Your Free Guide to VA Home Loans

Your Free Guide to VA Home Loans

What Are VA Home Loans?

The U.S. Department of Veterans Affairs, also known as the VA, is a federal government agency that provides benefits and services for active duty and retired military service members including the National Guard and Reserve, veterans and their families. One of those benefits is assistance with homeownership through VA home loans. A VA loan can be used to buy, build, or improve a home or refinance an existing home loan.

VA home loans are either given by or guaranteed by the federal government, reducing lender risk and making them easier for eligible borrowers to get approved. When a VA loan is a direct loan, the government itself is providing the funds to the borrower and is receiving the monthly mortgage payments. 

In VA loans that are guaranteed, which is most of them, the loans are through VA-approved lenders such as banks and credit unions. These lenders must adhere to VA rules when processing and evaluating the borrower’s application as well as after the loan has been approved. If, once the loan has been approved, the borrower stops making monthly mortgage payments, the VA pays the lender to compensate it for all or part of its losses.

VA Home Loan Terms

In addition to lower eligibility requirements, VA loans have favorable terms. 

• Lower interest rates than conventional and FHA loans
• Lower closing costs and fees
• No requirement for mortgage insurance
• Usually no down payment required

Borrowers are required to pay a VA funding fee in most cases. See the section called “VA Funding Fee” for more information. VA loans are also limited in amount (see the section “Loan Limits” in this guide).

Fixed and Adjustable Rate

Lenders offer both fixed rate and adjustable rate VA loans. When shopping for a mortgage, the borrower decides whether the mortgage will have a fixed or adjustable rate. A fixed rate is a mortgage in which the interest rate stays the same for the entire term of the loan. Mortgage payments will be the same amount every year, except for relatively small adjustments to the escrow to pay property taxes and homeowners insurance premiums that are higher or lower than anticipated.

A variable rate mortgage, also called an adjustable rate mortgage, or ARM, has an initial interest rate for an agreed-upon time period (one, five, seven or ten years). The terms of interest rate adjustment are noted in the description. 

For example, a 5/1 ARM will lock in the initial rate for five years, after which it will be adjusted once a year. A 1/5 ARM will have an initial rate locked for one year, and then it will be adjusted every five years.

An ARM’s initial rate is lower than that on a comparable fixed rate mortgage, but it can fluctuate up or down each year depending on the index rate plus a fixed margin. 

The index is based on the economy. That means that your mortgage payments can end up being more (if interest rates increase) or less (if rates decrease) than they were before.

The VA limits the amount that VA-backed ARMs can fluctuate:

• ARMs with a fixed rate for less than 5 years cannot adjust by more than 1 percentage point at the end of that fixed period, and the total adjustment over the life of the loan cannot exceed 5 percentage points.
• ARMs with a fixed rate for 5 or more years can adjust by 2 percentage points after that period, and can increase up to 6 percentage points over the length of the loan.

Loan Lengths and Rates

Most mortgages (61.5%) are 30-year fixed rate mortgages. They give borrowers low monthly payments that are predictable. 

A little over 14% of mortgages are 15-year fixed, which can help borrowers who want to build equity quicker and save money on interest, while keeping payments the same. 

About the same percentage of mortgages, a little over 14%, are ARMs. An ARM may help borrowers who only plan on staying in the home a short time or those who feel certain that interest rates will decrease over time. 

The remainder of mortgages, less than 10%, are fixed rate for a term other than 15 or 30 years.

ARMs are popular with active duty service members if they pay the lower interest rate in the beginning of the loan, and then sell within a relatively short time period when they are deployed to a different location.

General Eligibility Requirements

There are three general eligibility requirements for VA loans. Veterans and active duty service member borrowers are required to:

• Qualify for a VA-backed home loan Certificate of Eligibility (COE)
• Meet VA and lender standards for credit, income and other financial measures
• Live in the home that is financed with the VA loan

See the section “Eligibility Requirements for VA Home Loans” for more detailed information on borrower eligibility requirements.

Reasons to Consider VA Loans

There are various reasons why one may consider applying for a VA loan. These loans are known for helping applicants save money on their down payment and closing costs. They can provide helpful loan terms in comparison to conventional loans and more. See below for details.

No Down Payment Requirement

With a VA purchase loan, no down payment is required, as long as the purchase price is not higher than the home’s appraised value. A down payment is the amount of money a borrower is required to pay toward the purchase price from his or her own money. It usually ranges between 3% and 20% of the purchase price. The appraised value is the property value as reported by a professional appraiser. A property appraisal is required by the VA before approval of the loan application.

More Favorable Terms

VA loans have lower interest rates and better terms from lenders compared to conventional (non-government-backed) loans. The interest rate is the percent of the loan amount that the lender charges a borrower for using its money. The higher the interest rate, the higher the monthly mortgage payment and the more the borrower has to pay over the life of the loan. Even a seemingly small difference in interest rates can cost a borrower thousands of dollars over the life of the loan.

No Mortgage Insurance Requirement

VA loans do not require borrowers to pay for private mortgage insurance or mortgage insurance premiums, thereby saving them thousands of dollars a year for many years. Mortgage insurance is money that the borrower is required to pay in addition to mortgage payments to protect the lender from potential losses in case the borrower stops making mortgage payments. 

Conventional loans require borrowers to pay private mortgage insurance (PMI) on loans in which the down payment is less than 20%. PMI costs between 0.5% and 1% of the loan amount per year. Borrowers continue to pay PMI until the amount that they owe on their loan is equal to or less than 78% of the home’s value.

Here is an example illustrating PMI cost:

Loan amount = $200,000

PMI cost annually at .75% = $1,500/year x 11 years = $16,500

FHA loans, another type of federal government-backed home loan, require two types of mortgage insurance premiums (MIP). The upfront MIP can be as high as 1.75% of the loan amount and the annual MIP is between 0.45% and 1.05% of the loan amount, which you pay in monthly installments every year for 11 years or until the principal balance reaches 78% of the home’s original value.

Here is an example illustrating MIP costs: 

Loan amount = $200,000

Upfront cost at 1.75% = $3,500

MIP cost annually at .75% = $1,500/year x 11 years = $16,500

Total MIP cost = $3,500 + $16,500 = $20,000

Fewer Closing Costs

At the closing, which is when the final documents are signed and the ownership of the home changes from the seller to the buyer, there are costs that must be paid. In a conventional loan closing, the majority of these costs are paid by the buyer, with the seller usually just responsible for paying the real estate agent’s commission. This commission compensates the real estate agent(s) for time spent helping the buyer and seller come to a deal and is usually around 6% of the purchase price. 

In a VA loan, the veteran is not allowed to pay certain closing costs, including: 

• Attorney’s fees
• Underwriting fee
• Escrow fee
• Processing fee
• Document fee
• Tax service fee
• Interest rate lock-in fee 
• Loan application fee
• Mortgage broker fee

Because of this rule, other parties, including the lender, the seller and the real estate agent will often pay for these fees. When the seller pays these fees, it is called a seller concession. Seller concessions are limited to 4% of the appraised value of the property, so for a home that sells for $200,000, the seller could contribute a maximum of $8,000 toward the buyer’s closing costs. The lender is allowed to charge a single fee to the buyer to cover its costs associated with the loan, up to a maximum of 1% of the loan amount.

The veteran is required to pay some or all of the following closing costs: 

• Appraisal cost
• Credit report fee
• Title insurance premiums
• Origination fee
• Recording fee
• Survey fee
• VA funding fee
• Prepaid items:
  • • Property tax
    • Hazard insurance
    • Flood insurance
    • Homeowners association assessments

No Early Payment Penalty

Some conventional mortgages charge borrowers a penalty fee if they pay off the loan before the term is finished. These fees may be structured as a percentage of the original loan amount or a certain number of months’ worth of interest payments. This discourages homeowners from paying more each month to pay down their mortgage, a common strategy homeowners use to pay less interest and build equity faster. It also makes it expensive for homeowners to refinance their mortgages when they otherwise would be able to take advantage of lower market interest rates. Lenders cannot include prepayment penalties in VA loans. 

Disadvantages of a VA-Backed Loan

For some VA-eligible borrowers, a conventional loan may be a less expensive option. For instance, VA loans do come with what is known as a VA funding fee, which increases the costs for the borrower. There are also certain limits and restrictions put in place for VA loans, which borrowers will need to abide by. See below for details.

VA Funding Fee

The VA funding fee is a one-time payment that the veteran pays to the VA. VA loans do not require a down payment or mortgage insurance, both of which are considered to reduce lender risk in the event a homeowner defaults (stops paying) on the mortgage. The VA funding fee goes toward a fund that compensates lenders when veterans default on VA-backed loans. This fee (if applicable) must be paid during the closing.

The following types of veterans are not required to pay the VA funding fee:

• Veterans receiving VA compensation for a service-connected disability
• Veterans eligible to receive VA compensation for a service-connected disability, but receiving retirement or active-duty pay instead
• The surviving spouse of a veteran who died in service or from a service-connected disability, or who was totally disabled and receiving Dependency and Indemnity Compensation (DIC)
• A service member with a proposed or memorandum rating before the loan closing date, showing eligibility to get compensation because of a pre-discharge claim
• A service member on active duty who before or on the loan closing date provides evidence of having received the Purple Heart

The amount of the VA funding fee depends on the type of VA loan, whether this loan is the veteran’s first VA loan or not and the amount of the down payment, but it ranges between 0.5% and 3.6% of the loan amount. See the section “Types of VA Home Loans” for the exact amount of the VA funding fee for each type of loan.

Second Home or Income Property

VA rules prohibit properties financed with a VA loan from being used as second homes or to generate rental income. Prospective homebuyers who want to buy a home for one of these purposes will not be able to get a VA loan.

Loan Limits

The VA limits the size of some VA-backed home loans. For most areas, loans for a single family home can be no more than $766,550, although this limit is raised in high cost areas. See the section “VA Home Loan Amounts and Limits” to find out the loan limit for a specific area or property and to find out who is exempt.

