What makes a VA loan different
VA loans are backed by the U.S. Department of Veterans Affairs. The VA doesn't issue the loan itself — private lenders do — but the VA guarantees a portion of each loan, which removes enough risk that lenders can offer terms no other major program matches: no down payment and no monthly mortgage insurance.
Compare that to the alternatives. A conventional loan under 20% down requires private mortgage insurance (PMI) until you build enough equity. An FHA loan with the typical 3.5% down carries mortgage insurance for the life of the loan in most cases. A VA loan skips monthly mortgage insurance entirely. Over a 30-year mortgage, that single difference can add up to tens of thousands of dollars.
Who is eligible
Eligibility is based on service, not income or first-time-buyer status. The main categories:
- Veterans who meet minimum active-duty service requirements.
- Active-duty service members (typically after 90 continuous days).
- National Guard and Reserve members with qualifying service.
- Some surviving spouses of service members who died in the line of duty or from a service-connected disability.
Eligibility is proven with a Certificate of Eligibility (COE), which you can request directly through the VA or have a lender pull on your behalf. The COE confirms you qualify; it doesn't approve you for a specific loan. Lenders still apply their own credit, income, and DTI standards on top of VA eligibility — most want a FICO around 620+ and a stable two-year work history.
The VA funding fee — the one number to understand
VA loans don't have monthly mortgage insurance. Instead, most borrowers pay a one-time VA funding fee at closing. The fee keeps the VA loan program self-funded, so taxpayers aren't subsidizing the benefit.
Current funding fee rates
- Purchase, zero down, first use: 2.15% of the loan amount.
- Purchase, zero down, subsequent use: 3.30% of the loan amount.
- IRRRL streamline refinance: 0.50% of the loan amount.
Putting some money down lowers the fee on a purchase, but most buyers who use a VA loan do so precisely because they want zero down. The fee can be rolled into the loan amount, so it doesn't need to come out of pocket at closing — it just slightly raises the monthly payment.
Who is fully exempt from the funding fee
- Veterans receiving VA compensation for a service-connected disability rated 10% or higher.
- Surviving spouses receiving Dependency and Indemnity Compensation (DIC).
- Purple Heart recipients who are active-duty service members.
New for 2026: the VA funding fee is tax-deductible as mortgage insurance starting in tax year 2026, following the broader restoration of the mortgage insurance premium deduction. Income phase-outs apply — check with a tax professional for your situation.
Zero down vs. building equity
Zero down is the headline benefit, and it's a real one — it unlocks home ownership years earlier than waiting to save 10-20%. But it's worth being honest about the tradeoff. Buying with no down payment means you start with no equity cushion. If home values dip in your first few years, you can owe more than the home is worth, which limits your ability to sell or refinance.
The funding fee is best understood as the price of admission for avoiding monthly PMI — not a free lunch. Over a 30-year loan, the math still usually favors the VA borrower compared to a small down payment on a conventional or FHA loan. But "no down payment" is a financing structure, not a guarantee that prices won't move.
When a VA loan is the clear winner — and when it isn't
Clear winner
- You're eligible and don't have 20% saved.
- You'd otherwise pay PMI on a conventional loan or lifetime MIP on an FHA loan.
- You qualify for a funding-fee exemption — the program becomes nearly free of upfront cost.
Less obvious
- You can comfortably put 20%+ down on a conventional loan and want to avoid the funding fee.
- You're buying a second home or an investment property — VA loans are for primary residences only.
- You're buying in a market where some sellers steer toward conventional offers; an experienced agent can usually neutralize this, but it's a real friction point in fast markets.