VA Loan Requirements

Understanding VA Loans: A Comprehensive Guide

A VA loan represents a distinctive mortgage option, backed by the U.S. Department of Veterans Affairs.¹ This financial product is exclusively available to eligible veterans, active-duty service members, and their surviving spouses, providing a suite of advantages:

No Down Payment: For home purchase loans, a down payment isn’t typically required, provided the sale price aligns with the home’s appraised value.
Favorable Interest Rates: Borrowers benefit from highly competitive interest rates.²
Flexible Credit Criteria: VA loans often feature more accommodating credit requirements compared to conventional mortgages.³
Reusable Benefit: The entitlement to a VA loan is a lifelong perk, allowing multiple uses over time.⁴

These loans are specifically structured to cater to the unique housing needs of military personnel and their families, significantly broadening pathways to homeownership and wealth building through equity.

How VA Loans Function

VA loans are government-supported financial instruments that extend more flexible eligibility criteria to qualified borrowers than standard conventional loans.⁵ The VA’s guarantee minimizes risk for lenders, which in turn facilitates lower credit score thresholds and reduced down payment obligations.⁶

Beyond the First Home

While a VA loan can certainly be used for your initial home purchase, its benefit isn’t exhausted there. You retain the ability to leverage this advantage again through selling or refinancing your property.⁷

Navigating the VA Home Purchase Loan Process

Securing a VA loan involves a process similar to other Pennymac mortgage products, though with some distinct differences. Below is a detailed breakdown of the steps involved in applying for and ultimately obtaining a VA home purchase loan.

Initiate Your Application: Start your application online or connect with a Pennymac Loan Expert.⁸ A key aspect of the VA loan is the Certificate of Eligibility (COE), which confirms your fulfillment of basic VA loan requirements.⁹ Crucially, you don’t need to possess your COE to begin the application. You can obtain your COE through the eBenefits section of the U.S. Department of Veterans Affairs website or by mailing VA Form 26-1880.¹⁰ Your Loan Expert is also available to guide you through the process of verifying eligibility and securing your COE.
Receive Pre-Approval: A Pre-Approval letter verifies the approximate mortgage amount you’re likely to qualify for, based on your submitted financial documentation. While not a loan guarantee, a Pre-Approval empowers you to house-hunt confidently, knowing which properties fit within your budget.¹¹ Pre-approved homebuyers may also be eligible for Pennymac’s Lock & Shop program, which enables you to secure an interest rate before identifying a property.¹² This protects you from potential future rate hikes, potentially saving thousands over the loan’s duration.¹³
Search for Homes: Engage with a real estate agent and begin your home search. Once you’ve identified a property you wish to buy, you can proceed with the VA loan process. Pennymac Home Connect can assist in locating a reputable real estate agent in your vicinity.¹⁴
Complete Underwriting and Loan Processing: Since much of the necessary documentation for your mortgage would have been submitted during the Pre-Approval phase, the subsequent loan processing tends to be smoother and quicker.¹⁵
Finalize and Acquire Keys: Upon loan approval, you’ll attend the closing, where all required paperwork is signed.¹⁶ At this stage, you’ll receive the final details of your loan terms and associated closing costs. These are additional fees paid by buyers and sellers to finalize a real estate transaction, beyond the home’s purchase price.¹⁷ A fee unique to VA loans is the funding fee, which can either be paid in full at closing or integrated into the total loan amount.¹⁸

Demystifying the VA Loan Funding Fee

The funding fee is a one-time charge, typically ranging from 1.25% to 3.3% of the loan principal.¹⁹ This fee is directed to the U.S. Department of Veterans Affairs, serving to bolster the VA loan guaranty program.²⁰ This program ensures VA mortgages remain affordable and accessible for future veterans seeking homeownership.²¹

Funding Fee Exemptions

Certain individuals are exempt from paying the VA funding fee, including:

Recipients of the Purple Heart.²²
Veterans eligible for compensation due to service-connected disabilities, or those who would be eligible if not for receiving retirement pay.²³
Veterans whose compensation eligibility is based on a pre-discharge examination or review.
Veterans eligible for compensation but not receiving it due to active duty status.
Surviving spouses who qualify for VA loans.²⁴

Should a borrower’s exemption status be ambiguous, the VA will make the conclusive decision regarding funding fee waivers.