Prospective homebuyers wanting to borrow more than this loan limit may need to get a type of conventional loan called a jumbo loan. Jumbo loans typically have higher interest rates than loans within the loan limit. See the section “Jumbo Loans” for more information.

VA Home Loan Program Contact Information

For questions about VA loans, contact a VA Home Loans representative by phone at 877-827-3702, or contact your regional loan center. 

VA Regional Loan Center Contact Information

Regional Loan Center	Point of Contact
Atlanta Regional Loan Center Jurisdiction- Georgia- North Carolina- South Carolina- Tennessee	Physical Address Department of Veterans Affairs VA Regional Loan Center 1700 Clairmont Rd. Decatur, GA 30033-4032 Mailing Address P.O. Box 100023 Decatur, GA 30031-7023 Construction & ValuationEmail: 316LGYCNV@va.gov  Loan Production: Email: 316LP@va.gov
Cleveland Regional Loan Center Jurisdiction- Connecticut- Delaware- Indiana- Maine- Massachusetts- Michigan- New Hampshire- New Jersey- New York- Ohio- Pennsylvania- Rhode Island- Vermont	Address Department of Veterans Affairs VA Regional Loan Center 1240 East Ninth Street Cleveland, OH 44199 Construction & Valuation Email: 325CNV@va.gov  Loan Production Email: 325LP@va.gov
Denver Regional Loan Center Jurisdiction- Alaska- Colorado- Idaho- Montana- Oregon- Utah- Washington- Wyoming	Address Department of Veterans Affairs VA Regional Loan Center 155 Van Gordon Street Lakewood, CO 80228 Mailing Address P.O. Box 25126Denver, CO 80225 Construction & Valuation Email: 39VA262.VBADEN@va.gov  Loan Production Email: 339LP@va.gov
Houston Regional Loan Center Jurisdiction- Arkansas- Louisiana- Oklahoma- Texas	Address Department of Veterans Affairs VA Regional Loan Center 6900 Almeda Road Houston, TX 77030-4200 Construction & Valuation Email: CV62.VBAHOU@va.gov  Loan Production Email: 362LP@va.gov
Phoenix Regional Loan Center Jurisdiction- American Samoa- Arizona- California- Commonwealth of the Northern Mariana Islands- Guam- Hawaii- New Mexico- Nevada	Address Department of Veterans Affairs VA Regional Loan Center 3333 N. Central Avenue Phoenix, AZ 85012-2402 Construction & Valuation Email: CVGC.VBAPHO@va.gov  Loan Production Email: 345LP@va.gov
Roanoke Regional Loan Center Jurisdiction- District of Columbia- Kentucky- Maryland- Virginia- West Virginia	Address Department of Veterans Affairs VA Regional Loan Center 210 Franklin Road, S.W. Roanoke, VA 24011 Construction & Valuation Email: CV.VBAROA@va.gov  Loan Production Email: 314LP@va.gov
St. Paul Regional Loan Center Jurisdiction- Illinois- Iowa- Kansas- Minnesota- Missouri- Nebraska- North Dakota- South Dakota- Wisconsin	Address Department of Veterans Affairs VA Regional Loan Center1 Federal Drive, Ft. Snelling St. Paul, MN 55111-4050 Construction & Valuation Email: CV335@va.gov  Loan Production Email: 335LP@va.gov
St. Petersburg Regional Loan Center Jurisdiction- Alabama- Florida- Mississippi- Puerto Rico- U.S. Virgin Islands	Address Department of Veterans Affairs VA Regional Loan Center 9500 Bay Pines Blvd. St. Petersburg, FL 33744 Construction & Valuation Email: 17CRV2.VBASPT@va.gov Loan Production Email: 317LP@va.gov

Eligibility Requirements for VA Home Loans

There are three general eligibility requirements for VA loans. Veterans and active duty service member borrowers are required to:

• Qualify for a VA-backed home loan Certificate of Eligibility (COE)
• Meet VA and lender standards for credit, income and other financial measures
• Live in the home that is financed with the VA loan

The first step to finding out if a borrower qualifies for a VA loan is to try to get a certificate of eligibility (COE). This document shows lenders that a borrower meets the VA’s qualifications as a service member, veteran or family member.

Getting a VA Certificate of Eligibility (COE)

Below are the criteria for the different types of individuals who may be eligible. 

Eligibility Requirements for Veterans and Service Members on Active Duty

Depending on when the military applicant served, they must have served for a certain amount of time to qualify for a VA home loan. See the table below for more information. 

Service Time Period	Minimum Active Duty Service Requirement
Between September 16, 1940, and July 25, 1947 (WWII)	90 total days, or Less than 90 days if discharged for a service-connected disability
Between July 26, 1947, and June 26, 1950 (post-WWII period)	181 continuous days, or Less than 181 days if discharged for a service-connected disability
Between June 27, 1950, and January 31, 1955 (Korean War)	90 total days, or Less than 90 days if discharged for a service-connected disability
Between February 1, 1955, and August 4, 1964 (post-Korean War period)	181 continuous days, or Less than 181 days if discharged for a service-connected disability
Between August 5, 1964, and May 7, 1975 (Vietnam War), or Between February 28, 1961, and May 7, 1975, if you served in the Republic of Vietnam	90 total days, or Less than 90 days if discharged for a service-connected disability
Between May 8, 1975, and September 7, 1980 (post-Vietnam War period), or Between May 8, 1975, and October 16, 1981, if you served as an officer	181 continuous days, or Less than 181 days if discharged for a service-connected disability
Between September 8, 1980, and August 1, 1990, or Between October 17, 1981, and August 1, 1990, if you served as an officer	24 continuous months, or The full period (at least 181 days) of being called to active duty
Between August 2, 1990, and the present (Gulf War)	24 continuous months, or The full period (at least 90 days) of being called or ordered to active duty, or At least 90 days if discharged for a hardship, a reduction in force, or for convenience of the government, or Less than 90 days if discharged for a service-connected disability
You separated from service after September 7, 1980, or after October 16, 1981, if you served as an officer	24 continuous months, or The full period (at least 181 days) of being called or ordered to active duty, or At least 181 days if discharged for a hardship, a reduction in force, or for convenience of the government, or Less than 181 days if discharged for a service-connected disability
Currently on active duty	90 continuous days

Eligibility Requirements for National Guard or Reserve Members

Service Time Period	Minimum Active Duty Service Requirement
Between August 2, 1990, and the present (Gulf War)	90 days of active-duty service
Any time period	6 creditable years in the Selected Reserve or National Guard, and one of the descriptions below must be true:  Discharged honorably, or Placed on the retired list, or Transferred to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve after service characterized as honorable, or Continue to serve in the Selected Reserve

Individuals who have served in the following capacities may also be eligible for a VA loan:

• U.S. citizens who served in the Armed Forces of a government allied with the United States in World War II
• Members of certain organizations, including:
  • Public Health Service officers
  • Cadets at the United States Military, Air Force, or Coast Guard Academy
  • Midshipmen at the United States Naval Academy
  • Officers of the National Oceanic & Atmospheric Administration
  • Merchant seamen during World War II

Eligibility Requirements for Surviving Spouses

VA benefits, including VA loans, may be available to surviving spouses of veterans if at least one of the following descriptions is true for the veteran: 

• Is missing in action
• Is being held as a prisoner of war (POW)
• Died while in service or from a service-connected disability and the spouse did not remarry
• Died while in service or from a service-connected disability and the spouse did not remarry before he or she was 57 years old or before December 16, 2003
• Was totally disabled and then died, but the disability may not have been the cause of death (in certain situations)

If a surviving spouse remarried before December 16, 2003, the spouse is no longer able to get a COE. Surviving spouses who are unsure if the veteran qualifies can contact a VA Regional Loan Center with their questions. See the section “VA Regional Loan Center Contact Information.”

How to Apply for a COE as a Veteran or an Active Service Military, National Guard or Reserve Member

In order to apply for a COE, documentation is required. The specific documents you must bring vary based on your military classification.

Classification	Documents Required
Veteran	Copy of discharge or separation papers (DD214)
Service member	Statement of service signed by your commander, adjutant, or personnel officer with this information: – Your full name – Your Social Security Number – Your date of birthThe date you entered duty – The duration of any lost time – The name of the command providing the information
Current or former activated National Guard or Reserve member	Copy of discharge or separation papers (DD214)
Current member of National Guard or Reserves who has never been activated	Statement of service signed by your commander, adjutant, or personnel officer showing this information: – Your full name – Your Social Security Number – Your date of birth – The date you entered duty – Your total number of creditable years of service – The duration of any lost time – The name of the command providing the information
Discharged member of National Guard who has never been activated	Your Report of Separation and Record of Service (NGB Form 22) for each period of National Guard service, and Your Retirement Points Statement (NGB Form 23) and proof of the character of service
Discharged member of Reserves who has never been activated	A copy of your latest annual retirement points, and Proof of your honorable service

Once these documents are gathered, the COE application can be done any of the following ways:

• Online at https://www.va.gov/housing-assistance/home-loans/request-coe-form-26-1880/introduction
• Through the lender using the VA’s Web LGY system (asking your lender about this option will start this process)
• Via mail by filling out Request for a Certificate of Eligibility (VA form 26-1880) and sending it to the address listed on the form
  • Download VA form 26-1880 here: https://www.vba.va.gov/pubs/forms/vba-26-1880-are.pdf

How to Apply for a COE as a Surviving Spouse

DIC is a tax-free monetary benefit that is paid to eligible surviving spouses, children, or parents of a service member who died in the line of duty, or survivors of a veteran who died from a service-related injury or illness.

If you are a surviving spouse who is already receiving Dependency & Indemnity Compensation (DIC), the steps to apply for a COE are as follows:

1. Fill out a Request for Determination of Loan Guaranty Eligibility—Unmarried Surviving Spouses (VA Form 26-1817). 
   • • You can download the form here: https://www.vba.va.gov/pubs/forms/VBA-26-1817-ARE.pdf?_ga=2.200716908.311206835.1546861480-1173244138.1525894550 
2. Obtain the veteran’s DD214 (or other separation papers) if available. 
   • • Military service records are available online here: https://www.archives.gov/veterans/military-service-records
3. Submit the form and discharge or separation papers to the home loan lender for processing online. Or, you can send the documentation to the VA regional loan center that serves your state (see the section “VA Regional Loan Center Contact Information,” for more information.)

