A guide to the types of VA loans

VA loans, backed by the Department of Veterans Affairs, can help qualifying service members, veterans and surviving spouses access affordable mortgages and a path to homeownership. If you’re eligible to receive a VA loan, you’ll enjoy plenty of benefits that include avoiding mortgage insurance, securing a lower interest rate and being able to borrow funds without a down payment.

Different types of VA loans, ranging from home purchase loans to refinancing options, can help borrowers achieve different goals. Let’s walk through the different types of VA loans available to you and consider the eligibility requirements for each.

How do VA loans work?

Lenders such as banks, credit unions and mortgage providers, not the U.S. Department of Veterans Affairs (VA), issue VA loans. However, thanks to these home loans’ federal backing, they pose less of a risk to lenders and require less of an upfront investment by potential borrowers.

With VA loans, like with other government-backed loans, the government provides a measure of guarantee that an individual lender will recover some – if not all – of its losses if the homeowner stops making payments and the home goes into foreclosure. This typically allows financial lenders to provide borrowers with loans that offer more favorable terms than loans obtained through a conventional or Federal Housing Administration (FHA) loan program.

Why are VA loans a great option?

VA loans aren’t just easier to qualify for than loans provided through non-government-backed loan programs. They can also be used to finance home upgrades and renovations, or even to cash out the equity you possess in your home.

Here are a few of the top benefits you can expect with a VA home loan:

• No down payment: When you buy a home with a VA loan, you’re able to finance 100% of the home’s purchase price if the lender agrees. That means you won’t have to worry about saving for a down payment.

• No private mortgage insurance (PMI): Unlike with conventional loans, you won’t have to pay for PMI if you don’t have a 20% down payment. Instead of PMI, VA loan borrowers typically pay a VA funding fee.

• Easier requirements: Lenders tend to offer more flexible credit score and financial requirements for VA loans than most mortgage options. Qualifying service members may find it easier to be approved for a VA home loan than for another mortgage type.

• Competitive interest rates: Qualifying home buyers might find that interest rates from the VA loan program are lower than those of conventional loans. A 30-year VA mortgage interest rate might be 0.25% – 0.42% lower than with a comparable conventional loan.

What different types of VA loans are there?

Each type of VA loan comes with advantages and disadvantages, so you’ll want to compare features and options to determine the right fit for you.

Let’s take a look at some of your VA mortgage loan options below.

VA purchase loan

A VA purchase loan or a VA jumbo loan is the standard form of mortgage a home buyer might expect to see issued under a VA loan. It allows buyers to purchase properties with a $0 down payment. You’ll be able to secure better terms than you would on a conventional mortgage issued by a private lender.

Note that terms vary by individual mortgage lender, and you may have to provide a down payment with a VA jumbo loan despite the Department of Veterans Affairs not requiring one. As with most types of mortgages, a VA purchase loan gives you the option to choose an adjustable- or fixed-rate mortgage.

VA renovation loan

Under the terms of a VA renovation loan, borrowers can obtain funds to purchase and renovate a property, and otherwise finance the cost of home improvements. Similar to a traditional VA loan, a VA renovation loan can help veteran homeowners renovate and upgrade their home. However, not many lenders offer this loan option.

Native American Direct Loan

The Native American Direct Loan (NADL) is available to qualified service members and their surviving spouses as long as one of them is Native American. Eligible borrowers can use this loan to buy real estate or refinance an existing mortgage. Like other types of VA loans, NADL mortgages allow you to finance the full purchase price of the home with no down payment unless required by your lender.

Types of VA refinance loans

You can also use a VA loan to refinance your mortgage, as long as you meet all of the requirements. Here are some types of refinance loans available through the VA.

VA cash-out refinance

A VA cash-out refinance loan lets you use up to 100% of your home’s equity to pay medical bills, family debt, educational costs or any other expenses. You can also use a VA cash-out refinance for home improvements or to boost your investment and savings accounts.

Eligible borrowers can use this option as a rate-and-term refinance, if desired. Cash-out refinances are also available to eligible homeowners without a VA loan, but you won’t be able to tap into as much of your home equity.

VA interest rate reduction refinance loan (IRRRL)

A VA IRRRL, also known as a VA Streamline Refinance, can help you reduce your monthly mortgage payments on an existing home loan by lowering your interest rate or helping you switch from an adjustable-rate loan to a fixed-rate mortgage.

