VA loans are mortgage loans provided by the U.S. Department of Veterans Affairs. People serving in the military or veterans and eligible surviving spouses can apply for a VA loan when purchasing a house. A VA loan has advantages like minimal or no down payment and bears low interest rates.

This article answers some frequently asked questions about VA loans.

Who is eligible for VA loans?
Eligible members can apply for a VA loan to purchase land and build a house, repair or renovate a home, or even refinance a mortgage. Here's who can apply:

  • Active service members
  • Veterans/retired service members
  • Surviving spouses of service members

The service requirements differ for service members on active duty and veterans. Lenders also consider credit scores, and the numbers may differ with each bank or mortgage company. Although VA-backed home loan terms are lenient as compared to conventional loans, applicants must meet the lender's credit and income loan requirements.

What are the types of VA loans?

  • Home purchase loans
    These loans help veterans purchase a house at low interest rates and without a down payment or private mortgage insurance.
  • Cash-out refinance loans
    This type allows an individual to borrow against home equity to pay off debt or make home repairs. The borrower receives a larger amount than the existing mortgage by converting home equity into cash.
  • Interest rate reduction refinance loans
    This type of VA loan, also known as VA streamline refinance loan, helps borrowers refinance their existing mortgage with a lower interest rate. This option is available for homeowners with an existing VA loan who want to lower the interest rates on a fixed-rate loan or convert an Adjustable-Rate Mortgage (ARM) into a fixed-rate one.
  • Native American Direct Loan
    Eligible Native American veterans can opt for a VA loan under this program to pay for home improvements or finance the purchase or construction of a house on federal trust land. This VA program also offers low interest rates.

What are the benefits of VA loans?
Veterans can take a VA loan for any financial need that arises with purchasing a home. The benefits of these loans remain consistent, regardless of the lender, and include the following:

  • Little to no down payment
  • Low interest rates
  • Reduced closing costs
  • No private mortgage insurance requirement
  • No prepayment penalty
  • Foreclosure avoidance

Additionally, there's the benefit of monthly payment savings. Most borrowers of VA loans are required to pay a 2.3-3.6 percent funding fee, but it is waived off for:

  • Veterans receiving compensation for service-related disabilities
  • Veterans who can but aren't receiving compensation as they are on active duty
  • Surviving spouses who are eligible for VA loans

How do VA loans work?
The Department of Veterans Affairs sets the qualifying standards and mortgage terms and backs VA home loans, but the financing comes from private banks and mortgage companies. Borrowers need to submit a Certificate of Eligibility (COE) to the lender, which they can get from the VA website after submitting service-related documents. After obtaining the COE, the borrower must meet the lender's requirements, if any. That said, these loans are easier to quality than traditional loans.

Do VA loans need a co-signer?
If a mortgage lender states the need for a co-signer to approve a VA loan, they may not provide a loan based on the borrower's credit and income alone. They need a co-signer who can repay the loan if the primary applicant defaults. A co-signer on a VA loan must occupy the home with the borrower and be either of the following:

  • The borrower's spouse
  • Another veteran or active service member