If you are a surviving spouse who is not receiving DIC, follow these steps to apply for a COE: 

1. Apply for Dependency & Indemnity Compensation.
   • • You can apply for DIC with this form here: https://www.vba.va.gov/pubs/forms/VBA-21P-534EZ-ARE.pdf?_ga=2.233853660.311206835.1546861480-1173244138.1525894550 
2. Obtain the veteran’s DD214 (or other separation papers) if available. 
   • • Military service records are available online here: https://www.archives.gov/veterans/military-service-records 
3. Submit the military service records, a copy of your marriage certificate and the veteran’s death certificate to the VA pension management center that serves your state. 

You can find a local VA pension management center here: https://www.va.gov/pension/pension-management-centers/

Financial Eligibility

In addition to the personal requirements you must meet according to the VA, borrowers will also need to meet financial requirements so that the VA and the lender feel comfortable that the borrower can make consistent on-time mortgage payments.

Credit Score

The VA does not set a specific credit score requirement for VA loans. In fact, it instructs lenders that VA applicants should not necessarily be turned away if they do not have a credit history.  

The VA guidelines tell lenders that if an applicant had negative credit items, like late payments, on his or her credit report but has since made on-time payments for at least 12 months, that is considered satisfactory. Even bankruptcy may not automatically result in a denial, if:

• The bankruptcy was more than 2 years ago, or
• The applicant has since gotten new credit accounts and has made on time payments, or
• The bankruptcy was a result of factors outside of the applicant’s control such as prolonged strikes, unemployment or medical bills not being covered by insurance

Similar standards are applied to other major negative credit items such as foreclosures. 

However, each lender will have its own credit score requirement, which may vary from lender to lender. 

Income

Like with credit, the VA offers loose guidance to lenders regarding income requirements, saying that the borrower needs to have sufficient income to “meet the mortgage payment, other shelter expenses, debts and obligations and family living expenses.” Income must also be stable, reliable and ongoing for the foreseeable future for an applicant to qualify for a VA home loan. 

The lender may include a military quarters allowance as a part of the borrower’s effective income if properly verified. The military quarters allowance or basic allowance for housing (BAH) is a monetary payment to service members if no government-provided housing is available in the area. It is based on housing rental costs in the area plus average utility cost, the service member’s pay grade and whether or not there are dependents. 

In most areas, there may be additional military housing allowance, which can also be included in the borrower’s effective income. Service members can choose to rent a home further from the base for less money, in which case they are allowed to keep any additional military housing allowance (the difference between the allowance and actual costs).

Amount of Debt

Typically, lenders will not approve a mortgage application if the borrower’s debt-to-income ratio (DTI) is too high. The DTI is the amount of money that a person owes each month divided by monthly income. The VA does not set a specific DTI that will disqualify a borrower, but it does tell lenders that if the DTI is over 41%, they should look at why that might be the case and use those factors to influence their decision to approve or deny an applicant. 

Employment

If the veteran is not currently employed full-time by the military, he or she must have at least 2 years of verified employment, shown by producing pay stubs, W-2s and contact information for the employer. No explanation for employment gaps is necessary if the gap is less than 30 days. 

If currently employed by the military, the veteran is required to submit a military Leave and Earnings Statement (LES) from within the past 120 days.

Property Requirements

VA loans are available for residential properties up to four units, manufactured homes and condominiums in VA-approved projects. You can look up whether a condominium unit is in a VA-approved condominium project here: https://lgy.va.gov/lgyhub/condo-report

Property financed with a VA-guaranteed loan must be located in the United States or its territories (Puerto Rico, Guam, Virgin Islands, American Samoa and the Northern Mariana Islands). 

The VA has an extensive list of minimum property requirements (MPRs) to ensure that the property is safe, structurally sound and sanitary.

All properties must:

• Have sufficient space for sleeping, living, sleeping, cooking, dining and sanitary facilities
• Be safely accessible from a road or pedestrian access
• Have good drainage
• Be situated on solid ground, and away from sinkholes and sinking land
• Not be in areas that are frequently flooded or subject to flowing lava
• Be used primarily for residential use
• Be connected to electric, water and sewage systems
• Have a clean and safe water supply
• Be structurally sound, and free of

• • Defective construction
  • Poor workmanship
  • Evidence of continuing settlement
  • Excessive dampness
  • Leakage
  • Decay
  • Termites

• Have a heating system that is safe and operational unless located in a mild climate
  • Air conditioning is not required, but if it is present, it must be operational
• Have a roof in adequate condition
• Not have lead-based paint

In addition to the above, manufactured homes must also:

• Be considered a real estate entity in accordance with state law and meet all local zoning requirements for real estate
• Be placed on a permanent foundation, constructed to withstand both supporting loads and wind-overturning loads
• Be built to HUD Manufactured Home Construction and Safety Standards
• Have a minimum floor area of 400 square feet for a single wide, or 700 square feet for a double wide

For new construction only:

• Builder’s certification that the new dwelling was constructed to meet the energy conservation standards of the of the Council of American Building Officials (CABO) 1992 Model Energy Code (MEC) 
• Builder’s certification that the solders and flux used in construction did not contain more than 0.2 percent lead and that the pipes and pipe fittings used did not contain more than 8.0 percent lead 
• Evidence that the streets, sidewalks, drains, water, sewer, etc. have been completed and accepted for maintenance by the local authority

Occupancy Certification

Certifying that you are the one living in the home is another part of the overall process. There are various requirements to consider as well. Learn more below.

Occupancy Certification for Veterans

The veteran is required to certify that he or she will personally live in the home that is financed with a VA loan. The veteran must occupy the home within a reasonable time, in most cases considered to be 60 days of taking ownership, although exceptions can be made up to a maximum of 12 months after taking ownership. 

Occupancy Certification for Active Duty Members

If an active duty service member is sent to another location for military service, the service member’s spouse and children (if any) can live in the home. For non-married service members on active duty, the occupancy requirement is considered to be fulfilled if the service member is deployed.

How to Certify Occupation

To certify occupation, the borrower is required to fill out and sign the following forms and submit them to the lender: 

• VA Form 26-1802a, HUD/VA Addendum to the Uniform Residential Loan Application, which must be submitted at the time of loan application for prior approval loans only (which is when a borrower goes through the approval process before making an offer on a specific home). 
  • • The form can be downloaded here: https://www.hud.gov/sites/dfiles/OCHCO/documents/92900-a.pdf
• VA Form 26-1820, Report and Certification of Loan Disbursement, which must be submitted at the time of loan closing for all loans
  • • The form can be downloaded here: https://www.vba.va.gov/pubs/forms/VBA-26-1820-ARE.pdf

Types of VA Home Loans

The VA guarantees different types of loans to meet veterans’ different needs. The VA loan benefit can be used for first-time homebuyers, for subsequent homes and for assuming, or taking over, the debt and making payments on the seller’s existing VA loan.

The VA encourages veterans to contact more than one lender when shopping for loans so that they are able to compare rates and terms.

This section will explore the following loan options: 

• Purchase loans
• Refinance loans
  • Cash-out refinance loans
  • Interest rate reduction refinance loans
• Native American direct loans
• Jumbo loans
• Farm residence loans
• Manufactured home loans
• Supplemental loans
• Energy efficient mortgage loans

Purchase Loans

The VA purchase loan is used to purchase a home that will serve as the veteran’s primary residence. A qualified veteran can get VA loans to buy homes throughout his or her lifetime as long as each home is the veteran’s primary residence at that time. 

The VA purchase loan can be used to: 

• Buy a single-family home, up to 4 units
• Buy a condo in a VA-approved project
• Buy a home and improve it
• Buy a manufactured home or lot
• Build a new home
• Make changes or add new features (like solar power) to make a home more energy efficient

VA Funding Fee for Purchase Loans

Like for all VA loans, borrowers using a VA purchase loan are required to pay a VA funding fee, which is calculated as shown in the table below. All percentages refer to the loan amount.

VA Funding Fee Rate Table for Purchase Loans

	Down Payment	Funding Fee
1-4 unit homes
First use	Less than 5%	2.15%
	5% or more	1.5%
	10% or more	1.25%
After first use	Less than 5%	3.3%
	5% or more	1.5%
	10% or more	1.25%
Manufactured homes (not permanently affixed)		1.0%
Loan assumptions		0.5%

Here are some illustrative examples: 

A first-time user of VA loans putting no down payment on a home costing $200,000 would pay a VA funding fee of: 

$200,000 x  2.15% = $4,300

A second-time VA borrower putting 5% down on a $200,000 home would pay

$200,000 – $10,000 down payment = $190,000 loan amount

VA funding fee would be $190,000 x 1.5% = $2,850

Refinance Loans

Refinancing is a process that a homeowner can choose to pursue after a mortgage is already in place. In a refinancing, the owner gets a new mortgage with new terms to replace the existing mortgage. The new mortgage will pay off the original mortgage in full and start from the beginning. 

Homeowners can refinance with the same lender they used for their original mortgage or a different lender that may offer them a lower rate. 

However there are costs involved in refinancing. As with a VA purchase loan, borrowers are required to pay the VA funding fee and other closing costs for refinance loans.

There are two types of VA refinance loans: cash-out refinancing loans and interest rate reduction refinance loans.

Cash-Out Refinancing Loans

A VA-backed cash-out refinance loan can be used to:

• Take cash out of the home’s equity to pay off debt, pay for school, make home improvements, or take care of other needs, or
• Refinance a non-VA loan into a VA-backed loan, which will allow the borrower to stop paying mortgage insurance

VA Funding Fee Rate Table for Cash-Out Refinancing Loans

First use	After first use
2.15%	3.3%

Interest Rate Reduction Refinance Loan (IRRRL)

The interest rate reduction refinance loan (IRRRL) is for veterans who want to:

• Reduce their mortgage payments by lowering their interest rate,
• Reduce the term of the loan from 30 to 15 years, or 
• Make mortgage payments more stable by switching from an ARM to a fixed rate mortgage.

