking to utilize it once more. Generally, this restoration involves selling the property purchased with a VA loan and fully repaying the loan. This action reinstates the borrower’s entitlement, requalifying them for a VA loan.

Moreover, the program offers a one-time restoration option, permitting veterans to keep their current home financed through a VA loan while acquiring another property using VA benefits under specific conditions. This flexibility ensures that veterans and service members can continuously access the VA home loan benefits, adapting to their changing homeownership needs over time.

Below are example scenarios that demonstrate how a VA loan beneficiary might restore their eligibility:

Real-World Scenarios of Restoring Eligibility

Scenario 1: Selling and Repaying

  • Veteran A purchased a home with a VA loan five years ago. After receiving a job offer in another state, Veteran A sold the house. The VA loan was fully repaid upon the sale, and Veteran A’s eligibility was restored. This restoration allowed Veteran A to purchase a new home in the new state with another VA loan, again taking advantage of the lack of down payment.

Scenario 2: One-Time Restoration

  • Veteran B used a VA loan to buy a home. Years later, they wanted to buy a larger home to accommodate their growing family but wished to keep the first home as a rental property. By applying for a one-time restoration of their VA loan entitlement, Veteran B was able to secure another VA loan for the new family home while retaining the first property.

Selling the property and paying off the VA loan

Recipients can restore eligibility for a VA loan by selling the property bought with VA financing and ultimately paying off the existing VA loan. This action clears the borrower’s entitlement slate, reenabling them to use their VA loan benefits for future home purchases and opening up new opportunities for homeownership under the VA loans.

One-time restoration for retaining the home and purchasing another

The VA loan framework includes a provision for a one-time restoration of loan eligibility. This option allows veterans to maintain ownership of their current home with an active VA loan while securing another property using VA loan benefits. This special allowance caters to the dynamic housing needs of veterans and service members, providing a pathway to utilize VA loan benefits for another home purchase under specific circumstances.

Credit and income requirements

The VA loans offer considerable flexibility regarding credit and income requirements, making them accessible to a broader range of applicants. Although the VA does not set a minimum credit score, individual lenders typically impose their credit criteria, including specific credit score thresholds. This prerequisite means borrowers must satisfy the credit requirements of their chosen lender to secure a VA loan.

In addition to creditworthiness, applicants must prove they have sufficient income to manage their mortgage payments and other living expenses effectively. This income-verification process is vital for lenders to evaluate a borrower’s repayment capability, ensuring that loans are granted responsibly and align with the overarching aim of sustainable homeownership. Below is a detailed breakdown of typical lender credit score requirements and examples of income verification documents:

Lender TypeAverage Credit Score RequirementIncome Verification Documents
Traditional Bank620–640W-2 forms, recent pay stubs, tax returns for the past two years
Credit Union600–620W-2 forms, recent pay stubs, tax returns for the past two years
Online Mortgage Lender580–600W-2 forms, recent pay stubs, tax returns for the past two years, bank statements
VA-Approved Specialty LendersThere is no strict minimum, but often 580+W-2 forms, recent pay stubs, tax returns for the past two years, bank statements, proof of any additional income

No minimum credit score by the VA

The VA loans are notable for their absence of a minimum credit score requirement, showcasing the VA’s dedication to broadening access to homeownership for veterans and service members. This policy underscores the program’s focus on the overall financial health of applicants rather than fixating on a singular credit score.

Lender-specific credit requirements

While the VA offers leniency in credit scoring, individual lenders providing VA loans typically have their credit requirements. These lender-specific criteria often include a minimum credit score threshold, which varies among financial institutions, thus affecting a borrower’s options for obtaining a VA loan.

Sufficient income to cover payments

A key eligibility criterion for a VA loan is demonstrating sufficient income to afford mortgage payments alongside other living expenses. This income verification step is crucial for ensuring that borrowers can sustain financial stability and meet their loan repayment obligations, reflecting the program’s commitment to responsible borrowing and lending practices.

