A VA loan is a mortgage option provided by the U.S. Department of Veterans Affairs (VA), formerly known as the Veterans Administration. This program allows veterans, active service members, and eligible surviving spouses to buy homes with minimal or no down payment, no private mortgage insurance (PMI), and typically lower, competitive interest rates.
No Down Payment
The biggest advantage of the VA loan is that eligible Veterans can purchase a home with no down payment. This benefit allows Veterans and service members to buy a home without spending years saving for a large upfront payment.
In comparison, FHA loans require a minimum down payment of 3.5 percent, and conventional loans often require at least 5 percent. For a $500,000 mortgage, this means a military borrower would need $17,500 for an FHA loan and $25,000 for a conventional loan, significant savings for many military families.
Saving for a down payment and building credit can be challenging for service members who frequently relocate. With a VA loan, qualified borrowers can finance 100% of the home's value without paying anything upfront.
No Private Mortgage Insurance
Private mortgage insurance (PMI) is designed to protect lenders if a borrower defaults on their loan. Many conventional lenders require borrowers to pay PMI unless they can make a down payment of at least 20%, a challenge for many Veterans. Conventional borrowers must continue paying this monthly fee until they reach 20% equity in their home. Similarly, FHA loans include their own type of monthly mortgage insurance which is a life of loan requirement.
In contrast, VA loans do not require monthly mortgage insurance. By eliminating PMI, VA loan borrowers save thousands of dollars over the life of their loan. This benefit not only reduces costs but also allows Veterans to maximize their buying power and achieve significant savings.
Competitive Interest Rates
Another significant way the VA loan program helps Veterans save money is by offering some of the lowest average fixed interest rates on the market.
According to national data, VA loans have consistently had the lowest average 30-year fixed rates for the past six years. On average, VA interest rates are typically 0.5 to 1 percent lower than conventional loan rates. These lower rates enable Veterans to save both monthly and over the entire life of their loan.
Relaxed Credit Requirements
While the Department of Veterans Affairs oversees the VA loan program, it does not issue loans or set specific credit score requirements. Instead, individual VA lenders establish their own credit score benchmarks to evaluate a borrower's risk of default.
These credit score requirements can vary by lender but are generally more flexible than those for conventional mortgages. Veterans do not need perfect credit to qualify for competitive interest rates through the VA loan program. Additionally, VA loans offer more lenient guidelines for borrowers recovering from financial challenges, such as bankruptcy, foreclosure, or a short sale.
You may be eligible for a VA loan if you meet one or more of the following criteria:
Credit and Income
The Department of Veterans Affairs (VA) does not establish a minimum credit score requirement for VA loan eligibility; however, individual lenders typically impose their own standards. As a result, credit score requirements for VA loans can vary between lenders, with most requiring a minimum FICO score of 580 to secure financing.
In addition to credit scores, the VA mandates that eligible Veterans maintain a sufficient level of residual income—funds remaining after covering major monthly expenses. Residual income ensures borrowers can meet typical family needs, such as food, transportation, and medical care. This requirement helps minimize financial risk by ensuring Veterans have a financial cushion to manage unexpected expenses.
Lenders also evaluate a borrower’s debt-to-income (DTI) ratio alongside residual income. Together, these metrics provide lenders with a comprehensive view of a borrower’s financial health, purchasing power, and overall ability to qualify for a VA loan. A general rule of thumb for VA loans is 50% debt ratio, but that can be higher with compensating factors.