Homeowners are not allowed to take cash out with this loan.

Veterans must meet all of these requirements to qualify: 

• Already have a VA-backed home loan 
• Use the IRRRL to refinance that existing VA-backed home loan
• Certify that they currently live in or used to live in the home financed with the VA-backed loan

The IRRRL is also called a streamline refinance because the VA requires less paperwork, which makes the process quicker. With an IRRRL, the VA does not require:

• A COE
• An appraisal
• A credit underwriting package

Although the VA does not require this paperwork, the lender may still require it. Any lender can do an IRRRL and interest rates may vary from lender to lender. 

VA Funding Fee for IRRRLs

The VA funding fee for the interest rate reduction refinance loan is 0.5%, regardless of whether the veteran has used the VA loan benefit before.

With an IRRRL, veterans can include closing costs, including the VA funding fee, in the new loan so they do not have to pay up front. Alternatively, some lenders will agree to pay the closing costs in exchange for charging a higher interest rate.

Native American Direct Loans (NADL)

The Native American Direct Loan (NADL) is the only type of loan that is given directly by the VA and not through a lender. NADLs are only available to those who: 

• Meet COE eligibility requirements (see the section of this guide “Getting a VA Certificate of Eligibility (COE)”) and 
• Are Native American or are married to a Native American and
• Are members of a tribe that has an agreement or Memorandum of Understanding with the VA detailing how the program will work on its trust lands and
• Meet credit, income and other financial requirements and
• Will be living in the property financed with the NADL

Not all states are home to tribes with an MOU, and not all tribes have an MOU. The following states have at least one tribe with an MOU: 

NADLs can be used to buy, build, or improve a home on federal trust land. If the veteran does not live on federal trust land, the NADL cannot be used, but borrowers can use a regular VA purchase loan (see the section “Purchase Loans”). The NADL can also be used to refinance an existing NADL and reduce the interest rate. 

NADLs are only available in 30-year fixed rate mortgages. In addition to the positive traits of VA loans (see the section “Reasons to Consider VA Loans”), NADLs feature a low interest rate and a lower VA funding fee than VA purchase loans.

VA Funding Fee for Native American Direct Loans 

Reason for Use	VA Funding Fee
Purchase	1.25%
Refinance	0.5%

Jumbo Loans

Jumbo loans are purchase or refinance loans for an amount that exceeds the conforming loan limit, which is $766,550 for a single family home in most areas. Only some veterans are eligible for VA jumbo loans.

With jumbo loans, lenders have more stringent requirements when it comes to credit score, income, debt-to-income ratio and the down payment.

Farm Residence Loans

VA loans can be used to buy farms, as long as there is a farm residence on the land and the veteran is planning to use it as a primary residence. Because VA loans cannot be used to buy businesses, not all farms can be purchased with a VA loan; the farm should be primarily for residential use. However, this does not prevent the veteran from using the farm to generate income once it is purchased.

In fact, anticipated farm income may be considered by the lender when assessing whether the borrower has sufficient income to be approved for the loan. When the veteran is claiming future farm income, the VA instructs lenders to evaluate the veteran’s farm operations ability and experience, including the veteran’s plan for the farm, anticipated farming expenses and projected debt needed to buy livestock, farming equipment and supplies.

The VA does not limit the number of acres a VA-guaranteed property may have, and farms financed with a VA farm loan can include funds for improvements not generally considered residential, such as barns, sheds, corrals, stables and pastures. However, the loan cannot be used to pay for:

• Non-residential land in excess of the home site
• Barns
• Silos and other outbuildings
• Livestock
• Crops 
• Farm equipment and supplies. 

Manufactured Home Loans

The VA does guarantee loans on manufactured, or mobile, homes. They only publish information on loans for manufactured housing that is or will be permanently affixed to a lot and is considered to be real estate rather than personal property under state law. The VA does not rule out making VA-backed loans for manufactured homes that are not affixed, but they are handled as special cases, and they instruct lenders to call them directly if they are considering making a loan on this type of home.

Manufactured homes must meet the property requirements listed in the section “Property Requirements”. It may be challenging to find a lender willing to make a VA-backed loan for a manufactured home because they are less likely to appreciate in value and more likely to sustain damage over time compared to regular construction, or stick-built homes.

Supplemental Loans

A supplemental loan is a second home loan to cover the cost of property repairs. It is only available on properties that already have a VA-guaranteed loan and that are owned and occupied by the veteran. The alterations, repairs and improvements to the property must meet both of the following requirements: 

• Be for the purpose of substantially protecting or improving the livability or utility of the property 
• Be limited to the maintenance, replacement, improvement or purchase of real property, including fixtures

Luxury-type upgrades such as installing a barbeque pit or swimming pool do not qualify.

If the loan is for more than $3,500, the VA requires a notice of value (NOV), which is a VA performed appraisal and a compliance inspection once the work is completed. No more than 30% of the money from the loan can be used to replace or repair appliances such as refrigerators, ovens, stoves, laundry machines and heating/air conditioning equipment.

The interest rate on the supplemental loan may be higher than the rate on the original mortgage if it is made as a separate, subordinate loan (a loan that is paid back after the original mortgage is paid). If the supplemental loan is added to the original mortgage, it cannot have the effect of raising the overall interest rate.

Borrowers are required to be current with all mortgage payments, including escrow payments for homeowners insurance and taxes, to qualify for a supplemental loan. 

Energy Efficient Mortgage (EEM)

The VA’s energy efficient mortgage, or EEM, is either a supplemental loan to a purchase loan or a refinance loan on a property that already has a VA-backed loan. It cannot be used to build a new, energy efficient home.

The EEM can be used for:

• Solar or conventional heating/cooling systems
• Water heaters, including solar
• Insulation
• Weather-stripping and caulking
• Smart thermostats
• Heat pumps
• Store windows and doors
• Vapor barriers
• Other energy efficient improvements as approved by the VA Regional Center

There are three levels of EEMs with different requirements:

• Up to $3,000 – Borrower must submit copies of the bids and a contract itemizing the improvements and cost
• Between $3,000 and $6,000 – The borrower must submit evidence of the cost of improvements and a certification that the extra money paid each month on the loan does not exceed the amount saved in lower utility payments
• More than $6,000 – The VA requires an NOV to certify that the property value will increase by at least the amount spent on the improvements

VA Housing Grants for Disabled Veterans

Specially Adapted Housing Grant

The VA has a program called the Specially Adapted Housing Grant (SAH) for veterans with certain service-related disabilities to help them buy or modify a home for better accessibility. For fiscal year (FY) 2024, grant recipients can get up to $117,014. This is money that is not required to be repaid. 

In order to qualify, veterans must:

• Own or be preparing to own the home and live in (or plan to live in) it as a primary residence
• Have a qualifying service-related disability:

• • The loss or loss of use of more than one limb
  • The loss or loss of use of a lower leg along with the residuals (lasting effects) of an organic (natural) disease or injury
  • Blindness in both eyes (having only light perception) along with the loss or loss of use of a leg
  • Certain severe burns
  • The loss or loss of use of one lower extremity (foot or leg) after September 11, 2001, which makes it so you can’t balance or walk without the help of braces, crutches, canes, or a wheelchair

Only 120 veterans and service members total can get an SAH grant each fiscal year based on the loss of one extremity after September 11, 2001. Any veteran who qualifies for an SAH grant but does not get one because they have all been given for that particular fiscal year are eligible to get this benefit in future years. Fiscal years (FY) begin October 1st and end September 30th.

Special Home Adaptation Grant

The Special Home Adaptation Grant (SHA) is similar to the SAH but is for a smaller amount. For FY 2024, the maximum amount of the SHA is $23,444. Like the SAH, it must be used to buy, build or modify a disabled veteran’s permanent home.

In order to qualify:

• The veteran or a family member must own or will own the home
• The veteran must have a qualifying service-related disability:

• • Blindness in both eyes (with 20/200 visual acuity or less)
  • The loss or loss of use of both hands
  • Certain severe burns
  • Certain respiratory or breathing injuries

Veterans who are eligible for an SHA grant do not have to use the money all at once; they can use money from this grant up to 6 times, but cannot receive more than $23,444. (the 2024 limit). If the work to be done costs less than the full amount, the veteran can use the smaller amount shown on the contractor’s bid and then in subsequent years, use more of the benefit.  In the last year of use, the veteran can use up to the current maximum amount.

Temporary Residence Adaptation Grants 

The Temporary Residence Adaptation (TRA) grants are for disabled veterans who are temporarily living in a family member’s home that needs to be adapted to meet their needs.

To be eligible:

• The veteran must have a qualifying service-related disability for either the SAH or the SHA
• The veteran is temporarily living in a family member’s home that needs changes to meet his or her needs

For FY 2024, veterans with a SAH-qualifying disability can get up to $47,130 and veterans with an SHA-qualifying disability can get up to $8,415.

How to Apply for a Housing Grant for Disabled Veterans

You can apply for SAH, SHA or TRA grant assistance in the following ways: 

• To apply online, go to the VA’s eBenefits website at: https://www.ebenefits.va.gov/ebenefits/about/feature?feature=sah-grant 
• To apply by mail, download VA Form 26-4555 here (https://www.vba.va.gov/pubs/forms/VBA-26-4555-ARE.pdf) and mail it to the nearest VA Regional Loan Center. See the section “VA Regional Loan Center Contact Information” for more details.
• To apply in person, fill out VA Form 26-4555 and bring it to the closest VA Regional Loan Center.
• To apply by phone, call 800-827-1000.

