Best VA Mortgage Lenders of December 2023

If you're an eligible service member or veteran, consider applying for a VA mortgage when you're ready to buy or refinance your home. VA home loans are issued by private lenders but are guaranteed by the U.S. Department of Veterans Affairs (VA). As a result, qualifying requirements for VA loans are less stringent than for standard loans. Interest rates are also competitive (although there are some loan fees to pay).

A wide variety of lenders make these loans, and some mortgage lenders specialize in VA loans. However, the best VA loan lenders offer loans with no down payment requirements, no private mortgage insurance, and relaxed credit score standards, as well as excellent customer service, educational resources, and an easy application process. Here are our experts' favorites.

A VA loan is backed by the U.S. Department of Veterans Affairs (VA). The benefit of getting this type of mortgage loan is not having to put money down toward the purchase of your new home. The VA itself does not provide home loans. Private lenders like banks, credit unions, and mortgage companies do, and the VA guarantees a portion of the loan. This means lenders can provide veterans and service members with more affordable terms. There's also technically no minimum credit score requirement for getting a VA loan, but individual mortgage lenders may set their own thresholds.

Pros and cons of a VA loan

A VA loan is often the best home loan product for service members and veterans. Here are the pros and cons of a VA loan:

VA loan benefits

VA loans offer excellent benefits for those who qualify.

No down payment required

The VA does not require a down payment, but certain lenders may require it for some borrowers using the VA home loan guaranty. The VA home loan guaranty is an agreement that VA will reimburse the lender if there is a foreclosure. This takes the place of a down payment, which is why many lenders do not require one.

In comparison, an FHA loan typically requires a 3.5% minimum down payment. Most conventional loans will require a 5% to 20% minimum. This leaves more money in the home buyer's pocket. However, the monthly payment will be higher since they will be borrowing more money and have less equity in the property.

Competitively low interest rates

Home buyers often get lower interest rates with VA loans. Since the federal government supports these loans, lenders charge competitive rates for eligible veterans and service members. The VA does not set the interest rates -- lenders determine the rate based on a home buyer's specific financial situation. This is why it is important to shop around for the best rate.

Limited closing costs

Closing costs are fees you pay your lender to process your loan. They may include origination fees, home appraisal fees, title search fees, and other charges. VA loans' origination fees are limited to 1% of the total loan amount, while conventional loans typically charge between 0.5% and 1%. VA loans tend to have fewer closing costs, which may be paid by the seller, lender, or any other party. There is also no penalty for paying off the loan early.

As with conventional mortgages, your closing costs with a VA loan will generally fall between 2% and 5% of your loan amount. Your funding fee, meanwhile, will depend on whether this is your first VA loan and whether you're making a down payment. For your first VA loan, you'll pay a 2.15% funding fee if you don't want to make a down payment. For subsequent applications, you're looking at a 3.3% fee. But if you're able to make a down payment of 5% but less than 10%, your funding fee will be 1.5%, whether this is your first VA loan or not. For a down payment of 10% or more, your funding fee will be 1.25% for a first or subsequent application.

The VA will waive the funding fee completely for certain individuals, allowing them to save even more money:

• Veterans receiving VA compensation for a service-connected disability.
• Veterans entitled to receive VA compensation for a service-connected disability, but receiving retirement pay or active service pay.
• Unremarried surviving spouses of veterans who died in active service or from a service-connected disability.
• Service members with a proposed or memorandum rating from VA, prior to loan closing, who are eligible to receive compensation as a result of a pre-discharge claim.
• Service member on active duty who provides, on or before the date of loan closing, evidence of having been awarded the Purple Heart.

No need for private mortgage insurance (PMI)

Unlike conventional loans, VA loans don't impose private mortgage insurance (PMI) -- a premium borrowers must usually pay when their down payment is less than 20%. PMI is a type of insurance that protects the lender if a homeowner is unable to pay their mortgage and defaults. PMI is usually required on conventional loans if you make a down payment of less than 20% of the total mortgage amount.

The Federal Housing Administration (FHA) requires borrowers to self-insure against potential financial loss by paying a mortgage insurance premium (MIP). Not having to pay PMI or a MIP can save money on a monthly mortgage payment for those with a VA loan.