Eligibility for a VA Loan

VA loans are available to active-duty service members, veterans, and their surviving spouses.²⁵ You may qualify for a VA home loan if you meet one or more of the following criteria:

A minimum of 181 days of active service during peacetime.²⁶
At least 90 consecutive days of active service during wartime.²⁷
Six or more years of service in the National Guard or Reserves, or 90 days (with at least 30 consecutive) under Title 32 orders.
You incurred a service-connected disability.
You are the spouse of a military member who passed away while on active duty or as a result of service-connected causes.²⁸

Advantages of VA Loans

VA home loans represent invaluable financing solutions, aiding qualified service members, veterans, and their families in achieving their homeownership dreams.²⁹ The core benefits of VA home loans include:

No Down Payment: Eliminates the requirement for a down payment on home purchase loans, allowing you to buy a home sooner or preserve your savings.³⁰
Lower Interest Rates: Interest rates are generally more favorable than those for conventional loans, enhancing the affordability of homeownership.³¹
No Monthly Mortgage Insurance: Purchase a home and start building equity without the added burden of monthly mortgage insurance premiums.³²
Less Stringent Credit Requirements: While specific financial criteria must be met, perfect credit isn’t a prerequisite, making homeownership more accessible.³³

Varieties of VA Loans

Eligible members of the military community have access to several types of VA loans, whether for purchasing a home or refinancing an existing one.³⁴

VA Purchase Loan

Acquire a home with no down payment and a competitive interest rate.³⁵

Intended For: Qualified first-time or repeat homebuyers acquiring a primary residence.
Key Benefits:
- No down payment, unlike FHA or conventional loans.³⁶
- Absence of Private Mortgage Insurance (PMI) or Upfront Mortgage Insurance Premium (UFMIP), contributing to lower monthly payments.³⁷
- Reduced interest rates.³⁸
- Borrowers have the option to finance the VA funding fee into the loan.³⁹
Applicable Property Types: VA purchase loans can finance various property types, including:
- Single-family homes (up to four units).
- Condominiums within VA-approved projects.⁴⁰
- Homes requiring improvements.
- Manufactured homes or lots.
- New home construction.⁴¹
- Energy-efficient upgrades.

VA Interest Rate Reduction Refinance Loan (IRRRL)

Also known as a Streamline Refinance Loan, an IRRRL enables you to refinance your current VA loan to a lower interest rate.⁴² This can lead to reduced monthly mortgage payments, freeing up funds for other expenditures like home renovations, college tuition, or credit card debt. You may also be able to convert an adjustable-rate mortgage (ARM) into a fixed-rate mortgage.⁴³

Intended For: Individuals who already possess a VA loan.
Key Benefits:
- Lower interest rates compared to conventional loans.⁴⁴
- Designed for straightforward application and quick closing.⁴⁵
- Flexible loan term options, avoiding the need to extend your current payment schedule.⁴⁶
- Minimal paperwork and income documentation required.
- No appraisal necessary.
- More flexible eligibility requirements.
- No out-of-pocket cost refinance options are available to qualifying borrowers (excluding taxes, insurance, or pre-paid interest).⁴⁷
- Option to shorten the mortgage term without substantial payment increases.
Important Note: Your new rate and monthly payment post-refinancing must be lower than your current payment, unless you are refinancing an ARM into a fixed-rate mortgage. The home being refinanced must remain your primary residence.
Applicable Property Types:
- Single-family homes (up to four units).
- Condominiums.⁴⁸
- Manufactured homes.

VA Cash-Out Refinance

VA cash-out refinance loans allow you to refinance your existing loan—which doesn’t necessarily have to be a VA loan—for a higher principal amount, receiving the difference as cash. These funds can be utilized for various purposes, such as debt repayment, educational expenses, or home improvements.

Intended For: Qualifying VA-eligible homeowners who wish to leverage their accumulated home equity. Like other VA home loans, this refinance must be for your primary residence.⁴⁹
Key Benefits:
- Opportunity to pay off high-interest debt, such as credit cards.⁵⁰
- Ability to manage unexpected expenses.
- Fund home improvements, repairs, and renovations, potentially increasing your home’s value.⁵¹
- Finance up to 100% of your home’s value (subject to VA loan limits which vary by county).⁵²
- Typically close with minimal out-of-pocket costs.
- Access cash from your equity, potentially simultaneously lowering your interest rate.
- Convert a non-VA loan into a VA loan.

Applying for a VA Loan

As members of our nation’s military, you’ve dedicated your lives to serving our country. Pennymac is honored to serve you in return. We provide VA purchase loans and various refinancing options, making homeownership more achievable and sustainable for America’s heroes. Contact a Pennymac Loan Expert today to learn more.

Note: Refinancing your existing loan may result in higher total finance charges over the loan’s lifetime.⁵³

Guide to VA Loans: How They Work and Who Qualifies