VA Home Loan Amounts and Limits

The VA has two ways that it limits the size of the loans that it guarantees: 

• Entitlement – The VA entitlement is the dollar amount that the VA will pay the lender in the event of a default, and this amount affects the loan size. See the section “VA Guaranty and Entitlement,” for specific information.
• Conforming limit –  The conforming limit is a set dollar amount for loan size. For most areas, the conforming loan limit for a single family home is $766,500 but it is higher in some high cost areas. See the section “Conforming Loan Limits,” for more information.

In addition, lenders have their own criteria for the size of loans they are willing to fund, including the assessed financial strength and stability of the borrower and the appraised value of the property.

VA Guaranty and Entitlement

The VA gives all qualifying veterans an entitlement in regard to VA loans. This entitlement is the percentage of the overall loan amount that the VA will guarantee. In the event of a default, the VA will pay the entitlement amount to the lender. VA-approved lenders will not approve a VA loan unless the combination of the guaranty and down payment is at least 25% of the purchase price. 

A veteran’s entitlement can impact the home loan amount they can qualify for. Most veterans who qualify for a VA home loan will have full entitlement as long as they do not currently have a VA home loan. Full entitlement is the dollar amount that the VA will pay the lender if a borrower stops making payments.

See the section “Getting a VA Certificate of Eligibility (COE)” for eligibility information.

VA Loan Guaranty Amount With Full Entitlement

Loan Amount	Maximum Potential Guaranty
Up to $45,000	Maximum of 50% of the loan amount
$45,001 to $144,000	Minimum of $22,500 and maximum of up to 40 percent of the loan up to $36,000
More than $144,001	Maximum of 25% of the loan amount or $104,250, whichever is less

There is no loan limit for veterans with full entitlement. A veteran with full entitlement will also have no down payment requirement because the whole 25% is guaranteed by the VA.

Full entitlement is when the veteran has:

• Never used their home loan benefit, or
• Paid a previous VA loan in full and sold the property (in this case, the veteran will have the full entitlement restored), or
• Used the home loan benefit, but had a foreclosure or compromise claim (also called a short sale) and repaid the VA in full

Some veterans have a partial entitlement or no entitlement. That would happen if the veteran:

• Has an active VA loan they are still paying back, or
• Paid a previous VA loan in full and still owns the home, or
• Refinanced the VA loan into a non-VA loan and still owns the home, or
• Had a compromise claim (or short sale) on a previous VA loan and didn’t repay the VA in full, or
• Had a deed in lieu of foreclosure on a previous VA loan (this means the veteran transferred the home’s title to the bank that holds the mortgage to avoid foreclosure), or
• Had a foreclosure on a previous VA loan and didn’t repay the VA in full

With a partial entitlement, the VA guarantee resets to 25% of the conforming loan limit for the county in which the property is located. In most areas, the conforming loan limit is $766,500 so the guarantee would be $191,625. If the veteran wants to buy a home for more than the conforming loan limit, the amount of the previously used (but not restored) entitlement would be subtracted from the current entitlement. 

Conforming Loan Limits

Although there is no loan limit for veterans with full entitlements, VA limits the size of VA-backed loans to the conforming loan limits for those with partial entitlements and who do not want to make a down payment. 

Conforming loan limits are the maximum loan amounts that Fannie Mae and Freddie Mac set for their conventional loans.  Fannie Mae and Freddie Mac are government sponsored entities (GSEs) that buy mortgages from lenders in order to increase the availability and affordability of mortgages in the U.S. For most properties, the loan limit for a single family home is $766,500, but this increases to $1,149,825 in high-cost states and territories as shown in the table below. 

For more information on Fannie Mae, click here: https://www.fanniemae.com/ 

For more information on Freddie Mac, click here: https://www.freddiemac.com/ 

Loan Limit Table by State & Territory

Number of Units	48 Contiguous States, the District of Columbia and Puerto Rico	Alaska, Guam, Hawaii, the U.S. Virgin Islands, and High-Cost Areas in the U.S.
1	$766,550	$1,149,825
2	$981,500	$1,472,250
3	$1,186,350	$1,779,525
4	$1,474,400	$2,211,600

How to Determine Loan Limits for High-Cost Areas in the U.S. 

High-cost areas within some states have higher loan limits.

There are high-cost areas in the following states: 

How to Borrow More Than the Conforming Loan Limit

A borrower with remaining entitlement wanting to buy a home where the loan would be more than the conforming loan limit would have to make up the difference by paying a down payment. 

Here is an example: 

1) Let’s say a veteran wants to buy a $800,000 home that is located in a regular-cost area (the District of Columbia, Puerto Rico and most counties within the  contiguous United States). The maximum loan limit for most counties in these states is currently $766,500. 

Let’s also assume that this veteran has used $10,000 of the entitlement, so their remaining entitlement would be calculated as follows:

$766,500 x 25% (the maximum percentage the VA pays the lender for loans over $144,000) = $191,625

$191,625 – $10,000 (the amount of the entitlement the veteran has already used) = $181,625 in remaining entitlement

2) In this situation, this amount of guaranty is not enough for the lender. The lender requires a guaranty of 25% of the purchase amount.

So, the veteran would need to come up with extra money to arrive at the 25% guaranty. This can be done through a down payment, which is calculated below: 

$800,000 purchase price x 25% required guaranty = $200,000

$200,000 – $181,625 of remaining entitlement = $18,375 down payment, or 2.3%

The veteran may still be able to buy that home if he or she can make a down payment of $18,375.

However, if this home is located in one of the designated high cost areas (Alaska, Guam, Hawaii, USVI or a designated high-cost county in the contiguous United States), it would fall below the conforming loan limit of $1,149,825. Thus, the veteran could buy the home with zero down payment.

$1,149,825 (maximum conforming loan limit for high-cost areas)  x 25% required guaranty = $287,456

$287,456 – $10,000 (the amount of entitlement the veteran has already used) = $277,456

This is more than what is required by the lender, so the veteran would not need a down payment.

Manufactured Housing Maximum Loan Amounts

Allowable Loan Purpose	Maximum Loan Amount
To purchase a manufactured home to be affixed to a lot already owned by the Veteran	The lesser of:   -the sum of the purchase price plus the cost of all other real property improvements, and the VA funding fee, or   -the VA notice of value for the property, plus the VA funding fee
To purchase a manufactured home and a lot to which it will be affixed	The lesser of:   -the total purchase price of the manufactured home unit and the lot, plus the cost of all other real property improvements, plus the VA funding fee, or   -the purchase price of the manufactured home unit, plus the cost of all other real property improvements, plus the balance owed by the Veteran on a deferred purchase money mortgage or contract given for the purchase of the lot, plus the VA funding fee
To obtain a regular “Cash-Out” refinance for an existing loan on a manufactured home and purchase the lot to which the home will be affixed	The lesser of:   -the sum of the balance of the loan being refinanced, plus the purchase price of the lot, not to exceed its reasonable value, plus the costs of the necessary site preparation as determined by the VA, minus a reasonable discount on that portion of the loan used to refinance the existing loan on the manufactured home, plus authorized closing costs plus the VA funding fee, or   -the total reasonable value of the unit, lot, and real property improvements, plus the VA funding fee.
An interest rate reduction refinance loan to refinance an existing VA loan on a permanently affixed manufactured home and lot	The sum of:   -the balance of the VA loan being refinanced, plus -allowable closing costs, plus -up to two discount points, plus -the VA funding fee.  Note: The provisions applicable to IRRRLs apply. See the section “Interest Rate Reduction Refinance Loans” for information.

Lender Considerations When Determining Loan Amounts

The VA, unlike other government entities that guarantee loans, does not set specific financial qualifications that borrowers need to meet in order to qualify for a VA-backed loan. They leave those specifics to lenders for the most part. 

Income, debt and credit score requirements vary from lender to lender. Although lenders have an extra level of comfort with VA loans because the federal government is guaranteeing a portion of the loan in case of default, they still try to avoid making loans to borrowers who will be more likely to default on their loan. 

The bigger the loan amount, the bigger the mortgage payment will be, so lenders’ underwriting departments (the departments that evaluate mortgage applications, assess risk and then ultimately approve or deny the applications) will require that borrowers have more income, a higher credit score and less debt (or some combination of these) to approve larger loans.

Income

In terms of income, VA loan lenders assess residual income instead of total income. According to the VA, residual income is “the amount of net income remaining (after deduction of debts and obligations and monthly shelter expenses) to cover family living expenses such as food, health care, clothing, and gasoline.” 

Residual income requirements are determined based on family size, region and the veteran’s status using the following tables.

Residual Monthly Income Requirement for Loan Amounts of $79,999 and Below 

Family Size	Northeast Region	Midwest Region	South Region	West Region
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 seven

Residual Monthly Income Requirement for Loan Amounts of $80,000 and Above 

Family Size	Northeast Region	Midwest Region	South Region	West Region
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 seven

The residual income requirement can be reduced by 5% if:

• The applicant or spouse is an active-duty or retired serviceperson, and 
• There is a clear indication that he or she will continue to receive the benefits resulting from the use of military-based facilities located near the property.

Credit Score

While the VA does not have a minimum credit score to qualify for a VA loan, most lenders have a minimum credit score for VA loans, which is between 580 and 660 according to the finance website NerdWallet. The average credit score of VA loan borrowers in 2023 was 715.

The higher the borrower’s credit score, the more the lender may be willing to lend and the better the interest rates and other terms on the loan may be.

Debt-to-Income Ratio

A borrower’s debt-to-income (DTO) ratio is the amount of monthly debt payments divided by monthly income. VA lenders prefer a debt-to-income ratio of 41% or less. However, if a veteran has residual income that is at least 20% more than the income shown in the table for that veteran’s region and family size (see the “Income” section of this guide), a higher DTI may be acceptable. 

Other compensating factors that can help a borrower’s approval and loan size with a higher DTI include excellent credit, long term employment, a large down payment, significant liquid assets and military benefits.

How to Apply for VA Home Loans

The process of applying for a VA home loan can be broken down into the following steps:

• For purchases, find a home to buy.
  • • If refinancing a mortgage, skip this step.
• Gather the necessary documents. Refer to the “Documents and Information Needed to Apply” section for more information.
• Compare mortgage lenders. “Refer to the Finding a VA Lender” section for more information.
• Fill out a mortgage application and submit documentation.
• Wait for the approval/denial.
• If approved, close on the mortgage loan.

