If you’re a first-time homebuyer, a VA loan can be a godsend.
Saving up a down payment plus closing costs can be challenging, even if your credit score is high enough to qualify for a mortgage.
But first-time homebuyer VA loans eliminate some of those hurdles, thanks to the 0% down payment requirement and flexible credit score guidelines.
Even better, there are no loan limits for VA borrowers who have full entitlement. And if you’ve never used a VA home loan before, that includes you.
So if you’re eligible for a VA loan, you may be able to buy a home with the best mortgage option in town.
Why VA loans are a great deal for first-time homebuyers
How do VA loans offer so many advantages? Well, the U.S. Department of Veterans Affairs (VA) insures part of these loans via the VA Guaranty.
That enables VA-approved lenders to give mortgage loans to borrowers who might not qualify for other loans due to a low credit score and limited savings available for a down payment.
The VA loan program was created to enhance the lives of military servicemembers, both active-duty and veterans, and to honor their service.
By providing an affordable path to homeownership, these loans enable servicemembers and eligible surviving spouses to create wealth and stability for their families through home equity.
VA loan benefits for first-time homebuyers:
- 0% down payment: This is one of the biggest perks of first-time homebuyer VA loans. Borrowers with full entitlement do not need to make a down payment, regardless of your loan amount
- Low credit score requirement: Although lenders typically look for a minimum credit score of 580-620, the VA does not have a minimum credit score requirement. That means lenders can use their discretion and approve VA loans even for low-credit borrowers
- Flexible debt-to-income ratio requirement: The VA recommends that borrowers have a 41% debt-to-income ratio (DTI). But they allow lenders to use their discretion here, too
- No mortgage insurance: VA loans include an upfront funding fee (though borrowers with service-related disabilities may be exempt from this fee) but do not have an ongoing mortgage insurance requirement. That’s a big difference from FHA and USDA loans, and even conventional loans with down payments of less than 20%, all of which have mortgage insurance requirements
- Competitive interest rates: VA loans often have some of the most attractive interest rates in the market
First-time homebuyers won’t find this combination of benefits elsewhere.
USDA loans, which are also government-backed, are also 0% down payment loans. However, they require an upfront and ongoing mortgage insurance premium (MIP). Homebuyers must meet certain income and location limits to qualify. VA loans can be used anywhere, and there are no income restrictions.
You can avoid mortgage insurance with a conventional loan — but only if you put 20% down. If you don’t have that much saved, you’ll owe private mortgage insurance (PMI) until you have 20% equity in the home. A conventional mortgage also requires a 620 minimum credit score and at least a 3% down payment.
All loan programs have their pros and cons, but for a first-time homebuyer, the VA option is hard to beat.
Full entitlement = the sky’s the limit on how much you can borrow (sort of)
First-time homebuyers using VA loans will likely have full entitlement benefit available. Entitlement benefit refers to how much you can borrow based on the VA guaranty and homebuying prices in your area.
Borrowers with full entitlement typically fall into one of two categories:
- Have never used their VA loan benefit: Most first-time homebuyer VA loan applicants fit this category
- Have repaid previous VA loans in full: This category includes VA borrowers who used their VA home loan benefit in the past but have since paid off the mortgage, sold the home and repaid the loan with the proceeds of the sale, or chose to refinance to a non-VA loan and paid off the original mortgage using the new loan. Those who keep the original home are can request a one-time entitlement restoration
With full entitlement, you can buy a home with no money down and you won’t be constrained by VA loan limits. That means that there’s technically no cap on the amount a lender can let you borrow.
But you still have to meet the VA’s, and the lender’s, borrower eligibility requirements. Lenders will look at your credit score, income, DTI, and savings to determine how much you can afford in a mortgage payment. They’ll decide how much you can borrow based on those factors.
Your Certificate of Eligibility from the Department of Veterans Affairs tells lenders your level of entitlement. If you don’t already have a COE, your lender can look it up for you.
OK, I get it. VA loans are solid. But is a VA loan really the best loan for a first-time homebuyer?
Only military members and eligible surviving spouses can qualify for a first-time homebuyer VA loan. This includes veterans and active-duty servicemembers of all branches of the military, including the Navy, Marines, Army, Air Force, the Reserves, and the National Guard.
If you’re a first-time homebuyer who qualifies for a VA loan, there are a lot of good reasons to take this option, particularly the no down payment feature.
But your status as a military servicemember doesn’t mean you’re limited to VA loans. You may also qualify for a USDA, FHA, or conventional loan, and all of them have different benefits.
|Feature||VA loan||FHA loan||USDA loan||Conventional loan|
|Minimum down payment||0%||3.5%||0%||3%|
|Credit score requirement||580 (But some lenders may have a lower requirement)||580 (You may qualify with a 500 credit score but you’d need 10% down)||640||620|
|DTI||41% (lenders can accept higher for highly qualified borrowers)||50% (lenders may go higher for highly qualified borrowers)||41% (lenders can accept higher for highly qualified borrowers)||45%|
|Mortgage insurance||Upfront VA funding fee, which is 2.3% of the loan amount for a first-time use with 0% down payment||Upfront mortgage insurance premium of 1.75%; annual premium of 0.85%. Cancellable after 11 years if you put down more than 10%||Annual mortgage insurance premium of 0.35%||Required with a down payment less than 20%, but requirement ends once you have 20% equity in the home|
My financial life isn’t picture perfect. Can I still get a VA loan?
The VA recommends homeowners apply with a debt-to-income ratio of 41% or lower, but this doesn’t always mean you’ll be turned down if your DTI is higher. The same is true for a credit score that’s not quite as high as you’d like it to be.
That’s because VA loan underwriters look at the bigger picture of your financial life. They weave together your income, DTI, and credit score to assess your ability to make your monthly payments.
If you have a weak thread — let’s say your credit score is a little low, for example — you could still get approved if you also have a low DTI and solid income. Or, if you have money available for a down payment, putting some cash down can also boost your chances of qualifying. Even if you put a small amount down, it reduces the amount you need to borrow, which lowers the lender’s risk.
Your best bet is to get preapproved with a VA lender. A loan officer can review your entitlement and your finances and will explain all of your options to you.
First-time homebuyer VA loan FAQs
Absolutely. In fact, a VA loan can be a great option as a first-time homebuyer since you don’t need a down payment and therefore need less money saved before you buy your new home.
Not necessarily, but there are a few VA-specific hurdles to know about. You must meet the VA eligibility guidelines and have entitlement benefit available. The home must also be appraised by a VA-approved appraiser to make sure it meets the program’s minimum property requirements.
Veterans can use any home loan they qualify for, including the VA home loan program. A VA loan helps qualifying borrowers achieve their homeownership goals with no down payment, no loan limits, and no ongoing mortgage insurance.
But veterans can find other quality loan products out there, too, and they should choose the best loan program for their needs. For example, a veteran with excellent credit who wants to finance an investment property will likely need a conventional loan, as VA financing is only available to primary residences.
Start the home purchase journey
Buying a home with no money down, an average credit score, and no mortgage insurance — it’s the perfect recipe for many first-time homebuyers, and it’s one you won’t find outside the VA home loan program.
If you meet the VA’s eligibility requirements, a first-time homebuyer VA loan could be your best loan option.
A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits. Fairway is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.