Myth versus fact

VA-Backed Home Loan — what is true and what is myth

I rebuilt this page in my own words. The version going around came from a lender, and what a lender leaves out can cost you thousands of dollars. Here is the whole thing.

Call it by its right name. VA calls this the VA-backed home loan, and the thing you earned is the VA home loan benefit. Use those words when you search VA.gov and you will land on the right page. VA does not lend you the money — a regular lender does, and VA guarantees part of it, which is why the terms are better. Everything below is free information. Nobody should charge you for it.

Veterans Crisis Line — dial 988, then press 1. Text 838255. Chat at veteranscrisisline.net. TTY 711 then 988, or 1-800-799-4889. 24 hours a day, 7 days a week. You do not have to be enrolled in VA benefits or health care to connect. Money trouble and the fear of losing a home are heavy. If that is where you are tonight, make this call first and the loan call in the morning.

Myth 1

"You need a down payment."

Fact: most eligible Veterans, Service Members and eligible surviving spouses can buy with 0% down.

Here is the part the flyer left off. Zero down holds as long as the sales price is not higher than the home's VA-appraised value — the value VA's appraiser puts on the house. If you agree to pay more than the appraisal says the home is worth, you pay that difference in cash out of your own pocket.

In a hot market this is the trap. Bidding $20,000 over asking does not mean $20,000 more loan. It can mean $20,000 cash at closing. Ask before you bid.

VA's purchase loan page

★ Zero down, up to the appraised value.

Read this first

Surviving spouses — this benefit can be yours

Every flyer I have seen says "Veterans and Service Members" and stops there. That wording makes widows and widowers put the paper down. Do not put it down.

You may be eligible for the VA home loan benefit if:

You are eligible for, or currently receive, certain types of VA Dependency and Indemnity Compensation — DIC, the monthly payment VA makes to some survivors
Your spouse died on active duty or from a service-connected disability
You are the spouse of an active-duty Service Member who is missing in action or being held as a prisoner of war

Remarried? If you remarried at age 57 or older on or after December 16, 2003, you may still qualify. And a surviving spouse receiving DIC pays no funding fee at all — see the funding fee card.

Start here: VA home loan eligibility and benefits.va.gov home loan eligibility.

★ If you are a survivor, you are in this.

Step one

Get your Certificate of Eligibility

The COE is the paper that proves to a lender you have this benefit. Nothing starts without it.

Request it online at va.gov/housing-assistance/home-loans/how-to-request-coe
Or ask your lender — most can pull it for you in minutes
Paper route for Veterans and Service Members: VA Form 26-1880

Surviving spouses, do not stop at that form number. Form 26-1880 is the Veteran's and Service Member's form. A different route applies to you, and it exists. Use the eligibility page above, or ask VA or your lender which form fits your situation. A form number printed too narrowly is the reason people who qualify never file.

★ COE first. Then shop.

Myth 2

"You only get to use it once."

Fact: you can use the VA home loan benefit more than once — if you have remaining entitlement, or you restore your entitlement.

Entitlement is the dollar amount of your loan VA guarantees. Basic entitlement is $36,000. When a VA loan is paid off, that entitlement can come back to you.

The one-time restoration most people never hear about. VA's own words: "On a one-time only basis, you may have your eligibility restored if your prior VA loan has been paid in full but you still own the property." You keep the house and get the benefit back — once.

It is not automatic. Restoration happens because you request it. Work it through your lender or through VA directly, starting at benefits.va.gov/homeloans/eligibility.asp. Do not mail anything to an address printed on an old handout — offices and addresses change. Confirm where it goes before you send it.

★ Earned once. Usable again.

Myth 3

"VA requires a certain credit score."

Fact: VA does not set a minimum credit score. Individual lenders set their own.

So when a loan officer tells you "you need a such-and-such score," that is that company's rule, not the law and not VA's. If one lender says no, another lender may say yes on the same file. Shop it.

Ask every lender the same two questions: What is your own minimum score for a VA loan, and how many VA loans did you close last year?

★ A lender's cutoff is not a VA rule.

Myth 4

"VA loans take forever to close."

Fact: the official number does not show VA loans being slower.

I will give you this one exactly as straight as I have it. The newest figure VA has published on this is old — VA data from March 2015. It showed VA purchase loans closing in about the same number of days as conventional loans, and being more likely to close at all: 70% of VA purchase applications closed, against 67% conventional and 61% FHA.

I will not tell you VA is faster. I have seen no official VA figure that says so. Anyone who tells you VA loans are slower — or faster — is going past what VA publishes.

Your real lever is the lender. Pick one that closes VA loans every month and ask them for their own average days to close, in writing.

★ Same days. Better odds of closing.

Myth 5

"You cannot build a house with it."

Fact: eligible Veterans may use a VA construction loan through participating lenders to build a new home.

