How the VA loan works
A VA home loan is a mortgage made by a private lender (bank, mortgage company, or credit union) that's backed by the U.S. Department of Veterans Affairs. The VA doesn't lend the money directly. Instead, it provides a loan guaranty that reduces the lender's risk, which is why VA loans often come with flexible terms for eligible Veterans, active-duty service members, and eligible surviving spouses.
VA loan entitlement
Entitlement is your available VA benefit, meaning the amount of guaranty the VA can provide on your behalf. Your Certificate of Eligibility (COE) shows whether you have entitlement available and how much (if any) has been used before.
How entitlement is restored
Sell the home and the VA loan is paid in full (most common).
Refinance out of the VA loan into a non-VA loan (VA loan paid off).
A qualified veteran assumes your VA loan and substitutes their entitlement, freeing up yours.
One-time restoration: pay off the VA loan but keep the home (allowed once).
The VA funding fee
A one-time charge on most VA loans that keeps the program running and enables benefits like $0 down and no monthly mortgage insurance.
Percentage of the loan
Calculated as a percentage of the loan amount (not the home price). The rate depends on first-time vs. repeat use, down payment, and loan type.
Can be financed
You can often roll the fee into the loan instead of paying it out of pocket at closing. Another party, such as the seller, lender, or a family member, can also pay it.
Some are exempt
Certain Veterans receiving VA disability compensation (and other eligible categories) don't pay the funding fee at all.
Key benefits of the VA loan
No down payment requirement
Finance up to 100% of the purchase price. Conventional and FHA loans may require a minimum down payment.
No monthly mortgage insurance (PMI)
No PMI means lower monthly payments than conventional loans with less than 20% down.
Competitive interest rates
Because the VA guarantees a portion of the loan, rates are often lower than comparable conventional or FHA financing.
Lifetime, reusable benefit
Use your VA home loan benefit multiple times over your lifetime, as long as you have sufficient entitlement.
Assumable mortgage
A future buyer may take over your VA loan, including the rate, if they qualify. A big resale advantage in a high-rate market.
No prepayment penalty
Pay off your loan early at any time, penalty-free.
Seller concessions
VA loans allow up to 4% in seller concessions on top of seller-paid closing costs.