Types Of VA Loans: Which Program Should You Choose?

Active service members, veterans or qualifying spouses: There are mortgage options created with you in mind. VA loans may make it easier for military buyers to purchase a home with lower interest rates and, in most cases, with little or no money down. 

Breaking down the different types of VA loans available and knowing how each loan type works can help you find the best option for your needs and financial goals. 

What Is A VA Loan? 

VA loans are government-backed loans, guaranteed to veterans, active service members and eligible spouses by the U.S. Department of Veterans Affairs (VA). While the VA determines the terms of VA loans, you’ll still have to go through a private lender to get one. But unlike with conventional loans, the VA backs some of your loan against default.

What does this mean for you? Since some of your mortgage is guaranteed by the VA, lenders can afford to offer better rates and more lenient borrowing requirements. This tends to make VA loans easier to qualify for than conventional loans, and usually with more favorable terms than even FHA loans – which are also government-backed.

VA loans aren’t strictly for purchase, either. Whether you need help financing renovations or you’re looking to cash out some home equity, there are VA refinancing options available, too. While there are plenty of types of home loans out there, including other government-backed mortgages like FHA and USDA loans, qualifying for a VA loan is a perk of your military service you may want to take advantage of. 

VA Loan Program Eligibility 

When applying for a VA loan you’ll first need proof of your military service. That’s where a VA Certificate of Eligibility (COE) comes in. COEs verify the following: 

• You are a service member on active duty or an honorably discharged veteran 
• You have served for at least 90 continuous days, without a break in service 
• For veterans, National Guard and Reserve members, that you meet the minimum active-duty service requirements, which vary based on when you served 
• For eligible spouses, that you receive dependency and indemnity compensation 
• If you were discharged as a result of a service-connected disability, service time requirements don’t apply 

It’s also important to note that not only will you need a COE to prove your service eligibility, but you’ll also need to meet your specific lender’s underwriting standards and requirements for a VA loan. This includes meeting their credit score requirement, which usually falls between 580 and 650. 

For a more exhaustive list of service requirements, visit the VA’s website. For more information on the COE application process, check out the VA Benefits website.

Different Types Of VA Mortgage Programs

When searching for the right VA loan for your situation, you’ll encounter a variety of options to choose from.

VA Purchase Loan 

A VA purchase loan helps borrowers buy a house with little to no down payment requirement and less stringent qualifications than many other loan types. 

You can also get a VA jumbo loan for a home purchase, which affords borrowers loan amounts that exceed the national loan limits set by the Federal Housing Finance Agency (FHFA). VA jumbo loans also have flexible requirements and higher loan amounts when compared with conventional loans. 

With both regular VA purchase loans and VA jumbo loans, you’ll be able to choose between adjustable- or fixed-rate mortgages. 

VA Renovation Loan

With a VA renovation loan, also called a VA rehab loan, borrowers can get financing for the purchase or renovation of a property. Similar to refinance loans, a VA renovation loan can also help borrowers refinance their current mortgage and turn equity into funding for home improvement projects. 

This kind of loan differs from a regular home loan in the way that your loan amount is based on a quote from a VA-approved contractor. Your home will also be appraised post-renovation to reassess your home’s value. 

This type of loan is best for homeowners with specific improvement projects in mind. Just be sure to check with your lender that they offer VA renovation loans since many – including our sister company, Rocket Mortgage^® – do not. 

Native American Direct Loan (NADL) Program 

The NADL program is a mortgage option unique to Native American veterans living on federal trust land, which allows for the purchase, construction and renovation of a home. Eligible borrowers not only have to meet COE requirements, but their tribal government will also need to obtain a Memorandum of Understanding (MOU) agreement, which outlines how the program will work on the reservation’s land. 

Different Types Of VA Refinance Loans 

Already have a mortgage? You may be able to use a VA loan to refinance to a better rate or different loan terms. Here are some options currently offered. 

VA Cash-Out Refinance 

A VA cash-out refinance allows you to cash out 100% of your home’s equity. While most homeowners tend to use their equity for home renovations or improvements, you can tap into your equity to fund education, pay off medical bills or consolidate any debts. VA cash-out refinances usually allow borrowers to access more of their equity than conventional or FHA refinance loans. 

VA Interest Rate Reduction Refinance Loan (IRRRL) 

A VA IRRRL, also called a VA streamline refinance, can help you reduce your monthly mortgage payments by lowering your interest rate. If your current mortgage is an ARM, you can also refinance to a fixed-rate mortgage for more predictable monthly payments. No appraisal or additional documentation is required when switching to a VA streamline. 

Which Type Of VA Loan Is Right For You? 

Each VA loan program comes with its own set of advantages and disadvantages. Figuring out which program is right for you depends on your eligibility, financial situation and your homeownership goals. To make sure you get a mortgage befitting your needs, do ample research when finding a lender and don’t be afraid to ask for quotes.  

Types Of VA Loans FAQs

What are the VA loan limits? 

The VA uses conforming loan limits for its non-jumbo loans. In 2022, they are $715,000 for most areas of the U.S. and $1,073,000 in high-cost areas like Alaska and Hawaii. If there’s no down payment required, VA loans technically have no limits on how much you can borrow within the conforming loan limits. However, there are limits to how much the VA will guarantee and these limits vary based on your VA entitlement. Usually, the VA will guarantee up to 25% of the amount a lender approves you for. 

What’s the difference between a VA purchase loan and a VA jumbo loan? 

A VA jumbo loan is a kind of VA purchase loan that allows borrowers to secure financing for a pricier property. At Rocket Mortgage, qualified borrowers can get a VA jumbo loan up to $2 million, depending on their credit score and down payment, if they have one. 

What credit score do I need to qualify for a VA loan? 

The VA itself does not have a set VA loan credit score requirement, but most lenders do. The minimum median credit score for a VA loan with Rocket Mortgage is 580. In the case of VA refinances and jumbo loans, you may need a higher minimum credit score. 

How much is the VA funding fee? 

The VA funding fee is a one-time payment made on VA loans in place of a down payment or private mortgage insurance (PMI). This fee typically ranges between 0.5% – 3.3% of your total loan amount. Factors like your loan type, whether you’ve used a VA loan before and your down payment amount will affect your funding fee total. 

How many times can I use a VA loan? 

Eligible borrowers can use their VA loan benefits as many times as they’d like throughout their lifetime as long as you continue to meet VA loan eligibility and qualify with your lender. 

The Bottom Line 

If you’re qualified, VA loans are a valuable resource you may want to consider when refinancing or making a home purchase. With low rates, flexible qualifications and $0 down, buying a home can feel much more accessible. 

Ready to start your home search today? Consider starting a mortgage application with our friends at Rocket Mortgage.