Lifetime benefit

Service members and veterans can use the VA Home Loan guaranty multiple times throughout their lifetime. In addition, there's no loan limit with full entitlement. That means that as long as the buyer can afford the loan, the VA will back loans in all areas of the country, regardless of home price. This can help home buyers struggling to find a home in their desired location due to price constraints.

Assumable

Unlike with conventional mortgages, VA loans can be assumed by a new buyer. This can be an especially big perk if mortgage rates rise, as an assumable low-rate mortgage can make your home far more attractive to buyers.

VA loan disadvantages

There are some drawbacks to a VA loan, however.

Home buyers may have less equity in their property

There are risks in buying a home with no money down -- namely, that it could take a while to build equity in that property. And if your home's value drops after you buy it, you could wind up owing more on your home loan than your house is worth.

Only eligible individuals with a military affiliation can qualify

To first qualify for a VA loan, home buyers must fit the following criteria:

• Active-duty service members and veterans who have discharges other than dishonorable.
• National Guard and Reserve service members and veterans with an honorable discharge.
• Certain eligible spouses, and other uniformed service personnel may also be eligible for VA home loan guaranty benefits.

VA loans can only be used for a primary residence, not a rental or vacation home

VA loans are great for purchasing or refinancing your primary residence, but they cannot be used for vacation homes or investment properties. However, you may be able to use a VA loan for a property with up to four units, as long as you occupy one and rent out the others. Just remember, if you plan to rent out all four units, VA financing won't be an option.

An upfront funding fee can make these loans more expensive

Some sellers tend to be resistant to buyers who are using VA loans, since there are some extra restrictions these loans may have compared to a conventional loan. There's also an upfront charge (the VA funding fee) that a home buyer may need to pay, as discussed above. Qualifying veterans, however, including those with a service-connected disability rating, can have the fee waived.

The funding fee is collected by the Veterans Administration to insure loans made under the program. Paying for a VA loan's funding fee repeatedly comes with a drawback -- it's more expensive. Here's how much more you'll need to pay:

• First use with no down payment: 2.15%
• Subsequent use with no down payment: 3.3%
• Any use with 5%-10% down payment: 1.5%
• Any use with 10% or more down payment: 1.25%
• Loan assumption fee: 0.5%

Not all lenders offer VA loans

Not all mortgage lenders offer these loans, which could limit your options. Even online lenders might not have this type of loan available. To make sure you get the best funding options, you'll want to work with mortgage lenders that specialize in VA loans. These lenders have experienced professionals who work with VA loans every day.

What type of VA loans are there?

VA loans are issued by private lenders that rely on a guarantee made by Veterans Affairs that protects them in case of default. The VA guarantees a number of loan types, including the following.

Purchase loans

These help you buy a new home with a mortgage guaranteed by the VA, as of 2023, there is no loan limit if you have full entitlement. However, your income, credit history, and assets will be used by your lender to determine the size of loan you can afford.

Cash-out refinance loans

These enable you to refinance an existing mortgage and borrow more than you currently owe to access equity in your house and turn it into cash.

Interest rate reduction refinance loans

These can help reduce your monthly payments and the total cost of your mortgage by refinancing to a new one at a lower interest rate.

In addition to guaranteeing loans made by banks, credit unions, and online lenders, the VA also offers more direct assistance to eligible service members. Direct sources of home-buying help include adapted housing grants for veterans to buy, build, or adapt a home to accommodate a service-connected disability.

There's also a Native American Direct Loan (NADL) program that helps eligible Native American veterans buy, build, or improve homes on Federal Trust land. As of August 2023, NADL loans have interest rates starting at just 2.5% -- at a time when the national average interest rate for a 30-year conventional fixed-rate mortgage is above 7%.This makes access to housing loans more affordable for Native American veterans.

Are VA loan interest rates lower?

If you're a military veteran or active-duty service member looking to purchase a home, you may be wondering if VA loan interest rates are lower than other types of loans. The answer is yes, generally speaking. VA loans are backed by the government, which means lenders take on less risk and can offer lower interest rates.

