How do VA Loans Work?

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A VA loan can be the key to getting some of the most attractive terms possible on a home loan. Not only are lenders more forgiving on the minimum down payment requirements, but you may also be exempt from paying Private Mortgage Insurance until you've built up enough equity in the home. We'll look at how VA loans work and who's eligible for them, so you can decide if you're ready to take the plunge. 

Before You Get Started 

One of the most appealing things about a VA loan is the minimum down payment. In some cases, homebuyers aren't required to put anything down at all! But even considering this benefit, you're highly encouraged to build up your savings anyway. This is because you'll be charged a Funding Fee based on the size of your down payment. (This fee is donated to the VA department.) But even without the extra benefits, it's helpful to start with as much equity in the home as possible. 

Who's Eligible?

Here are the main eligibility criteria for VA loans:

Certificate of Eligibility 

While the US government secures the loan, it's the lender who sets the exact terms of the loan. To do this, the lender will take into account a number of factors before making their final decision. They'll use your Certificate of Eligibility (COE) to determine that you meet the minimum requirements. They'll also use the entitlement codes on the COE to determine if you qualify for additional consideration. For example, those who were given a Purple Heart will be exempt from paying the Funding Fee on their VA loan. 

Highest Secured Maximums 

The government will only secure the loan up to a certain amount. The amount varies based on the average home prices in the area in which you choose. For example, a person buying a home in New York City will have a higher secured maximum than someone buying in Indianapolis. If you're still on an active tour, you should know that you don't have to occupy the home immediately. 

If you've already been granted a VA loan in the past, you're still eligible to apply for another one. However, the fees and terms are likely to be less forgiving than those on your first loan.