How the VA home loan works the first time

VA doesn't make the loan. It backs one from a private lender, so two sets of rules apply, and the funding fee alone can run from nothing to several thousand dollars.

If you're planning to buy a home with your VA benefit, start here: for most VA loans, VA doesn't make the loan. A private bank, mortgage company or credit union does. VA guarantees part of it, which protects the lender if you stop paying and is why a VA loan can usually come with no down payment.

VA issues your eligibility, decides which charges a lender may pass on, and publishes the funding fee set in law. The lender sets your rate, points and own fees, and decides whether to approve you and for how much.

The funding fee is the number to understand first. On a $400,000 loan it is $8,600 at 2.15%, $6,000 at 1.5% and $5,000 at 1.25%, and some borrowers pay none. Where to buy is covered in where to live after the military.

Who qualifies

Your service decides whether you can get a Certificate of Eligibility, or COE. On active duty now, 90 continuous days meets the minimum, and you count as a veteran for the loan benefit.

If you served between August 2, 1990, and now, any one of these four meets the requirement:

• At least 24 continuous months of service.
• The full period, at least 90 days, for which you were called or ordered to active duty.
• At least 90 days, if you were discharged under a qualifying exception.
• Less than 90 days, if you were discharged for a service-connected disability.

The exceptions are hardship, convenience of the government (after at least 20 months of a 2-year enlistment), early out (after 21 months of a 2-year enlistment), involuntary reduction in force and certain medical conditions. Earlier service has its own day counts on VA's eligibility page.

Reserve members qualify with 90 days of non-training active duty or six creditable years in the Selected Reserve.

National Guard members have three routes. The first is 90 days of non-training Title 10 active duty. The second is 90 days of active duty that includes at least 30 consecutive days, with a DD-214 showing a 32 U.S.C. 316, 502, 503, 504 or 505 activation. The third is six creditable years in the Guard. You can use the six years while serving or after an honorable discharge or retirement.

By statute, an honorable discharge counts as a certificate of eligibility to apply for a guaranteed loan. With an other than honorable, bad conduct or dishonorable discharge you may not be eligible, but you can apply, and VA reviews your records. See discharge type and VA benefits.

Getting your Certificate of Eligibility

The COE shows a lender that you meet VA's service requirement, and it shows the amount of your entitlement. It isn't a loan approval: you still have to meet credit, income and occupancy requirements from both VA and your lender. You can request one online at VA.gov, ask your lender, which may be able to get it through VA's Web LGY system, or mail VA Form 26-1880.

What you send depends on your status.

• Veteran: your DD-214. Need a copy? See how to get one.
• On active duty: a statement of service signed by your commander, adjutant or personnel officer, with your name, Social Security number, birth date, entry date, any lost time and command.
• Activated Guard or Reserve member, current or former: your DD-214 or other discharge documents.
• Guard member on the 32 U.S.C. route: a DD-214 showing the activation, an annual point statement, or a DD-220 with orders.
• Serving Guard or Reserve member, never activated: a statement of service plus your total creditable years.
• Discharged Guard member, never activated: NGB Forms 22 and 23 and proof of the character of service.
• Discharged Reserve member, never activated: your latest annual retirement points and proof of honorable service.

What VA decides and what your lender decides

VA says it doesn't determine most details of your loan. VA's guidance to lenders is the Lenders Handbook (VA Pamphlet 26-7), and its topics carry different change dates.

Your COE shows basic entitlement, $36,000 for a first-time user, which isn't what you can borrow. It's the most VA would pay the lender if you didn't repay a loan of $144,000 or less. With full entitlement you have no VA loan limit if you can afford the loan and the appraisal supports the price.

VA uses two income measures. The debt-to-income ratio compares your expected housing expense and total monthly obligations with your stable monthly income. Residual income is what you have left after the mortgage and other obligations. Only stable and reliable income, meaning income likely to continue, counts.

The Handbook's underwriting topics (last changed February 22, 2019) call both measures guides, with the ratio secondary to residual income. A ratio greater than 41% requires close scrutiny. Some loans the lender closes itself, without sending the case to VA for prior approval. The Handbook calls these loans closed automatically. On them, the lender includes a statement justifying approval, signed by the underwriter's supervisor, unless residual income exceeds the guideline by at least 20%.

A ratio of 41% or less that misses the residual income guideline can also be approved, with a justification signed by the underwriter's supervisor. Inadequate residual income alone can be a basis for disapproval.

The funding fee

The funding fee is a one-time payment on a VA-backed loan. On a purchase you can pay it in cash at closing or finance it into the loan.

"First use" means you have never obtained a VA-guaranteed or VA direct loan.

Two rules decide your tier. "5% down" means 5% with no rounding, measured against the total purchase price, so 4.9% down pays the under-5% rate. VA.gov's rate-chart note words the down payment as a percentage of the loan, but the law and Circular 26-23-06 measure it against the total purchase price. Cash you pay toward a price above VA's appraised value counts as down payment. The percentage applies to the loan left after your down payment, not to the price.

