Types of VA Home Loans

Whether you’re a service member, a veteran, or in some cases even a civilian, a VA home loan can help you make home buying affordable.

According to a 2022 survey, the majority of veterans and service members don’t know how much a VA loan can help them save. Most weren’t aware that there’s no down payment required for most VA loans and that borrowers can take out multiple loans for a variety of purposes.

If you’re in the market for a home, or even a refinance, using one of these VA loans could mean major cost savings.

What Is a VA Loan?

A VA loan is a mortgage or a refinance that’s backed by the U.S. Department of Veterans Affairs.

Each VA loan has unique requirements. For some, you’ll work directly with the VA; others involve applying through a private lender.

The benefits of VA loans vary depending on the loan, but they can be significant. Borrowers may not be required to make a down payment, they’ll have no private mortgage insurance (PMI) requirement, and they can receive lower-than-market interest rates and closing costs.

You can use a VA loan for any of the following purposes:

• Purchase or build a home
• Refinance your mortgage
• Make home renovations
• Buy land

VA Home Loan Eligibility

To qualify for most VA loans, you’ll need to get a Certificate of Eligibility (COE).

Active-duty service members can qualify for a COE if they have served a minimum of 90 continuous days. For veterans, the requirement varies from roughly 90 to 181 continuous days, depending on when you served.

Other individuals may be able to qualify for a COE, including:

• National Guard and reserve members
• People discharged due to hardship or certain medical conditions
• Surviving spouses of veterans
• Spouses of POWs and veterans missing in action

Some VA loans require you to work with a private lender, in which case you’ll have to meet both the VA and the lender’s requirements.

Each lender has its own VA loan eligibility criteria, but each will typically determine whether you’re approved and how much you can borrow by reviewing your income and employment history, your credit rating and your debt.

» Learn More: The VA Loan Appraisal Process

What Are the Types of VA Home Loans?

The VA offers three different types of home loans. The following details can help you decide which one best fits your needs:

VA Purchase Loans

With a VA-backed Purchase Loan, you’ll have to go through a private lender. But you’ll get better terms than the typical mortgage because the VA guarantees part of the loan.

These are some of the outstanding benefits involved with using a VA Purchase Loan:

• No down payment
• No private mortgage insurance (PMI) or mortgage insurance premiums (MIP)
• Low closing costs
• VA escape clause

The cost savings can be significant for buyers, but you should also be prepared to cover a few fees.

For your first VA Purchase Loan, you’ll pay a VA Funding Fee up to 2.3% of the loan amount, and the fee goes up to 3.6% for any additional loans. You can reduce this expense by increasing your down payment or by negotiating with your lender.

The lender may also charge an origination fee, which is typically 1% of the purchase price, and you’ll have to pay interest on your loan as well.

» Learn More: Pros and Cons of VA Loans

Native American Direct Loan (NADL)

You could be eligible for a Native American Direct Loan (NADL) loan if you or your spouse is Native American and if the house you want to purchase or improve is on federal trust land. See additional eligibility requirements here.

Most buyers don’t have to make a down payment for a NADL. Like the VA Purchase Loan, you won’t have to pay PMI or mortgage insurance premiums (MIP), and closing costs are limited. You may, however, have to pay the VA funding fee.

To start an application for an NADL, you can visit the VA Regional Loan Center for your state. You can also get more information by calling 888-349-7541 or by emailing [email protected].

VA Renovation Loans

Some VA loans aren’t just for homebuying. They can also be used to make improvements to your home. Both the Purchase Loan and the NADL can be used to make changes and improvements to your home and add new features like solar panels.

If you’re taking out a VA Purchase Loan or refinancing with an IRRRL (see more on this below), you may also be able to add an Energy Efficient Mortgage (EEM)  to your loan.

EEMs give buyers up to $6,000 in additional loan funds to make energy improvements and upgrades, including the following:

• Solar heating and cooling systems
• Caulking and weather stripping
• Furnace efficiency modifications
• New or additional insulation
• Storm windows and doors
• Heat pumps

Alternatively, if you have a service-related disability, you can seek a Specially Adapted Housing (SAH) grant. The SAH can provide you with up to $101,754 (for fiscal year 2022) to buy, build or change your residence so the home is adapted to your needs.

Types of VA Loan Refinance Options

If you’re looking for better terms on your mortgage, you might find what you want through VA loan refinance programs. Here’s what the VA offers:

VA Interest Rate Reduction Refinance Loan (IRRRL)

If you currently have a VA loan, you may be able to use the VA’s Interest Rate Reduction Refinance Loan (IRRRL).

IRRRLs are available through private lenders (not directly through the VA), and these loans are sometimes referred to as “streamline loans” since they require very little paperwork, no documentation of income and no home appraisal.

One of the main benefits of an IRRRL is that the loan must result in a lower payment than your current mortgage. The lender is also required to give you a fixed-rate loan if your current rate is adjustable.

If you plan to use the IRRRL, just be prepared to pay a VA funding fee equal to 0.5% of your loan amount, as well as closing costs and interest.

VA Cash-Out Refinance Loan

The VA’s Cash-Out Refinance Loan is available for both VA loans and non-VA loans. Here are some of the main reasons to consider this option:

• Refinance a non-VA loan into a VA-backed loan
• Cash out of some of your home equity

You’ll have to go through a private lender in order to use this refinancing program, so applicants will need to meet both lender requirements and VA requirements.

You’ll also have to pay a VA funding fee of 2.3% if you’re using the Cash-Out program for the first time, and 3.6% after that, as well as closing costs and interest.

Property Types Eligible for VA Loans

You can use VA loans to purchase a number of different property types, as long as the dwelling is going to be your primary residence.

A VA loan can be used for:

• A single-family home, townhouse or multi-family up to 4 units
• A condo in a VA-approved project
• Home purchases and improvements
• Buying a manufactured home and lot
• Building a new home