VA loan

A VA loan is a residential mortgage guaranteed by the U.S. Department of Veterans Affairs, available to qualifying active-duty service members, veterans, members of the National Guard and Reserves, and certain surviving spouses. The VA doesn't lend directly, private lenders originate, and the VA guarantees a portion of each loan against default.

How it works: VA loans have unusually borrower-friendly terms. There's no minimum down payment in most cases, no monthly mortgage insurance ever, and somewhat more flexible underwriting standards (including a residual-income test that supplements the standard debt-to-income ratio). The cost is a one-time VA funding fee at closing, ranging from 1.25% to 3.30% of the loan amount depending on service category, down payment, and whether it's the borrower's first VA loan use. The funding fee is typically rolled into the financed loan rather than paid in cash.

Why it matters: for borrowers who qualify, the no-down-payment + no-monthly-MI combination produces a meaningfully cheaper monthly payment than a comparable FHA or conventional loan, even after the funding fee is included in the financed balance. VA loans also tend to have favorable rates relative to other programs, and they can be assumed by qualified buyers when the home eventually sells (a feature that becomes valuable in high-rate environments).

Common gotcha: the VA funding fee is waived entirely for veterans receiving compensation for service-connected disabilities, surviving spouses of veterans who died in service, and certain other categories. Eligible borrowers should confirm waiver eligibility before paying, the waiver can save many thousands of dollars at closing.