How Does a VA Home Loan Work?

The Department of Veterans Affairs offers guarantees for VA loans, meaning their department insures a portion of the loan. These loans offer many advantages over other types of mortgages and are offered to specific, eligible borrowers to make it easier for them to buy, refinance, or fix up a home, farm, or other property. 

History of the VA Loan 

VA loans are part of the GI Bill, which was created in 1944 as part of the Serviceman’s Readjustment Act. This Act was designed to provide an easy path to mortgage financing and homeownership for veterans (or their surviving spouses, if they do not remarry) who might not otherwise be eligible for such a loan.  

In areas of the country or in situations where personal circumstances might make getting a traditional mortgage difficult, these loans have been incredibly helpful for those who have served in the U.S. military. To date, more than 18 million government-insured VA loans have been approved, assisting over 24 million service members since the program’s inception. 

How Is a VA Loan Different From Other Mortgages? 

In all mortgage scenarios, someone has to back or guarantee the loan — usually a bank or other financial institution, so that if the borrower defaults (meaning they fail to repay the loan), the lender can still get the money they are due. With a VA loan, a portion of the mortgage is backed by the government, which is seen as a very positive and solid financing option. Like all mortgages, a bank or private lender (such as Financial Concepts Mortgage) issues the loan — the government does not. Banks place high confidence in VA loans, making them easier to get for those who qualify. 

There are many advantages to financing a mortgage with a VA loan, and they differ quite a bit from the regular mortgage path. Because of the strength of the guarantee behind the loan, barriers that might otherwise be difficult for a homeowner or buyer to clear are waived, making the path to ownership much quicker and smoother.  

Here are some of the advantages offered by a VA loan: 

Is There a Downside to VA Loans? 

Being eligible for a VA loan doesn’t mean you automatically get one for whatever property you wish to finance. Because these loans are guaranteed by the government, the inspectors are typically stricter when inspecting a home purchased with a VA loan than one that will be backed by other financing, such as a conventional loan or FHA loan. If the property you want to buy or refinance has significant problems that an inspector deems too high-risk for the government to insure, it won’t meet their property requirements and you won’t be able to use the loan on that property. Alternately, they may approve the property but appraise it for much lower than the seller thinks the property is worth. This is why some sellers won’t entertain offers from someone who brings a VA loan for financing. 

VA loans can also take longer for approval. If you are in a tight timing situation, waiting for VA loan approval might not be possible. This is another reason a seller might not want to entertain an offer from someone with a VA loan. 

VA loans can’t be used to purchase things like investment properties or vacation homes. And, despite all the positives, private lenders can set their own standards for loans issued by their institution, regardless of approval of a VA loan.  

Of course, there are also limits as to who can even apply for a VA loan, since they were specifically designed to be available only to veterans and their surviving spouses. 

Who Qualifies for a VA Loan? 

There are specific requirements you must meet to qualify for a VA loan. The requirements for regular military members are different than those who serve in the National Guard or the Reserves. Generally speaking, you must have served in the military for a minimum number of days of active duty, which can range from 90 days if you are currently on active duty to 24 continuous months for regular military members. For the National Guard and Reserves, you need to have served 6 years, and meet various other requirements. There are other circumstances where you may not have met the minimum required days/months of active duty but could still be eligible for a VA loan, for example, if you had to leave service due to certain medical conditions or you incurred a service-related disability. 

Other people may also qualify for a VA loan even if they weren’t a member of the U.S. military. For example, if you served as a Public Health Service Officer or a Midshipman at the U.S. Naval Academy, you may be eligible for a VA loan.  

The length of time you served, your duty status and the character of your service are all factors that go into determining whether or not you are eligible for a VA loan. If you received a dishonorable discharge from any branch of the military, you usually are not eligible for the VA Loan Guaranty program. 

Applying for a VA Loan 

To begin the application for a VA loan, apply for a COE or Certificate of Eligibility, which shows a lender you are eligible for this type of loan. Then, contact a trusted lender who understands how VA loans work and apply to get pre-qualified. That’s it!