Property Requirements

The VA loans stipulate precise property requirements to ensure the homes purchased are safe and secure and represent a wise investment for veterans and service members. Central to these requirements is the mandate that the property must serve as the borrower’s primary residence, highlighting the program’s focus on facilitating homeownership rather than supporting investment or vacation properties. Eligible properties include various types, such as single-family homes, condominiums, and new constructions, all of which must undergo a VA appraisal.

This appraisal is crucial for evaluating the property’s value and ensuring it adheres to the VA’s Minimum Property Requirements (MPRs) regarding safety and habitability. Furthermore, specific safety inspections might be necessary to comprehensively assess the property’s condition, offering additional protection for the borrower and ensuring the home is suitable for long-term habitation.

Common Issues Found During VA Appraisals

To better prepare for the VA appraisal process, it’s helpful for buyers to be aware of common issues that could affect loan approval. These include, but are not limited to, the following:

  • Roofing Problems: The roof must have a remaining useful life, typically at least three years, and no significant defects.
  • Faulty Electrical Systems: Electrical systems must be safe and in good working order. Exposed wires or improperly functioning systems can be a red flag.
  • Plumbing Issues: The home must have adequate plumbing. Leaks, water damage, or lack of hot water can pose problems.
  • Heating and Cooling Systems: The property must have adequate heating, and cooling systems must be operational if installed.
  • Structural Concerns: Any signs of foundation issues or structural damage can be a significant concern during a VA appraisal.
  • Pest Infestations: Evidence of termite damage or other pest infestations can affect the appraisal outcome.
  • Lead Paint: For homes built before 1978, peeling or chipped paint can be a concern due to the potential presence of lead.
  • Access and Egress: The property must have safe, easy access and safe egress from each room.
  • Lack of Utilities: The home must have working utilities (water, gas, electricity) independent of another property.

Must be a Primary Residence

A foundational requirement of VAloans is that the acquired property is the borrower’s primary residence. This stipulation emphasizes the program’s goal of aiding veterans and service members in securing a place to call home rather than enabling the purchase of investment properties or vacation homes.

Eligible Property Types: Homes, Condos, New Constructions

The program supports a broad spectrum of property types, such as single-family homes, condominiums, and new constructions. This variety ensures that eligible individuals can select a property that meets their unique needs and aspirations for homeownership, broadening the pathway to acquiring the ideal home.

Specific VA Appraisal and Safety Inspections

Properties financed through the VA loan must pass a VA appraisal and may require additional safety inspections. These procedures are critical for determining the property’s market value and ensuring it meets the VA’s Minimum Property Requirements (MPRs) for safety and habitability. By prioritizing the condition and value of the property, these assessments safeguard the borrower’s investment and promote secure, long-term homeownership.

Understanding these common issues can help buyers and sellers prepare for the VA appraisal process, potentially avoiding delays or challenges in securing VA loan approval. Addressing these concerns before the appraisal can lead to a smoother transaction and help ensure that the property meets the VA’s standards for safety and habitability.

VA Loan Limits

VA loan limits are critical in defining the maximum amount that veterans and service members can borrow without a down payment. These limits vary across different counties, mirroring the local housing market and cost of living. Significantly, VA loans break away from traditional constraints by imposing no loan limits for those with full entitlement.

This exceptional feature empowers eligible borrowers to obtain financing that aligns with their financial capacity and the price of their desired home without being restricted by predetermined maximums. The absence of loan limits under full entitlement significantly broadens the program’s reach and adaptability, facilitating homeownership for veterans and service members in a way that genuinely accommodates their housing needs and financial situations, regardless of the housing market dynamics in their chosen locale. For a current and detailed view of VA loan limits by county, applicants are encouraged to visit the official VA website or consult with a VA-approved lender.

Varies by county

VA loan limits adapt to the local housing market, resulting in limits that vary by county. This design accounts for the diverse real estate values and living costs across different areas, ensuring the VA loans’s applicability and effectiveness nationwide. Tailoring loan limits to local conditions helps maintain the program’s relevance and utility for veterans and service members, regardless of where they purchase their homes.