Learn more about these steps and the documentation required in the sections below.

When to Apply

There are two times when you can apply for a mortgage during the purchase process: before finding a home (called pre-approval) and after finding a home to buy.

Pre-Approval

Some homebuyers decide to go through the mortgage application early, before they have found a home that they want to buy. The reasons for this are twofold:

1. In a competitive housing market, having a pre-approval makes the homebuyer more attractive to the seller. In other words, if the seller has multiple offers, he or she will be more likely to accept one from a buyer who is pre-approved because there is less risk of the deal falling through due to a lack of financing. 
2. The second reason is that getting pre-approved speeds up the time between the seller accepting the offer and closing.

With a pre-approval, the lender will have no information on the property being purchased, so there are steps that will still need to be done once an offer has been accepted. These include: 

• Adjusting the underwriting for the exact amount needed for the loan
• Getting an appraisal on the property
• Getting any home inspections required

The underwriter may also want to confirm that nothing important has changed since the pre-approval, like a drop in credit score or loss of employment on behalf of the applicant.

At Time of Purchase

While pre-approval does have some advantages, homebuyers do not have to get pre-approved. They may opt to wait until they have a contract on a home so that they will have all of the information about the property and loan size. Homebuyers may also benefit from waiting if they expect to be in a stronger financial position (better credit score, more income, less debt) in the near future. In this situation, waiting will result in more favorable mortgage terms.

Documents and Information Needed to Apply

All VA loans require a Certificate of Eligibility (COE) (see the section of this guide, “Getting a VA Certificate of Eligibility (COE)” for more information). In addition, lenders will require documentation so that they can assess the borrower’s risk. 

General Loan Document Requirements

General documentation may include some or all of the following: 

• VA appraisal
• Proof of homeowners insurance
• Identity documents
  • Driver’s license or military ID
  • Social Security card
• Income/employment verification documents, which may include
  • Pay stubs for previous month or if currently employed by the military, a military Leave and Earnings Statement (LES) from within the past 120 days
  • If not currently employed by the military, verbal verification of employment, including proof of business existence for self-employed borrower(s) 
  • Previous 2 years of IRS W-2 forms 
  • Previous 2 years of business tax returns if self-employed 
• Other military and personal documents, which may include:
  • If disabled with a service-related illness or injury, the veteran must have submitted an application for Disability Compensation and Related Compensation Benefits, which can be downloaded here: https://www.vba.va.gov/pubs/forms/VBA-21-526ez-ARE.pdf
    • If already receiving disability benefits, VA Form 28-8937
  • If currently employed by the military, Statement of Service
  • If no longer employed by the military, VA Form DD-214
  • Surviving spouses must be receiving Dependency and Indemnity Compensation (DIC)
    • For surviving spouses of service members who died on active duty, apply for DIC by downloading the form here, https://www.vba.va.gov/pubs/forms/VBA-21P-534a-ARE.pdf, and contacting a local VA Regional Home Loan Center
    • For surviving spouses of veterans, apply for DIC by downloading the form here, https://www.vba.va.gov/pubs/forms/VBA-21P-534EZ-ARE.pdf, and contacting a local VA Regional Home Loan Center

Documents Needed for Specialized Loans 

• All purchase loans – A copy of the signed sales agreement
• Farm loans – A farming plan and evidence of farm experience
• Energy efficient mortgages:
  • If borrowing up to $3,000 – Copies of bids and a construct itemizing improvements and cost
  • If borrowing $3,001-$6,000 – Evidence of the cost of improvements and a certification that the extra money paid each month on the loan does not exceed the amount saved in lower utility payments
  • If borrowing more than $6,000 – NOV to certify that the property value will increase by at least the amount spent on the improvements
• Streamline refinance:
  • A copy of the original mortgage note
  • Most recent mortgage statement
• Native American Direct Loans (these are sourced from the tribal authority):
  • Certified title status report
  • IHS water/sewer report 
  • Archeological survey 
  • Evidence of tribal membership  
  • Lease agreement or deed

Finding a VA Lender

All VA loans except for the Native American Direct Loan are made through lenders. So, other than those applying for an NADL, veterans will need to find a lender that offers VA loans. 

See the section “Native American Direct Loans (NADL)” for more information. 

Shopping for a Mortgage

Although the VA sets some vague eligibility requirements for VA loans, lenders may set more stringent requirements. Terms, interest rates and requirements like minimum credit score, minimum income and maximum DTI may vary from lender to lender. For this reason, the VA recommends that veterans look at several different lenders to find one that is best suited to their needs. This is called shopping for a mortgage.

Comparing lender interest rate, minimum eligibility and terms will allow veterans to identify the most suitable lender. Veterans with higher credit scores, lower debt or more income may benefit from lenders with more stringent requirements but lower interest rates. Those with more debt or lower credit scores may have a better chance of being approved by a lender with lower requirements but higher interest rates.

When comparing interest rates, the best benchmark is to compare the annual percentage rate (APR) rather than the interest rate. The APR includes fees and other charges so it is a more complete measure of a mortgage’s cost. 

Comparing loans from different lenders with the same general terms will result in the most accurate comparison. This means comparing either fixed rate or adjustable rate mortgage (see the section of this guide, “Fixed and Adjustable Rate”) and either 15-year or 30-year terms from lender to lender.

Types of VA Lenders

The VA does not publish a list of VA-approved lenders. Qualifications to become a VA lender are low, but there are different levels of VA lenders based on their experience doing VA loans. 

• Supervised lenders – This is a broad category of banks and credit unions. No VA lending experience is required.
• Automatic non-supervised lenders – These are more experienced lenders and are required to have:
  • Two or more years of active VA origination experience, and
  • Must have originated and closed 10 or more VA loans within the past two years or
  • Must have originated and closed more than 25 VA loans
• Third party originators or mortgage brokers – These are called independent loan officer agents by the VA. They originate (take and process the applications for) loans, but work with a lender in the background to actually loan the money. The VA prohibits mortgage broker fees, but there may be some additional cost for the veteran when this option is used.

In addition to these types of VA lenders, there is an even more experienced type of VA lender. The VA has a program called the Lender Appraisal Processing Program (LAPP). LAPP allows lenders to handle home appraisals without getting the VA involved. In order to qualify for LAPP, lenders are required to: 

• Have an in-house full-time appraisal reviewer
  • This appraisal reviewer must have a minimum of 3 years of experience doing administrative appraisal reviews when underwriting VA loans
• Demonstrate that it has an effective quality control system in place to ensure the accuracy of the staff appraisal reviews

In addition to the LAPP lenders’ experience, another advantage to getting a VA loan through this type of lender is that the appraisal process is shorter.

Questions to Ask a VA Lender

Asking these questions before applying for a VA loan can help veterans find lenders and loan officers that are experienced in VA loans:

1. How long has this company processed VA loans?
2. How many VA loans has this company processed? 
3. Is this company an automatic non-supervised lender? 
4. Are you or is this company part of the LAPP?
5. How long have you been a loan officer? 
6. How many VA loans have you closed?

Below is a list of some of the biggest national lenders that provide VA-backed loans. 

National Lenders Providing VA Loans

Lender	Contact Information	Minimum Credit Requirement
Veterans United Home Loans	https://www.veteransunited.com/ 800-884-5560	600
Veterans First Mortgage	https://www.veteransfirst.com/ 800-217-1596	600
Fairway Independent Mortgage	https://www.fairwayindependentmc.com/  800-201-7544	580
New American Funding	https://www.newamericanfunding.com/ 800-890-1057	580
Navy Federal Credit Union	https://www.navyfederal.org/ 888-842-6328	620
USAA	https://www.usaa.com/ 800-531-8722	620
PenFed Credit Union	https://www.penfed.org/ 800-247-5626	620
Lending Tree	https://www.lendingtree.com/home/va/ 800-555-8733	500
Quicken Loans	https://www.quickenloans.com/alf/wham/loanType  800-251-9080	580

Applying for a Loan with a Lender

Many lenders have online applications. This is a convenient way for veterans to apply for a home loan. When applying online, the veteran will either need to scan and upload, scan and email, or copy and drop off/mail supporting documents. If the veteran has not yet gotten a COE, the lender can facilitate this. 

Once the application has been made and submitted with the documents, the lender goes through a process of looking at the documents and assessing the risk of lending money to the borrower. This process is called underwriting. 

During underwriting, the lender may have questions and may ask the borrower for additional documents. At the end of underwriting, the lender will either approve the loan application or deny it. For most VA loans, underwriting takes on average about 40-50 days from application to decision. The exception is the IRRRL, which takes between a few days to 2 weeks.

Refer to the section “Interest Rate Reduction Refinance Loan (IRRRL)” for more information about the Interest Rate Reduction Refinance Loan (IRRRL).

Applying for a Native American Direct Loan

To apply for a Native American Direct Loan, follow these steps:

1. Check to see if the veteran’s (or spouse’s) tribe has a Memorandum of Understanding (MOU) with the VA here: https://www.benefits.va.gov/homeloans/nadl_mou.asp 
2. Get a COE 
   • • See the section “Getting a VA Certificate of Eligibility (COE).”
3. Contact the local VA Regional Loan Center to apply. 
   • • See the section “VA Regional Loan Center Contact Information.”

The VA does not publish information online about the NADL application process other than that it is through the Regional Loan Center. The VA also does not publicize minimum credit scores, DTI maximums or other financial qualifications. 

The VA does need to interact with the tribal authority, so timelines may be slightly longer than for lender-processed loans.

Denials and Appeals

When a veteran’s VA loan is approved, the process moves forward to closing and homeownership. However, not all VA loans are approved. 

Reasons You May Be Denied by the VA

The VA may decide that a veteran does not meet its qualifications for service, and that it will therefore not issue a COE. 

