VA Mortgage Requirements and Guidelines: A Detailed Look

VA Mortgage Loans

VA Mortgage Requirements and Guidelines: A Detailed Look

In 1944 the United States Congress introduced the bill that paved the way for the Veterans Administration (also called VA) to officially offer the VA mortgage to veterans. While there have been a few changes and improvements to the lending rules over time, the main intent remains the same; to offer housing to qualified veterans at affordable prices.

The VA does not lend out money for mortgages. Instead, it has a list of guidelines that must be used by lenders. Once a lender is approved by the VA the lender is then legally able to offer the mortgages to its clients.

VA Down payment Requirement

The biggest advantage that a VA mortgage has over most other mortgages is the no down payment option. When the VA mortgage was first offered, it was a common practice for people to wait for 5 to 10 years before buying a home. This waiting period was necessary to save up the 20% down payment requirement that was quite prevalent at the time.

As long as the veteran has sufficient entitlement available they will not have to make a down payment

The VA Mortgage allows for no down payment options for a home purchase.

VA Borrower eligibility

To be eligible for the VA mortgage, a person must fall into one of the following categories.

  • A person that served full time in the military
  • A person that is currently serving full time in the military
  • A current or former member of the National Guard
  • A current or former member of the Reserves
  • A cadet at the Coast Guard, Air Force, or US Military Academy
  • Midshipmen at the US Naval Academy
  • An office of the National Oceanic & Atmospheric Administration
  • A surviving spouse of a veteran

For veterans that served in the military full time, they must have completed a minimum number of days of service to be eligible for the mortgage. The minimum day’s requirement will be based on when they served.

For example, veterans that served during the Vietnam War must have served at least 90 days of duty. On the other hand, veterans who served between 1990 and the present year must complete at least 24 months of service.

People who are currently serving in the military full-time can be eligible for a mortgage after finishing 90 days of service.

A select group of other people is also eligible for the VA mortgage loan. This group includes the surviving spouses of veterans as well as the children of veterans.

For the spouse to be eligible, they must meet one of the following criteria

  • The veteran is either a prisoner of war or missing in action for at least 90 days
  • The veteran perished while serving active duty and the spouse has not remarried
  • The veteran has perished, was disabled due to his/her service and the spouse has not remarried
  • The veteran has perished due to a disability that was connected to his/her service and the spouse has not remarried

Veterans, current active-duty soldiers, members of the National Guard, members of the Reserve, and spouses of veterans are all eligible for VA mortgage

VA Mortgage insurance

Another major benefit of the VA mortgage over other loans is the lack of mortgage insurance. Most home loans will require a monthly mortgage insurance premium if the borrower receives a loan that is higher than 80% of the home’s value. This insurance is designed to protect the lender if the homeowner stops making payments on the mortgage.

For many borrowers, the mortgage insurance premium can range a very small amount per month to hundreds of dollars per month. Since the VA does not require this premium the veteran can qualify for a slightly higher loan amount than they would with other types of loans.

VA Mortgages do not require mortgage insurance

VA funding fee

The Veteran’s Administration charges a fee on each mortgage.  This fee is commonly called a funding fee.  The money collected from the fee is used to manage the mortgage program for the Veteran’s Administration.

A veteran may be exempt from the VA funding fee and VA Form 26-1880, Certificate of Eligibility (COE), will let us know if you are exempt or not. You may be exempt if one of the following applies:

  • Veterans receiving VA compensation for service-connected disabilities.
  • Veterans who are entitled to receive compensation for service-connected disabilities if they did not receive retirement pay or active service pay.
  • Veterans who are rated by VA as eligible to receive compensation because of pre-discharge disability examination and rating.
  • Surviving spouses of veterans who died in service or from service-connected disabilities (whether or not such surviving spouses are veterans with their own entitlement and whether or not they are using their own entitlement on the loan).

VA Purchase

First Use Less than 5% 2.15%
  5% or more 1.50%
  10% or more 1.25%
Subsequent use Less than 5% 3.30%
  5% or more 1.50%
  10% or more 1.25%

VA Cash-Out Refinance

First Use 2.15%
Subsequent Use 3.30%
IRRRL 0.50%

VA Debt-to-Income Ratio and Residual Income

It would seem that with the no down payment feature of the VA mortgage, many veterans would feel that it is easy to simply walk away from the loan if times get hard. However, the residual income and debt ratio rules used by the VA underwriters have proven that this loan model can work. To date, VA mortgages have the lowest rate of default among all mortgage types.