No limit to full entitlement

For those with full entitlement, VA loans eliminate traditional boundaries by offering no loan limits, which allows eligible individuals to finance the entire value of their home purchase without the restrictions of predefined loan caps. The absence of loan limits under full entitlement significantly expands the program’s flexibility, empowering veterans and service members to invest in homes that fulfill their needs and ambitions, independent of the housing market’s fluctuations.

This illustrative table and the encouragement to consult the official VA website for current loan limits provide a clearer understanding of how VA loan limits work, offering valuable context for veterans and service members considering a home purchase through the VA loans.

Refinancing Options

The VA refinance loan supports veterans and service members in aligning their mortgage terms with their evolving financial needs. The VA Streamline Refinance (IRL) is particularly notable for its streamlined process, enabling borrowers to reduce their interest rates or switch from an adjustable rate to a fixed-rate mortgage with minimal documentation and no need for an appraisal. Another compelling choice is the VA Cash Out Refinance, which allows borrowers to access their home equity in cash.

This can be used for various purposes, such as covering significant expenses, consolidating debt, or funding home improvements. These refinancing avenues offer flexibility and relief, facilitating the pursuit of more advantageous loan terms or realizing financial goals through accessible means.

Real-Life Benefits of Refinancing for Veterans

Case Study 1: Streamline Refinance (IRL)

  • Veteran C had a VA loan with an interest rate of 4.5%. With rates dropping, they took advantage of the IRL program, reducing their rate to 3.25%. This reduction lowered their monthly payment by $150, providing significant savings over the life of the loan.

Case Study 2: Cash-Out Refinance

  • Veteran D needed to consolidate high-interest credit card debt and fund a major home renovation. Using the Cash-Out Refinance option, they could tap into $40,000 of home equity. This allowed them to not only pay off their debt but also invest in home improvements that increased their property’s value.

Streamline Refinance (IRRRL) for lower rates.

The Streamline Refinance (IRL), a cornerstone of VA loans, caters to veterans and service members aiming to reduce mortgage interest rates. This streamlined approach facilitates a smoother transition to more beneficial interest rates or a shift from an adjustable rate to a fixed-rate mortgage, all while minimizing the need for extensive documentation and bypassing the appraisal process.

Cash-Out Refinance for accessing home equity

The Cash-Out Refinance option within VA loans is a robust solution for borrowers looking to tap into their home’s equity. This refinancing path can be a lifeline for addressing significant financial requirements, whether it’s consolidating high-interest debt, funding substantial expenses, or investing in home renovations. It unlocks the potential of the equity accumulated in the property, offering a tangible financial resource to veterans and service members.

Associated fees

When embarking on the journey to acquire VA loans, it’s essential to be mindful of the associated fees that contribute to the total cost of securing a loan. Central among these is the VA funding fee, a mandatory charge that varies depending on the loan type, the borrower’s service category, and whether the loan is a first-time or subsequent use. This fee is designed to sustain VA loans and may be included in the loan amount.

Service Connected Disability & Purple Heart Fee Waivers

Notably, certain individuals, such as those with a service-connected disability or recipients of Purple Hearts, may qualify for a waiver of this fee, offering significant savings. In addition to the funding fee, prospective borrowers should prepare for other expenses, including appraisal and closing costs (which are standard in the home-buying journey). A clear understanding of these fees is vital for veterans and service members to budget effectively for their home purchase and confidently navigate the loan process.

The Funding Fee Varies by Type of Service and Loan

The VA funding fee plays a pivotal role in the VA loan process. Its amount is tailored to the borrower’s specific type of military service and the category of loan they are seeking. This fee’s variability ensures it accurately reflects each borrower’s unique circumstances, aiding in the program’s overall sustainability.

Waived for Specific Disabilities and Recipients of Purple Hearts

The VA funding fee is waived for veterans with service-connected disabilities and recipients of Purple Hearts. This significant financial relief acknowledges the extraordinary contributions and sacrifices made by these service members and veterans.

Other fees: Appraisal, Closing Costs, and More

In addition to the VA funding fee, borrowers will encounter other costs, such as appraisal fees and closing costs, during the VA loan process. These fees are standard across the home-buying landscape and essential for completing the real estate transaction. Prospective borrowers should account for these expenses to ensure a smooth home-purchasing journey.