Length of Service Is Too Short

In order to qualify for a VA loan, the veteran has to have served a minimum period of time. This is 90 days during wartime and 181 days during peacetime through September 7, 1980 (for enlisted troops) or October 16, 1981 (for officers). After this time period, the minimum time of service is increased to 24 months or 181 days if called to active duty. 

Active duty service members are required to have a minimum of 90 continuous days to qualify. 

See the section “Eligibility Requirements for Veterans and Service Members on Active Duty” for more information.

National Guard and Reserve members must have 90 days of continuous duty during the Gulf War or 6 creditable years of duty. See the section “Eligibility Requirements for National Guard and Reserve Members” for more information. 

Veterans who served shorter time periods before applying for a VA loan will not qualify to get a COE.

Possible Eligibility for Veterans Who Do Not Meet Service Requirements 

Some service members, veterans, National Guard members and Reserve members who do not meet minimum service requirements may still be able to receive VA benefits including VA loans only if their discharge was due to one of the following: 

• Hardship – This is when a member of the service member’s family dies or becomes severely disabled and the service member is the dependent’s only means of care, or when the service member’s family suffers a devastating loss and the only way for the family to get by is for the service member to leave the military.
• The convenience of the government (the borrower must have served at least 20 months of a 2-year enlistment). This includes temporary or permanent discharge if:
  • An unmarried service member has a child or other dependent who needs care, or if there is a dual-military couple with dependents and both members are deployed, or
  • A mental or physical condition is discovered that severely impairs the service member’s ability to fulfill his or her duties including personality disorder, chronic airsickness or seasickness, dyslexia, sleepwalking and claustrophobia
• Early out (the borrower must have served 21 months of a 2-year enlistment) – This is when an enlisted soldier applies to leave the military early because of either a civilian job offer or they are barred from reenlisting because there are too many others in that particular speciality.
• Reduction in force – This happens when military budgets are cut by Congress and positions are eliminated.
• Certain medical conditions – This includes mental conditions like severe depression, anxiety as well as physical illnesses or injuries that impair the service member’s ability to walk, grasp things, see, hear, breathe or otherwise fulfill his or her duties.
• A service-connected disability (a disability related to your military service) – This includes any injury or illness that was caused by active duty activities or environment.

Those who are on active duty or are in the Reserves or National Guard and have not yet served sufficient time can serve more time and then reapply. 

Any veterans who served less than the generally required timeframe but had a service-related disability may still qualify. Revising the COE application to make sure that the service-related disability is noted can fix this issue.

Dishonorable Discharge 

The VA requires that veterans who have left the service have done so honorably, through an honorable discharge, retirement or disability. Veterans who have a dishonorable discharge, bad conduct or any other kind of discharge that is not honorable may not qualify for a VA loan. However, there are ways that some veterans in this situation can still get VA services including loans. These ways include: 

• A discharge upgrade
• A character of discharge review 

Discharge Upgrade

A discharge upgrade changes the classification of a veteran’s discharge in the VA system. Veterans whose discharge was in one of the following categories may have a good chance of the military changing their discharge status:

• Mental health conditions, including posttraumatic stress disorder (PTSD)
• Traumatic brain injury (TBI)
• Sexual assault or harassment during military service (at the VA, it is called military sexual trauma or MST)
• Sexual orientation (including under the Don’t Ask, Don’t Tell policy)

In order to apply for a discharge upgrade, veterans can answer a series of questions online here: https://www.va.gov/discharge-upgrade-instructions/questions.

If a veteran has already applied for a discharge upgrade and has been denied, he or she can apply again. There is a better chance of the discharge being changed if the veteran has new evidence or the Department of Defense has changed its rules since the previous decision.

If a veteran has served more than one qualifying period of service and was discharged honorably from one period of service but not for another, the honorable discharge from a previous period of service is sufficient to get VA benefits. Veterans who are denied a COE because of dishonorable discharge but who have a previous period of honorable service can mention this in the discharge upgrade application. The application also has a question asking veterans if they received an honorable discharge but it was not reflected on their DD-214 military records. If this is the case, the veteran should say so on the application, which can help them get VA benefits.

Character of Discharge Review

Some veterans with a less than honorable discharge can qualify for some VA benefits by filing for a Character of Discharge review. Veterans submit information and evidence on the discharge circumstances and Department of Defense personnel will review the information to see if the discharge can be considered “honorable for VA purposes.” Veterans can enlist the help of a lawyer or a veterans service organization (VSO) for this process. A VSO can be found here: https://www.benefits.va.gov/vso/varo.asp.

VA Appeals

If the VA has denied a certificate of eligibility (COE), there are three different appeals processes that a veteran can choose to pursue. These processes do not apply to Native American Direct Loans (NADLs) or reconsideration of value requests (ROVs). If there are multiple issues that the veteran wants to appeal, he or she must pick one to have reviewed at a time. 

The options are as follows: 

1. Request a higher level review 
2. Submit a supplemental claim
3. File a direct appeal to the Board of Veterans Appeals 

See the serction of this guide under “Appraisal Appeal Part 2 (Reconsideration of Value)” for more information on ROVs.

Option 1: Request a Higher Level Review (HLR) 

This option allows the applicant to use the same information originally submitted (no new evidence can be submitted), but gets more senior people in the Regional Loan Center to review the application. To request an HLR, download VA form 20-0996 here: https://www.vba.va.gov/pubs/forms/VBA-20-0996-ARE.pdf.

Once the HLR application is filled out, it can be mailed to:

Or, it can be taken to the Regional Loan Center in person.

According to the VA, Regional Loan Centers must process these additional reviews quickly. HLRs must be assigned within 2 business days after receipt of the veteran’s request unless the veteran has requested an informal conference, in which case it must be assigned within 5 business days. Once assigned, the information must be reviewed within 7 business days. 

If you have questions about the time frame, contact your Regional Loan Center for more information. Refer to the section “VA Regional Loan Center Contact Information” for more information.

Option 2: Submit a Supplemental Claim (SC) 

This allows the applicant to add information to the original information that was submitted, and to send it to the same Regional Loan Center that initially reviewed the COE application. The information may be new evidence or relevant evidence that supports the veteran’s claim to benefits.

Evidence can come from the veteran or the veteran can ask the VA to get specific evidence from its records such as information from a VA medical center, other federal sources or even private providers. The information is meant to provide information that the VA did not have before, which may overturn a denial for benefits.

To request an SC, download VA form 20-0995 here: https://www.vba.va.gov/pubs/forms/VBA-20-0995-ARE.pdf.

Once the SC application is filled out, it can be mailed to: 

Or, it can be taken to the Regional Loan Office in person.

Supplemental claims are assigned and completed within the same time period as HLRs. If the SC decision is not in the veteran’s favor, they can request an HLR or file a board appeal.

Option 3: File a Direct Appeal to the Board of Veterans Appeals (BVA) 

This allows the applicant to submit either the same information (or add supplemental information) to a Veterans Law Judge at the Board of Veterans’ Appeals in Washington, D.C. who just deals with appeals regarding veteran benefits. 

When a veteran chooses a BVA appeal, there are three options to choose among:

• Requesting a Direct Review
• Submitting more evidence
• Requesting a hearing 

Requesting a Direct Review

Similar to an HLR, a Veterans Law Judge will review the appeal based on evidence already submitted. No new evidence can be submitted, and there is no hearing.

The Direct Review option takes about one year for the Board to complete, according to the VA.

To initiate this process, the veteran needs to download and fill out VA Form 10182 here: https://www.va.gov/vaforms/va/pdf/VA10182.pdf. 

The form can be submitted by mail to:

Or, it can be submitted in person at a Regional Loan Center or by fax to:

Submitting More Evidence

Like with an SC, this option allows the veteran to submit more evidence for a Veterans Law Judge to review. New evidence must be submitted within 90 days of the date when the VA receives the Decision Review Request: Board Appeal (VA Form 10182): https://www.va.gov/vaforms/va/pdf/VA10182.pdf.

The evidence submission option will take more than one year for the Board to complete, according to the VA.

Requesting a Hearing

This option allows veterans to request a hearing with a Veterans Law Judge. New and relevant evidence can be added, either at the hearing or within 90 days after the hearing. Adding evidence is optional. The hearing will be transcribed and added to the appeal file.

The hearing can take place in several different ways:

• Virtual hearing over the computer – This can be done on a computer or smartphone as long as they have both a working camera and working microphone. Apple devices require the veteran to download the VA Video Connect app (download here: https://apps.apple.com/us/app/va-video-connect/id1224250949); Android users do not need to download an app, as the link will open in a browser. Google Chrome and Internet Explorer are preferred browsers.
• Videoconference hearing at a VA location near you – This is basically the same as the virtual hearing option above, but the VA Regional Loan Center will provide and set up the equipment and software.
• In-person hearing at the Board of Veterans Appeals in Washington, D.C. 

The hearing request option will take more than one year for the Board to complete. To check on the status of a BVA appeal, veterans can call the BVA status line at:

Once a veteran files an appeal with the BVA, the VA options of HLR and SC are no longer available. 

However, once the BVA decision has been made, the veteran can still continue to argue the case, either by filing a supplemental claim [through the BVA system] (see the section “Option 2: Submit a Supplemental Claim”) or by filing an appeal to the U.S. Court of Appeals for Veterans Claims. Learn more about the latter option below.

Appeal to the U.S. Court of Appeals for Veterans Claims

The U.S. Court of Appeals is a higher court at which one can file a further appeal after a BVA decision has been made. Veterans must follow these steps to do so:

1. File a Notice of Appeal (download the form here: https://www.uscourts.cavc.gov/documents/Form1NOA.pdf) and provide the following information:
   • • Current contact information (name, address, phone number, email address)
     • VA claims file number
     • Date of the BVA decision being appealed
2. For acceptance, send the Notice of Appeal so that it is received within 120 days after the date on which the BVA mailed the notice of the decision. This date will be stamped on the front of the BVA’s decision.
3. Pay a $50 nonrefundable filing fee by check or money order (payable to the “U.S. Court of Appeals for Veterans Claims”), sending it to:

Veterans who cannot afford the fee cansend a Declaration of Financial Hardship to the same address (download the form here: https://www.uscourts.cavc.gov/documents/Form_4.pdf). The Declaration of Financial Hardship form must be received by the Court within 14 days after the Notice of Appeal (NOA) was sent.