The debt to income ratio test states that the borrower’s total debt payments plus the proposed mortgage payments cannot be higher than 41% of the person’s monthly gross income. The VA guidelines use only this one ratio instead of multiple ratios like other mortgage loans.

The residual income guidelines dictate how much money the borrower should have left after they have made all of their debt payments. This residual, or discretionary income, allows the borrower to have enough funds to take care of other necessities such as clothing, food, transportation, and utilities.

To be fair to the borrowers, the residual income requirements vary based on two factors; the size of the family and the location of the home.

It is possible for borrowers with a debt-to-income ratio above 41% to get approved. To do so, their residual income would need to be at least 20% higher than the recommended guidelines.

VA mortgage only uses one debt to income ratio for qualifying a borrower. View Residual Income tables below.

VA Eligible properties

The VA mortgage program can be used on a wide range of property types. The following is a list of homes that can be bought with the VA mortgage

  • detached, single-family home
  • single condominium unit
  • a duplex home
  • a triplex home
  • a four-unit home
  • a new construction home

It is possible to borrow a small, extra amount to be used for making minor repairs to the home or to improve the home’s energy efficiency.

Rental properties are not eligible for VA mortgage financing.

The VA loan offers financing for a wide range of properties including single-family homes, condos, 2-4 unit owner-occupied homes, and new construction homes.

VA Credit History

The VA mortgage guidelines allow many borrowers with less than perfect credit to get approved for a home loan. Heavy emphasis is placed on the history covering the most recent 12 months. As long as debt payments for the past year have been made on time, the veteran has a very good chance of getting approved for a loan.

VA Certificate of Eligibility

The Certificate of Eligibility is a form from the federal government that indicates the veteran has met the service requirements for the VA mortgage. There are two ways a person can get a Certificate of Eligibility (also called COE).

The simplest way to get the COE is to contact a loan officer that is experienced with VA mortgages and ask them to get the COE. Approved lenders can access a specific website and print out the COE for the veteran. This process can be done within a few minutes.

The other way to get a COE is to complete form 26-1880. This form must be filled out and then the lender can submit the form via the aforementioned website. The form is rather short, asking for basic information such as name, date of birth, home address, and phone number.

Along with the 26-1880, the veteran will also have to present one of the following items: DD-214 or their Statement of Service.

The DD-214 is a form for veterans who have been discharged from active duty. The person’s years of service along with details of their separation are included on the form. Veterans that do not have a copy of their DD-214 can request one from the National Personnel Records Center.

For people that are still serving as active-duty personnel, a Statement of Service will be used in place of the DD-214. This statement should indicate when the person’s active duty began and needs to be signed by either a senior commanding officer or the assistant to the officer.

A person needs two forms to prove eligibility for a VA Mortgage – their Certificate of Eligibility and either DD-214 or Statement of Service

Certificate of Eligibility Request – Form 26-1880 (pdf)

VA Loan Options and No Penalties

VA mortgages are offered with either fixed rates or adjustable rates. The fixed-rate loans can be financed over 10, 15, 20, or 30 years.

The adjustable-rate loans typically offer a period where the interest rate is fixed for a certain amount of time and then the rate will adjust once a year afterward. The fixed period can range from 5 to 7 years.

In addition to the flexibility of choosing different loan terms, the VA mortgage does not charge a prepayment penalty if the borrower chooses to pay off the loan early. Paying off the loan early can be done by either adding extra money to each monthly payment during the year, paying a lump sum amount once a year or simply paying off the balance entirely ahead of the calculated due date.

VA mortgage loans are capped at the conforming loan limit of $548,250 for a no money down loan.
For loans over $548,250, please see our Jumbo VA Loan page.

VA Second-Tier Entitlement

The Second Tier Entitlement on VA mortgages is a lesser-known product but it can be a huge benefit for a qualifying veteran. The second tier allows a person to get a 2nd VA loan under specific circumstances or they can pursue the purchase of a home after defaulting on a prior mortgage.