True — and harder than the flyer makes it sound. Expect stricter qualification, much more documentation, and upfront out-of-pocket costs before you buy the land. The VA guaranty is not issued until the final compliance inspection is approved.

Few lenders offer this product. Find the lender before you commit to a piece of land. Do not assume "0% down" carries over to building.

VA on construction loans

★ It exists. Line up the lender first.

Myth 6

"You must sell your house before you can use it again."

Fact: depending on your remaining entitlement and lender qualification, you may be able to buy another primary residence without selling your current one.

A second VA loan is usually NOT zero down. Your entitlement plus any down payment generally has to cover 25% of the new loan. With full entitlement there is no VA loan limit — only what your lender will approve. With only remaining entitlement, your county loan limit applies, and anything above it may require a down payment in cash.

Ask your lender to put your remaining entitlement in numbers before you write an offer, so nobody surprises you with a cash demand at the closing table. VA loan limits

★ Know your remaining entitlement first.

Myth 7

"Sellers will not accept a VA offer."

The flyer I was handed cut off mid-sentence here. This is the rest of it.

The honest answer is not a slogan about how much sellers love VA buyers. It is the data above: by VA's 2015 figures, VA-backed purchase applications closed more often than conventional or FHA and took about the same number of days. Have your agent say that plainly in the offer, and bring a real pre-approval.

Your escape clause — know this before you sign anything. Every VA-financed purchase contract must contain this language: "The purchaser shall not incur any penalty by forfeiture of earnest money or otherwise be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs." Plain English: if the VA appraisal comes in below your contract price, you can walk away and keep your earnest money.

Do not let anyone strike that clause from your contract. Not the seller, not an agent, not a lender. That is your money protected.

★ Bring the clause. Keep the clause.

The money

The VA funding fee — nobody put this on the flyer

Zero down does not mean free. There is a one-time fee, and it is the biggest thing that sheet left out.

Effective April 7, 2023, on a purchase loan with less than 5% down the funding fee is 2.15% of the loan amount on first use and 3.3% on every use after that. On a $300,000 loan that is roughly $6,450 the first time and $9,900 the next time.

That second number matters most to anyone reusing the benefit. Rates and charts change. Check what is in effect the day you close on VA's own funding fee page — not on a flyer, not on mine.

★ Ask the number before you sign.

Money back

Who pays no funding fee at all

Some people owe nothing. Veterans who did not know this have paid thousands of dollars they never owed.

Veterans receiving VA compensation for a service-connected disability
Veterans eligible to receive that compensation but taking retirement or active-duty pay instead
Surviving spouses receiving DIC
Service Members with a pre-discharge proposed or memorandum rating
Active-duty members who received a Purple Heart

Already paid it and you were exempt? If you were charged the fee in error, you can request a refund. Start at VA's funding fee page and raise it with your lender and VA.

★ Check the exemption. It is real money.

Two more rules

No PMI — and you must live in the home

No private mortgage insurance. VA's own words: "No need for private mortgage insurance (PMI) or mortgage insurance premiums (MIP)." On a conventional low-down-payment loan that insurance protects the lender, not you, and you pay for it every month. VA has put the saving at more than $200 a month compared with an FHA loan. Over years, that is larger than anything else on this page.

Occupancy. You must certify you will live in the home. A VA-backed loan cannot be used to buy a rental or an investment property. That applies to the second-home case too — it has to be your primary residence.

VA purchase loan details

★ Save the PMI. Live in the house.

If you fall behind

Call VA before you call the servicer

This is not on any lender flyer, and it is the one that saves homes.

If you are behind on payments or about to be, VA loan technicians work with Veterans directly. They can help with special forbearance, a repayment plan, a VA loan modification, 30- and 40-year modifications, and the VA Partial Claim.

VA loan technicians: 877-827-3702 (TTY 711). You do not have to face your servicer alone.
va.gov/housing-assistance/home-loans/trouble-making-payments

Call early. Options are wider before the missed payments stack up.

★ One phone call, before it gets away from you.

Watch out

The mail that looks official and is not

VA and the Consumer Financial Protection Bureau have both warned Veterans about this.

Official-looking mailers using government seals, colors, or a fake case number
Refinance offers with urgent deadlines, "skip two payments," or cash-back promises
Anything charging you a fee to get your COE or to "check your benefits"

VA does not solicit you by mail to refinance. If a piece of mail makes you feel rushed, that is the tell. Put it down and start at VA.gov instead. VA on misleading advertising

★ Nobody charges you for what you earned.

Why I rewrote this. The sheet that came to me carried a lender's branding and told seven tidy truths. It never mentioned the funding fee, never mentioned that some of you owe no funding fee at all, never mentioned surviving spouses, never mentioned the escape clause, and never told you a second VA loan is usually not zero down. Those are the parts that cost money. I put them back. I bring the truth, simple and to the point — I have nothing left in this world but my word.