The paperwork lands in your inbox and suddenly you’re staring at a wall of acronyms. COE. MIP. PMI. DTI. APR. Nobody hands out a glossary when you leave the service, and the loan officer who calls five minutes after you request a quote usually isn’t in the mood to slow down.
So here’s the slow version. No sales pitch, no assumption that you already know what a funding fee is. Just the building blocks of how mortgages work for veterans, in roughly the order you actually need them.
Start With the Loan You Already Paid For
If you hit the service requirements (generally 90 consecutive days of wartime service, 181 days during peacetime, or six years in the National Guard or Reserves), you have access to a VA-backed home loan. That should be your default starting point, and it’s a genuinely good one.
Here’s what it gives you:
- $0 down payment in most cases, with no monthly mortgage insurance ever
- Rates that usually run a quarter to half a point below comparable conventional loans
- The seller can legally pay all of your closing costs and even pay off some of your debts to help you qualify
- No prepayment penalty, and the VA limits how much a lender can charge you in certain fees
The VA does not set your interest rate. Lenders compete for your business, which means the rate you get depends entirely on which lender you choose and how well you shop.
What the VA Actually Does, and What It Doesn’t
This trips up almost everyone at first. The Department of Veterans Affairs does not lend you money. It guarantees a portion of the loan to the lender, which is what lets that lender offer you better terms than it would to a civilian with the same credit score. Your mortgage will come from a bank, credit union, or mortgage company that’s approved to originate VA loans.
The funding fee
On a first use with nothing down, the funding fee is 2.15% of the loan amount. On a $350,000 loan that’s about $7,525, and it’s typically rolled into the loan rather than paid at closing. Put 5% down and it drops to 1.5%. Put 10% down and it falls to 1.25%. A second use of your entitlement with nothing down runs 3.3%.
Veterans receiving VA disability compensation are exempt from the fee entirely, and the exemption also applies to certain surviving spouses. Check this before you assume you owe it. Lenders occasionally miss it, and it’s real money.
Your entitlement is your borrowing ceiling
With full entitlement, there is no VA loan limit. You can borrow well above the conforming loan limit, which sits at $806,500 in most of the country for 2025, without a down payment, provided the lender approves you. If you’ve used the loan before and haven’t restored your entitlement, you’re working with partial entitlement and the math gets more involved. Ask your loan officer to walk you through the actual calculation rather than guessing.
You have to live in it
The property must become your primary residence, generally within 60 days of closing. Vacation homes and straight investment properties don’t qualify. That single rule rules out a lot of scenarios people assume are fair game.
Where FHA and Conventional Loans Fit
VA is the strongest option for most veterans buying a primary home, but it isn’t the only tool, and there are real situations where something else wins. A quick orientation:
FHA loans
FHA allows 3.5% down with a credit score around 580, and its underwriting is forgiving of past credit trouble. The catch is the mortgage insurance: 1.75% upfront plus an annual premium around 0.55% of the loan balance. Put less than 10% down and that annual premium stays for the life of the loan. On $350,000, that’s roughly $160 a month forever. The VA equivalent is $0.
Conventional loans
Conventional loans often start at 3% to 5% down for first-time buyers, and private mortgage insurance falls off automatically once you reach 20% equity. They make sense when you’re buying a second home, building a rental portfolio, or when your VA entitlement is tied up in another property. If you want the side-by-side breakdown of all three, there’s a straight comparison of VA, FHA, and conventional loans that runs the numbers without the sales gloss.
The Four Numbers That Decide Whether You Get Approved
Rates get all the attention, but approval comes down to four figures. Know where you stand on each before you talk to anyone.
- Credit score. The VA itself sets no minimum, but lenders set their own. 620 is the common floor, 580 is possible with some lenders, and 640 or above unlocks the best pricing tiers.
- Debt-to-income ratio. Add up every monthly payment you owe, including the new mortgage, and divide by gross monthly income. 41% is the standard benchmark, though VA guidelines allow higher when you have compensating factors like reserves or a long employment history.
- Residual income. This one is unique to VA loans. After housing costs, debts, and taxes, you need a set amount left over each month, scaled by region, family size, and loan size. A family of four in a high-cost county might need $1,000 or more in residual income. It’s designed to keep veterans from becoming house-poor.
- Cash to close. Zero down does not mean zero cash. On a $350,000 purchase, budget somewhere between $8,000 and $15,000 for appraisal, title insurance, origination, prepaid taxes and insurance, plus your earnest money deposit.
If you’d rather see those numbers applied to an actual purchase from offer to closing, a step-by-step walkthrough with real figures is more useful than another list of definitions.
How to Compare Offers Without Getting Snowed
Get a Loan Estimate from at least three lenders, ideally within a 14-day window so the credit pulls count as one inquiry. Then compare like for like: same loan amount, same rate lock length, same day.
The interest rate is the headline. The APR is closer to reality because it folds in lender fees. Ask each lender what the rate would be with one point versus zero points, and ask how much lender credit they’d give you for taking a slightly higher rate. That trade-off is often worth more than people realize when cash to close is tight.
One more question worth asking: does this lender service VA loans in-house or sell them immediately? It doesn’t change your rate, but it changes who you call when something goes sideways eighteen months from now.
First-Year Traps That Cost Veterans Real Money
A handful of avoidable mistakes show up again and again. Using the first lender who calls instead of shopping. Paying a funding fee they were exempt from. Assuming a seller’s rejection of a VA offer means the loan is the problem, when it’s usually about appraisal timelines the listing agent doesn’t understand. Or reusing entitlement without confirming whether it can be restored, which quietly eliminates the zero-down benefit.
Most of these come from myths that have been repeated so often they sound like facts. There’s a rundown of the myths that cost veterans money if you want to know what to push back on.
What to Do This Week
Pull your Certificate of Eligibility through the VA’s portal, which takes about ten minutes if your service records are clean. Grab your free credit reports from all three bureaus and dispute anything wrong. Then call three lenders, ask each for a Loan Estimate on the same pretend purchase, and put them side by side on your kitchen table.
When you can explain every line on that estimate in your own words, without calling anyone for help, you’re ready to make an offer. That’s the whole test. Veterans who shop carefully and understand the funding fee, the residual income rule, and the difference between rate and APR consistently end up with better terms than those who sign with the first person who answers the phone.