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What is a VA home loan?

Military service members and their families are in the unique position to build equity through real estate at a lower cost than typical homebuyers.

VA loans provide affordable mortgage options for military veterans, active service members and their families by easing some of the financial burdens associated with buying a home. Since its creation in the 1940’s, the VA mortgage program has helped millions of service men and women get a foothold in the housing market and build a stable financial future.

Provided by the U.S. Department of Veterans Affairs, this program allows lenders to issue financing with more flexible eligibility standards and repayment plans. As an eligible VA loan applicant, you’ll get the benefits of zero down payment requirements, lower credit score minimums, comparatively lower interest rates, and other purchasing perks that can only be accessed with a VA loan.

While the VA does not provide the financing used in a home purchase, they do cooperate with private lenders to build an affordable mortgage plan. The VA guarantees private lenders that home loans for qualified military members will be backed up should the home fall into foreclosure. This guarantee only extends to the lender and does not assist the borrower or prevent them from falling into foreclosure. This added government assurance grants lenders with the flexibility to expand homebuying opportunities for service members looking to apply for a mortgage.

An ideal VA loan applicant is a military service member or surviving spouse with a relatively clean financial background. Let’s take a closer look at these VA mortgage requirements and how you can be eligible for this type of loan.

VA mortgage requirements

While the program is designed to help military service members get housing, not everyone who served is eligible. In order to qualify for a VA mortgage, there are a few important requirements you should be aware of:

  • Active duty members need to have served 90 consecutive days.
  • Veterans must meet the length-of-service standards, according to VA.gov.
  • Service members must complete 90 days of active duty, or six years in the National Guard or Selected Reserve.

For some cases, such as discharge or service-related injury, you might be exempt from certain length-of-service requirements. If you’ve had a bad conduct or dishonorable discharge in the past, you might not be eligible.

These exceptions can vary from case to case, so be sure to check the VA for your specific length of service requirement, discharge status and whether it can be upgraded.

Surviving spouses of veterans who were killed, injured or captured in the line of duty are also eligible. In order to secure a VA loan as a spouse, there are a few additional requirements:

  • You have not remarried.
  • The spouse was killed in service or from a service-related disability.
  • The spouse was missing in action or a prisoner of war for at least 90 days.
  • The spouse was rated disabled and was eligible for disability compensation at the time of death.

Again, there can be exceptions to these requirements. If you have further questions about your specific VA loan eligibility, be sure to contact the Department of Veterans Affairs.

What is a good VA interest rate?

VA loan interest rates are typically lower than the interest on conventional loans, but the average interest rate on VA mortgages is still connected to real-estate trends and the state of the economy.

Since VA mortgage rates are so closely tied to the housing market, the opportunity for a good VA interest rate comes when lenders reduce their rates for mortgages overall.

Mortgage interest rates remained fairly steady throughout 2018 to 2019, but the coronavirus outbreak and resulting economic shift greatly impacted the real estate market. According to Freddie Mac, conventional 15-year fixed mortgages came with a national average 4% interest rate in 2018. In 2019, 15-year fixed mortgage rates dropped a bit, down to an average of 3.5%.

The steep drop following the 2020 pandemic brought the national average rate of financing a home purchase on a 15-year plan to 2.22%. In the early months of 2021, these trends began to reverse and interest rates were once again on the rise.

As of March 2021, national average interest rates for VA home loans sat at 2.25% with the number expected to rise as interest rates tick back up. In addition to keeping an eye out for these economic changes, you can find a good VA interest rate by meeting with multiple lenders to compare offers and get the best possible deal.

How VA loan rates compare other mortgage rates

Thanks to the government insurance of these mortgages, lenders are able to offer competitive VA loan rates that are usually lower than conventional mortgages.

For example, in March 2021, a typical 30-year fixed mortgage (national) would come with an interest rate of 3.125%. In that same month, a VA loan on the same 30-year plan would come with 2.875% interest attached.

A difference of less than a percent might not seem like much, but throughout the term of the loan, you will have saved thousands in interest with the lower rate. Check out the links below for interest rates on other types of mortgages and how they stack up to VA loans:

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