Also, you won’t have to get an appraisal or provide additional income documentation with this type of refinance. Finally, you can also add borrowers through a joint VA loan. Note that borrowers should consider the closing costs when determining whether to pursue this option.

Who qualifies for a VA loan?

To obtain a VA loan, you must be one of the following:

• An active-duty, national guard or reserves service member or a veteran who meets certain minimum length-of-service requirements

• A surviving spouse of a military service member who died while on active duty

• An active-duty military member or veteran with a disability connected to your service

Keep in mind that you also need to meet your lender’s individual credit and income requirements. These requirements are set by the lender, not the VA. Also, the property you intend to purchase with the VA loan must be your primary residence, not a vacation or investment home.

You must have a certificate of eligibility

To obtain a VA loan, you’ll need a VA certificate of eligibility (COE) verifying your status as a qualifying service member or surviving spouse. You can get your COE from the Department of Veterans Affairs. Surviving spouses may face additional requirements for VA loan eligibility.

The property must meet certain requirements

Not all properties will meet VA loan eligibility requirements, regardless of the borrower’s status. A VA-approved appraiser will need to make sure the home adheres to the VA’s minimum property requirements and that its value aligns with current government-issued guidelines. If the property doesn’t appraise well, your lender may not issue you the loan.

What to consider about the types of VA loan programs

As noted, different types of VA loan programs come with different upsides and downsides. As you begin the purchase or refinance process, start by researching which program makes the most sense for your household. Consider shopping around to find a lender who offers favorable rates and understands the various types of VA loans.

What to know about the VA funding fee

VA loans don’t require borrowers to pay PMI if they put less than 20% down on the home. Instead, borrowers pay the VA funding fee, which is a flat fee set by the federal government that’s 1.25% – 3.3% of the loan amount for purchase loans as of April 2023. You can pay the VA funding fee upfront or incorporate it into your total loan amount, depending on your down payment amount.

As a general rule, the funding fee amount is based on the borrower’s individual circumstances and loan.

Typical VA funding fee amounts

Here’s a brief overview of how much you’ll pay for the VA funding fee based on your down payment and whether you’re using a VA loan for the first time.

Purchase and construction loans

Other VA loan types

Funding fee waivers are available

If you have a disability due to military service, you may be able to obtain a waiver to avoid paying the VA funding fee. Contact the Department of Veterans Affairs if you have questions about your eligibility for a VA funding fee waiver.

FAQs about different types of veteran loan programs

Here are a few questions people often ask about VA loan types and getting a VA loan.

What are the VA loan limits?

VA loan limits aren’t based on which type of VA loan you select. They’re determined by how big of a mortgage an individual lender is willing to extend. Your income, available entitlement, credit score, DTI and other factors may impact VA loan limits.

Which type of VA loan is right for me?

Consider your eligibility, individual situation, financial needs and what you’re trying to accomplish. If you plan to refinance an existing loan, a VA IRRRL may be a great option. If you want to make home improvements and already have equity in your home, a VA cash-out refinance can be a solid choice. If you’re buying a new home, a VA purchase loan may save you money in the long run.

Do VA loans require a down payment?

VA loans typically don’t require a down payment. Jumbo loans, which are higher than $806,500 in most states, may be an exception. Lenders may require a down payment for a jumbo loan, even with a VA loan.

Can I use a VA loan to finance any type of real estate?

VA loans are intended to help eligible borrowers finance a primary residence. That means no vacation homes or vacant land. You might be able to use a VA loan to fund an investment property such as a quadplex if you plan to use one of the units as your primary residence.

The bottom line: Veterans have many options for loans

Each of the different types of VA loans – including VA purchase loans, cash-out refinances, IRRRLs, NADLs and renovation loans – serve a different set of needs and purposes.

However, all of them can help you obtain a mortgage and purchase a single-family home, condo or townhouse under more favorable terms than a conventional loan or FHA loan can offer. You’ll also enjoy significant benefits if you’re a veteran or active-duty service member.

For qualified borrowers, a VA loan can be a great way to finance a new home or refinance an existing mortgage. If you’re interested in a VA home loan, apply online with Rocket Mortgage^®.