In addition to having lower interest rates, they are also easier to qualify for than conventional mortgages not guaranteed by the VA. Since the lenders determine the rate based on a home buyer's specific financial situation and not the VA's criteria, it is important to shop around for the best rate.

What are the eligibility requirements for a VA loan?

To first qualify for a VA loan, home buyers must meet the following criteria:

• Active-duty service members and veterans who have discharges other than dishonorable.
• National Guard and Reserve service members and veterans with an honorable discharge.
• Certain eligible spouses, and other uniformed service personnel may also be eligible for VA home loan guaranty benefits.

You can check www.ebenefits.va.gov or call 877-827-3702 to determine if you meet the service history requirements.

In addition to your service record, additional requirements include:

• You must use the loan to purchase a home you will occupy or that your spouse or dependents will occupy while you are on active duty.
• You must have satisfactory credit. However, there is no minimum credit score limit and lenders are expected to look at your entire financial profile when deciding whether to lend to you.
• You must have enough income to make monthly mortgage payments and meet your other financial obligations. You can use our mortgage calculator to estimate what your monthly payments might look like.
• You must obtain a valid Certificate of Eligibility (COE) from the VA.
• Your debt-to-income ratio must be below 41% unless the lender provides compensating factors (other financial criteria that justifies your approval). In other words, all of your monthly debt obligations, including your new mortgage, must come to less than 41% of your pre-tax income.

How to apply for a VA loan

To apply for a VA loan, you'll need to take the following steps:

• Assemble your documents. You will need to prove your military affiliation. This could mean providing your discharge or separation papers (DD214) if you are a veteran, or a statement of service if you are an active-duty military member.
• Obtain a Certificate of Eligibility. You can apply for this online at your eBenefits account or via mail. The U.S. Department of Veterans Affairs provides details on obtaining the COE.
• Look at the current state of your finances. Review your credit score, net worth, and monthly budget to see how much you can afford. Make sure you're ready to buy a home. Decide how much you want to spend on a mortgage -- and be sure to include closing costs in the overall price.
• Determine what type of VA loan you want. The process of applying will differ if you are interested in a direct loan or want to get a loan from a private lender that is guaranteed by the VA.
• Research lenders. Different private lenders have their own rules for eligibility, as well as their own interest rates. You should compare quotes from several lenders to find the right one.
• Shop for a home. Meet with several real estate agents and then choose the right one to represent you in the home-buying process. Ensure that you comprehend all of the contract terms, fees, and commissions before signing with an agent. Keep in mind that they are working for you and your best interests should always come first. Get your lender's pre-approval letter and then start searching for a new home. Look at houses in your price range until you find one that works for you.
• Submit an application to your lender. You'll need to apply for a loan either online or in person, based on your lender's requirements. This will involve providing your Certificate of Eligibility as well as basic financial and personal information such as proof of income and your credit details.

You will also have to complete the other essential steps in the mortgage application process, including having the home you are interested in buying appraised to determine its value.

How to choose the best VA mortgage lender

Many banks, online lenders, and credit unions offer VA loans. To find the right lender:

• Look for several lenders that offer loans guaranteed by the VA.
• Get pre-approval or prequalification from each lender to find out the rates and terms of the loan they would provide. Ideally, look for lenders that pre-approve you without a hard credit inquiry. That will help to protect your credit score.
• Choose a loan with the lowest total cost. Make sure you factor in the interest paid over time as well as the upfront fees and application fees. While the VA funding fee is always the same, other costs can vary considerably from one lender to another.

It is best to get quotes from several mortgage lenders as each can set their own terms and interest rates as long as they conform to broad VA guidelines for issuing loans.

Who is a VA loan a good option for?

A VA loan is a good option if:

• You have a service record that entitles you to a loan. It makes sense to apply for a VA loan and see what rates you qualify for, even if you may end up using another loan type.
• You don't have the credit score or financial credentials required to get a loan from a conventional lender that has lower fees and a comparable interest rate.
• You don't have a down payment or your down payment is small and you don't want to have to pay for PMI. Or you've received a down payment gift and you would like to use it for 100% of your down payment. (Not all loan types allow this.)
• You are also eligible to have the funding fee waived.
• You want to roll your closing costs into your loan, so if you're short on funds right now, you can still buy a home.