You pay no funding fee if any of these is true:

• You receive VA compensation for a service-connected disability.
• You're eligible for that compensation but receive retirement or active-duty pay instead.
• You're a surviving spouse who receives Dependency and Indemnity Compensation (D.I.C.).
• You're a service member who received a proposed or memorandum rating before your closing date, from a pre-discharge claim, saying you're eligible for compensation.
• You're on active duty and, on or before your closing date, you provide evidence that you received a Purple Heart.

If you pay the fee and are later awarded compensation with an effective date before your closing date, you may be eligible for a refund. A proposed or memorandum rating that arrives after closing doesn't earn one. To ask, call your VA regional loan center at 877-827-3702 (TTY: 711).

The Handbook's fee topic (last changed November 8, 2012) adds two points. If your exempt status can't be verified before closing, or you have a claim that is still pending, the lender collects the fee as if you weren't exempt. What makes a service member exempt is a proposed or memorandum rating dated before the closing date. A refund of a cash payment comes back in cash, and a financed fee is applied to your loan balance. Ratings are covered in the BDD claim checklist and filing a VA disability claim after separation.

Buying before you separate, or on a job offer

Your COE. The Handbook (COE topics, last changed March 28, 2019) says an active-duty COE is valid unless you're discharged or released after its date. The lender needs a certification of continuous active duty as of the note date. If you're discharged or released before closing, the lender gets a new COE before it closes. The Handbook never mentions terminal leave. DoD Instruction 1327.06 says the separation date comes at the end of it. Ask your lender how it treats those days before you rely on an active-duty COE.

Your income. Pay stubs and employment verifications can't be more than 120 days old. For a loan the lender closes itself, the count runs to the date the note is signed; for a loan sent to VA for prior approval, to the date VA receives the application. An active-duty applicant's Leave and Earnings Statement (LES) replaces the employer's verification and follows the same counts.

The Handbook's income topic (last changed February 22, 2019) treats base pay as stable unless you're within 12 months of release. The lender finds your ETS, the end of your current contract, on your LES. If it's within 12 months of the projected closing, the package must also include one of these, alone or combined:

• Documentation that you've re-enlisted or extended beyond the 12 months after the projected closing.
• "Verification of a valid offer of local civilian employment and/or verification of military retirement income following the release from active-duty service."
• Your statement that you intend to re-enlist or extend, plus your commanding officer's statement that you're eligible and that it should be granted.
• Other unusual strong positive underwriting factors, such as a down payment of at least 10% from your own assets (not a gift); at least 6 months of PITI (principal, interest, taxes and insurance) in cash after the down payment, from your own assets (not a gift); or clear evidence of strong community ties plus a non-military spouse's income so high that only minimal military income is needed to qualify.

An officer whose LES shows an ETS of 888888 or 000000 needs none of this unless there is evidence of a resignation.

A job offer (Handbook income topic, February 22, 2019). A borrower "may have a valid offer of employment which will begin at or after the anticipated date of closing which can be verified," and a pay stub "may not be available." Employment under 12 months is generally not considered stable and reliable, but the lender may count it if the facts warrant.

For a recently discharged veteran, the Handbook tells the underwriter to use judgment and flexibility, because military service may be the only work history. Similar military duties are one sign the job will continue, and VA disability income is a benefit that needs no proof of continuance.

Occupancy, the appraisal and the home

A VA purchase loan is for a home you will live in. By law you certify that you intend to occupy it, either by living there now or by moving in within a reasonable time. The Handbook (occupancy topic, last changed May 14, 2024) puts a reasonable time at 60 days after closing. Longer can be reasonable if you certify a specific move-in date tied to a particular future event, but beyond 12 months generally can't be. You sign the certification on VA Form 26-1820 at closing, and a seasonal vacation home doesn't satisfy it.

If you're on active duty and can't move in in time, your spouse's or dependent child's occupancy satisfies the requirement.

Once you and the seller sign a purchase agreement, your lender requests an appraisal from a VA-approved appraiser. The appraiser gives an opinion of the home's value and checks the home against VA's minimum property requirements, which it must meet before VA guarantees the loan. A reviewer then issues the Notice of Value (Handbook, March 11, 2019). The Handbook's chapter on them has 43 topics; the ones cited here last changed February 27, 2026, and March 28, 2019. One requires heating that holds at least 50 degrees Fahrenheit in areas with plumbing; in a mild climate it may not be required. Another presumes lead-based paint in a home built before 1978, and defective paint must be fixed.

Repairs the appraiser flags become conditions of the appraisal; cosmetic items and normal wear aren't flagged. VA will consider waiving a repair if you ask, your lender agrees and the home is habitable, but not a repair that could cause a safety problem. Every repair that isn't waived must be done before VA guarantees the loan. The appraisal isn't a home inspection, which VA doesn't require.

A VA-guaranteed contract carries the escape clause: you don't forfeit your earnest money or have to complete the purchase if the price is above VA's reasonable value. If the appraisal comes in low, VA's home-buying page (updated January 7, 2026) lists three options: ask for a reconsideration of value, renegotiate the price, or pay the difference at closing. The escape clause lets you leave the contract instead.

