When the U.S. Government signed the Blue Water Navy Vietnam Veterans Act into law in 2019, the Department of Veteran Affairs (VA) lifted previously applicable lending caps. This ensures that eligible borrowers may apply for VA loans in all regions, irrespective of the loan amount. Depending on your circumstances, getting a no down payment VA loan might work well for you. However, it is best that you learn how these loans work before making a decision.

What Is a VA Loan?

While private lenders provide VA loans, they are backed by the Department of Veteran Affairs. This is its way of helping active duty service members, veterans, and survivors become homeowners.  Created in 1944 as part of the Servicemen’s Readjustment Act or the GI Bill of Rights, VA loans have been popular since.

Since VA loans are government-backed – meaning that the government will repay all or part of your loan in case you default or face foreclosure – they are relatively easier to attain when compared to conventional loans. VA loans require no down payment, but you need to pay a loan funding fee. According to recent data, the Department of Veteran Affairs backed over 1,246,000 home purchase and refinance loans in 2020.

Benefits of Getting a VA Loan

Getting a VA loan comes with various benefits.

  • No down payment. Unlike conventional loans where you need to pay at least 20% as a down payment, you may get a VA loan without making any down payment. In 2018, over 75% of all VA-backed loans came with no down payments.
  • No limit on the loan amount. While there is no limit on how much you may borrow through a VA loan, there is a limit to the liability that the VA takes. As of 2019, this stands at a maximum of 25% of the loan amount, minus the amount of the entitlement you’ve previously used.
  • No PMI. When you don’t come up with the required 20% down payment for conventional loans, you are required to get private mortgage insurance (PMI). For a $200,000 loan, this can add over $160 to your monthly repayment. Since VA loans are government-backed, you don’t have to pay extra for PMI.
  • No credit score requirement. The Department of Veteran Affairs does not require a minimum credit score to issue its Certificate of Eligibility (COE). However, most lenders still require that borrowers have credit scores of 620 and higher. Not having any credit history at all might also make lenders wary about lending to you.
  • Not just for first-time buyers. As long as you successfully repay your VA loan, you may apply for another.
  • No prepayment penalty. You don’t have to worry about additional charges or fines if you decide to pay our loan off ahead of schedule.
  • Foreclosure assistance. In the unfortunate event that VA loan holders face potential foreclosure, they can get the Department’s loan specialists to negotiate with their lenders for better terms.