To be fair, there is a bit of scrutiny applied to the underwriting process. For qualifying veterans that are attempting to get a 2nd VA loan, the normal debt to income ratios will still apply and the lender will go by the letter of the law to determine the veteran’s monthly income. Furthermore, the veteran will have to provide a specific, reasonable need for the 2nd loan. Most of the time the people that get approved have received their PCS order and want to keep their current home as a rental.

For those veterans that may have suffered through a financial hardship, the Second Tier Entitlement on VA mortgages is a great way to regain homeowner status. Once again, the underwriter will examine the application with a bit of scrutiny to determine that the veteran has recovered from the previous financial hardship. However, as long as the veteran has improved their overall credit and demonstrated the ability to make the potential mortgage payment, they should be a candidate for the VA second-tier Entitlement.

With the guarantee of the federal government and the appeal of no down payment with no PMI, the Second Tier Entitlement on VA mortgage is a great way to help many veterans purchase a home.

Keep in mind, if some/all of the veteran’s entitlement is tied up on the other property, that can impact the size of the loan they can qualify for without a down payment.

Summary of Process to Buy a Home with a VA Loan

The entire process of buying a home using a VA mortgage can be summed up in a few steps.

  • Determine eligibility for the VA mortgage
  • Obtain the Certificate of Eligibility and either DD-214 or Statement of Service
  • Talk to a lender and get pre-approved for a home loan
  • Sign a contract to buy a home
  • Allow the lender to perform the appraisal, title search, and underwriting process on the property
  • Close the loan and move into the home

VA Streamline Refinance

Along with the other benefits offered by the VA loan program, there is also the ease of refinancing if rates drop. The official name of the program is called the Interest Rate Reduction Refinance Loan or IRRRL for short. It is also referred to as a VA streamline refinance.

The goal of the loan is to allow veterans to refinance their home at a lower rate. The loan does not allow for cash-out transactions.

To qualify for the IRRRL the homeowner must meet these criteria

  • The last 12 mortgage payments must have been paid on time
  • The mortgage currently in place on the home has to be a VA mortgage
  • The home must be the veteran’s primary residence
  • No cash out is allowed for the transaction.

For this program, a mortgag-only credit report with scores is required. You do not have to prove income. An appraisal is not required either.

For the loan to be approved, the new mortgage payment has to be lower than the current mortgage payment. The only exception is if the homeowner is refinancing from an adjustable-rate loan to a fixed-rate loan.

The VA streamline refinance does not require a credit report, proof of income, and proof of employment, or an appraisal

VA Non-Streamline/Cash-Out Refinance is also available

Table of Residual Incomes by Region
For loan amounts of $79,999 and below
Family Size Northeast Midwest South West
1 $390 $382 $382 $425
2 $654 $641 $641 $713
3 $788 $772 $772 $859
4 $888 $868 $868 $967
5 $921 $902  $902  $1,004
over 5 Add $75 for each additional member up to a family of 7.
Table of Residual Incomes by Region
For loan amounts of $80,000 and above
Family Size Northeast Midwest South West
1 $450 $441 $441 $491
2 $755 $738 $738 $823
3 $909 $889 $889 $990
4 $1,025 $1,003 $1,003 $1,117
5 $1,062 $1,039  $1,039  $1,158
over 5 Add $80 for each additional member up to a family of 7.
Key to Geographic Regions Used in the Preceding Table
Northeast Connecticut
New Hampshire
New Jersey
New York
Rhode Island
Midwest Illinois
North Dakota
OhioSouth Dakota
South Alabama
District of Columbia
North Carolina
Puerto Rico
South Carolina
West Virginia
West Alaska
New Mexico
State Specific VA Mortgage Information
Wisconsin VA
Minnesota VA
Illinois VA
Florida VA

Additional VA Programs:
VA Refinance (non-streamline)
Jumbo VA Loans

VA Approved Condo Search

Important Disclosure

VA loans are only available to eligible veterans and/or their spouses. is not acting on behalf of or at the discretion of the Department of Veteran Affairs or the Federal Government.

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