Closing costs and buyer's agent fees

On a purchase, you can finance only the funding fee. Other charges must be paid at closing, and you and the seller can negotiate who pays items such as the agent's commission or discount points. VA limits seller concessions to 4% of the home's reasonable value, shown on your lender's Notice of Value. Seller credits toward your ordinary closing costs aren't limited, but credits for the funding fee, debt payoff or prepaid insurance count as concessions.

VA's regulation bars any charge to the borrower that it doesn't expressly permit. Permitted charges include the appraisal fee, recording fees, the credit report, hazard insurance, title costs and a lender's flat fee of up to 1% of the loan.

Paying your own agent

VA's regulation generally bars a veteran from paying real estate brokerage charges, but VA can authorize local variances. Circular 26-24-14 did in 2024. A veteran may pay reasonable and customary buyer-broker charges, including commissions, on purchase contracts signed on or after August 10, 2024. That applies where listing brokers are prohibited from setting buyer-broker pay through multiple listing postings, or where that pay cannot be established by or flow through the listing broker.

The charge can't be financed, it counts against the liquid assets the lender checks for cash to close, and it goes in section H of the Closing Disclosure. A seller may pay it without it counting as a concession.

VA calls this a temporary local variance. The circulars are valid until rescinded, and VA's circular index (updated August 11, 2026) lists no later one. The Handbook's older fee topic (last changed November 8, 2010) carries no change note for the circular. It still says a veteran-purchaser may not, "under any circumstances," be charged a brokerage fee for a buyer's broker. Ask your lender whether the variance applies where you're buying.

Questions to ask every lender

Questions to put to each lender:

• What is my funding fee at each down payment tier, and is it financed or paid in cash?
• Is your origination charge flat or itemized, and can I see the invoice for each itemized fee?
• How do you count a job that starts after closing, or military pay if my ETS is within 12 months?
• What cash do I need at closing besides the funding fee, and what if the appraisal comes in low or calls for repairs?

Using it again, and help if you fall behind

If you've used the benefit before, you may have only part of your entitlement left. Remaining bonus entitlement is 25% of the one-unit county loan limit minus the entitlement still tied up in an earlier loan. For loans closed in 2026, the baseline one-unit limit is $832,750 in most of the country, so 25% of it is $208,187.50 before you subtract anything.

You can restore entitlement by selling the home and paying the loan in full, or if a qualified veteran assumes the loan and substitutes their entitlement. After restoration, your next loan carries the subsequent-use funding fee unless you're exempt (Handbook, March 28, 2019).

If you fall behind, contact your servicer right away. VA lists six options, including the VA partial claim, which launched June 15, 2026. After a 3-month trial payment plan, VA works with your servicer to pay your missed payments, and you repay the claim when you pay off, refinance or sell. Servicers have until November 28, 2026, to add it, so yours may not offer it yet. If you can't reach a resolution, call VA at 877-827-3702, option 6.

Servicers identify the Veterans who might qualify, and the law leaves each partial claim to VA's discretion. Defaulting after a partial claim can reduce your entitlement. VA also lists a free consultation with a credit or financial counselor through its Veterans Benefits Banking Program, and warns about foreclosure-relief scams.

One example, start to finish

Example (fictional) Marcus Hale is a former Air Force staff sergeant who separated honorably on August 14, 2026, after nine years of continuous active duty. He has never used the benefit and has no VA disability rating. He's buying a $380,000 house and expects to close on March 19, 2027.

Nine continuous years clears the 24-month test. He requests his COE online with his DD-214, and it shows $36,000 of full entitlement, so VA sets no loan limit. His lender still decides how much to lend.

He compares the funding fee at four down payments. March 19, 2027 falls inside the April 7, 2023 to June 8, 2034 window, so first-use rates apply.

He has $27,000 saved and decides to put $19,000 down, exactly 5.00% of $380,000, which puts him in the 1.5% tier. At $18,000 he'd be at 4.74% and pay 2.15% on a $362,000 loan, which is $2,368 more. He sets the other $8,000 aside for closing costs, because only the funding fee can be financed, and a larger down payment leaves less cash for them. He finances the fee, so his loan is $361,000 plus $5,415, or $366,415.

The appraisal comes back at $380,000. He signs the occupancy certification at closing and plans to move in on April 3, inside the Handbook's 60 days, which, counting calendar days from March 19, end on May 18, 2027.

If VA later awards him compensation effective before March 19, 2027, he may be eligible for a refund of the $5,415, applied to his loan balance because he financed the fee.

This is general information, not financial or legal advice for your situation. For questions about the home loan benefit, call VA's Loan Guaranty line at 1-877-827-3702, Monday through Friday, 8:00 a.m. to 6:00 p.m. Eastern (TTY: 711). Military OneSource offers free financial counseling to service members and eligible family members at 800-342-9647; its counseling page lists debt, savings, retirement and college planning and doesn't name home buying. Recently separated veterans have temporary access to its services for up to 365 days after transition. The CFPB explains the Loan Estimate and the Closing Disclosure that every lender must give you.