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How VA Loans Work

Understand the ins and outs of the home loan process and how the VA Loan works for eligible homebuyers.

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How does a VA home loan work?

The Department of Veterans Affairs does not issue VA Home Loans, but guarantees a portion of each mortgage to be paid in the event that the purchaser is unable to fulfill the loan. Interested homebuyers can apply with approved banks and financial institutions, which have the ability to extend financing on homes through the VA Loan program.

The VA Home Loan program is specifically for veterans, active military and surviving military spouses, although there are a few basic service requirements each must initially meet. Those interested likely meet the service requirements if the potential homebuyer served 181 days on active duty during peacetime; 90 days on active duty during wartime; or served six years in the Reserves or National Guard - unless otherwise eligible.

How can I qualify for a VA loan?

To qualify for a VA Loan a potential homebuyer should first prequalify with a VA approved lender. Prequalification takes less than 10 minutes and will provide you with a starting point on if you qualify for the VA Loan.

Following prequalification, is preapproval. Preapproval is a much more detailed look at a homebuyer’s financial portfolio – requiring bank statements, tax returns and pay stubs – that will provide a snapshot of the potential amount you qualify for. In this step, eligible homebuyers will receive their preapproval letter, which can provide additional leverage when making an offer on a home.

It is important to note that prequalification and preapproval are not binding and does not create any sort of obligation between the homebuyer and the lender.

What is the VA Loan entitlement?

VA Loan entitlement is the guarantee from the Department of Veterans Affairs that promises financial security for a specific dollar amount on every VA Home Loan.

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I have bad credit, or I've declared bankruptcy. Can I still get a VA loan?

VA loans are subject to the same terms as conventional loans, as they are provided by private lenders. The necessary income requirements and credit status still apply. While sometimes it may be easier to get a VA loan than a traditional loan, if you've declared bankruptcy within the last 2 years and have not reestablished your credit, your chances of getting a VA loan are about the same as any other loan. Determination of mortgage eligibility is still made based on the criteria that lenders set forth.

Why would I want a VA loan as opposed to a conventional loan?

Unlike conventional loans, VA mortgages offer the unique benefit of $0 money down. In fact, 9 out of 10 VA Loan borrowers do not place a down payment. This benefit is here to make the purchase of a house easier and more accessible to those who have served our nation.

Additionally, with the VA Home Loan program, you do not have the additional monthly cost of private mortgage insurance (PMI). For example, on a modest conventional loan of $126,000, PMI can run as much as $65 a month for the first 3 to 5 years. This adds up to a substantial savings for VA homebuyers over the life of their loan.

And, if that isn’t enough, VA Loans limit buyer’s closing costs, offer highly competitive interest rates and carry no penalties if the loan is paid early.

What can I purchase with my VA loan?

VA loans can be used to purchase a house, townhouse, or condominium that you intend to occupy. These can be existing dwellings, or you can use it to build your own home. You can refinance your current loan using a VA loan if you are eligible. As well, VA loans may be used to make qualified improvements, such as insulation, storm windows or doors, or energy-efficient related features.