Veterans can hire an attorney to represent them or represent themselves. Veterans representing themselves can find instructions here: https://www.uscourts.cavc.gov/documents/Form_8(a).pdf. 

Appeals Help

To help prepare for these appeals, veterans can enlist the help of an accredited representative or veterans service organization (VSO). Accredited representatives and VSOs are trained professionals who work on behalf of veterans and their dependents and survivors, helping them to understand and apply for benefits including home loans but also disability compensation, education, Veteran Readiness and Employment (VR&E), life insurance, pension, health care and burial benefits. They can also:

• Help gather supporting documents 
• File a claim or request a decision review on the veteran’s behalf
• Provide added support, like helping with transportation to medical appointments or emergency funds

Finding an Accredited Representative or VSO

• To find an accredited representative – Go to the eBenefits portal and search by state/territory, ZIP code, or the organization’s name https://www.ebenefits.va.gov/ebenefits/vso-search?_ga=2.123437518.432161254.1549749081-1632380512.1525475597. 
  • • Veterans using an accredited representative are required to let the VA know by filling out VA form 21-22a https://www.vba.va.gov/pubs/forms/VBA-21-22A-ARE.pdf?_ga=2.164333946.432161254.1549749081-1632380512.1525475597 and mailing it to the Regional Loan Center.
• To find a VSO – Search the VA Office of General Counsel’s list by name, city, state, or ZIP code https://www.va.gov/ogc/apps/accreditation/index.asp.
  • • Veterans using a VSO are required to inform the VA by filling out VA form 21-22 https://www.vba.va.gov/pubs/forms/VBA-21-22-ARE.pdf?_ga=2.164333946.432161254.1549749081-1632380512.1525475597  and mailing it to the Regional Loan Center.

Accredited representatives and VSOs are not allowed to charge veterans to help them request a decision review, but they may charge for additional services like gathering documentation.

Reasons You May Be Denied by a Lender

Because every lender has its own qualification criteria, it is possible to be denied a VA loan from one lender and be approved by another lender. Also, a borrower’s financial criteria, which includes credit score, debt-to-income ratio (DTI) and employment/income all work together to form a whole picture of the borrower’s overall risk. So, for example, if a veteran has a low credit score, having a little debt and significant income reserves may balance it out and result in an approval.

Credit Score Is Too Low

Each lender has its own minimum credit score, the majority of which are not below 620. Veterans with scores lower than that can work on their credit by paying bills on time, disputing inaccurate or out-of-date items on their credit reports and paying down outstanding debt on credit cards and loans. Ideally, this would take place before applying for a mortgage but, if credit is the reason for a denial, it can happen afterwards and then the veteran can reapply.

The VA does instruct lenders to work with veterans to overcome some credit issues like derogatory credit and thin credit files. If denied for credit, asking the loan officer if these have been explored may help.

Explanations for Derogatory Items

The VA understands that sometimes military service can lead to financial hardship that can show up in negative items on a veteran’s credit report. For example, active-duty deployments disrupt normal income, service-related disabilities can limit the amount of income a veteran can generate, and readjusting to civilian life can take some time. 

These situations may even result in serious credit events like bankruptcy and foreclosure. Unlike with a conventional loan, veterans applying for a VA loan after one of these events can be approved within a relatively short time frame (2 years) as long as they have consistently paid their bills on time for the previous 12 months. 

Veterans who have bad credit can submit a letter to the lender detailing the cause of the financial hardship, and this will be taken into consideration during the underwriting process.  

Non-Traditional Credit File

When a service member is deployed overseas for multiple years, he or she may not have enough credit accounts to even generate a credit score. This is called a thin file. In this case, the lender is supposed to ask the veteran for evidence of paying bills on time in order to build a non-traditional credit file. This may include records of rent payments, utility payments, tuition payments and insurance payments.

Debt-to-Income Ratio

Lenders look at the amount of debt a borrower is paying off each month compared to monthly income to get a sense of whether the borrower can afford the mortgage payments. Some factors that can help veterans with high DTIs are ending debt and high reserves.

Ending Debt

Some kinds of debt are revolving debt, which can be continually used and paid off, and other debt is installment debt, where a fixed amount is paid down over a fixed amount of time. A credit card is an example of revolving debt and a 5-year car loan is an example of installment debt. If a veteran with a high DTI is close to finishing payments on an installment loan, letting the loan officer know about the prospect of ending that particular debt in the near future can help the chances of approval. 

High Reserves

Because the DTI is meant to measure a mortgagee’s ability to afford monthly mortgage payments, showing significant income reserves (see the “Income” part of the section “Lender Considerations When Determining Loan Amounts”) can help make underwriters more comfortable with the prospect of approving the loan.

Employment and Income

The VA requires steady, reliable employment and income that is sufficient to meet the borrower’s expenses, including the mortgage payment. If there is an interruption in employment or income, this will negatively affect the veteran’s loan approval prospects and possibly result in denial. 

However, if the veteran has been hired but has not yet started a job, has several likely job prospects or has been able to earn steady income through gig work, showing this to the loan officer may help get approval.

Home Appraisal

Sometimes the borrower’s financials are sufficient but a loan will get denied because of a problem with the appraisal. An appraisal is an independent professional’s assessment of the property’s value. If this appraised value is less than the purchase price, the lender may not want to loan the money to buy this property.

The Appraisal Process

The VA appraiser examines the home and surrounding property and makes two assessments:

• To determine if the home meets the Minimum Property Requirement (MPR)
• To determine the property’s market value

If the property is found to not meet the MPRs, the borrower can negotiate with the seller to fix any issues before the sale can go through. Fixing safety issues is generally to the seller’s benefit because such issues may prevent the sale of the home to most buyers.

If the property is appraised at less than the purchase price, the veteran has three options:

1. Negotiate a lower purchase price with the seller.
2. Walk away from the deal. In this situation, the seller is required to return the veteran’s earnest money. Earnest money is a deposit the buyer pays the seller when signing a sales contract on the home.
3. Appeal the appraisal.

Appraisal Appeals (Tidewater Initiative)

The Tidewater Initiative is a process where additional information is solicited when an appraisal looks like it will be below the purchase price. 

The process works as such: 

1. If it looks like the appraisal is going to be lower than the purchase price, the VA appraiser can notify the lender before the appraisal is finalized. 
2. The lender then has 2 days to gather information supporting the purchase price. To do this, the lender usually turns to the buyer’s real estate agent to find information on sales of comparable homes (comps) and give that information to the appraiser.
3. The appraiser then finalizes the appraisal report. If the appraised value is still below the purchase price, the appraiser must state why that is the case.
4. The lender’s Staff Appraisal Reviewer (SAR) then reviews the appraisal report and issues the final notice of value (NOV), which is the official VA appraisal.

If the veteran does not agree with the value set in the NOV, there is an additional level of appeal called the Reconsideration of Value. Learn more in the following section.

Appraisal Appeal Part 2 (Reconsideration of Value)

The Reconsideration of Value (ROV) also enlists the help of the buyer’s real estate agent and tries to account for mistakes in the appraisal, paying particular attention to:

• Comps not included in the first appraisal – There should be at least 3 of these and they need to have closed before the date of the appraisal report. There should also be an explanation of why these comps are more comparable to the property being considered than the comps originally used.
• Evidence of errors made in the first appraisal – If there was inaccurate information used in the first appraisal report, these should be explained and documented. 
• A letter from the borrower asking for a reconsideration of value and outlining why the appraised value is too low and what the borrower thinks the value should be.

After the reconsideration of value paperwork is filed with the lender, the SAR will review it and decide if the appraisal has problems. If so, it will be forwarded to the VA for a possible reappraisal.

Application Errors

Sometimes a loan application is denied because there are errors in either the documentation submitted by the borrower or in how information was entered into the underwriting system. These errors may not be easy to find, but talking to the loan officer and the underwriter about the specific causes of issues may help borrowers to identify errors. 

If an error has been identified, then the borrower can supply the correct information for reconsideration and ask for manual underwriting. This process is more likely to result in a positive outcome if initiated early before a final underwriting decision; good communication with the loan officer throughout the application process can be important to outcomes.

Many loan applications are done with specialized underwriting software that evaluates the information input into it and renders a decision. Because it is being done automatically, errors that a human might spot may go unnoticed. Manual underwriting is where an underwriter goes through all of the information and then makes a decision, and the borrower can request this. 

In some cases, when reviewing the documents, an underwriter may request additional information or documents from the borrower to address errors. For example, a borrower may be unaware of a late payment report on their credit report. Once informed of the problem, he may be able to submit documentation showing that this payment was actually made on time. Another example is an employment gap that may be explained by a military deployment that can be documented. 

Since VA loans have a very low default rate, lenders prefer to make VA loans where possible, so they may be open to working with veteran borrowers even after initial denial.

In circumstances where a lender denies a VA loan, the veteran can choose to immediately reapply with another lender if the other lender has lower qualification criteria or if there was an error in the application and the denial from the first lender was final. Alternatively, if there are longer range issues such as a high DTI or poor credit, the veteran may want to work on improving those financial markers over time and then reapplying.

Other Homeowner Resources

Veterans having trouble making mortgage payments can get help by talking to a counselor at The Consumer Financial Protection Bureau (CFPB). 

Go online to https://www.consumerfinance.gov/find-a-housing-counselor/ to find counseling agencies approved by the Department of Housing and Urban Development (HUD) nearby. 

Veterans can also call the HOPE™ Hotline at (888) 995-4673 24 hours a day, 7 days a week for personalized advice or go online to: https://www.consumerfinance.gov/ask-cfpb/i146ve-heard-about-something-called-the-hope153-hotline-what146s-that-en-263/. 

Other financial resources for veterans are available at: https://www.consumerfinance.gov/coronavirus/servicemembers/.