11 Common VA Loan Myths Debunked

Sarah Woodbury Sarah Woodbury / Published Aug 29, 2019, 10:58 AM

Is a VA loan a good idea? You may have heard things about the VA loan program that seem a little fishy or make you hesitate to get one.

Because the VA loan is unique in the mortgage world, it can be easy for rumors and misinformation to spread about how the program works, who can qualify, and other specifics.

However, the VA loan is designed specifically to make homeownership more accessible to veterans. It's a benefit every veteran has earned through their service, and we would hate for you to miss out on it just because of a few rumors.

So, if you're wondering if you should get a VA loan, this article can help you sort through what's fact and what's fiction.

Myth #1: The VA Offers the VA Home Loan Directly

Perhaps the biggest of the VA loan myths is that the loans are done directly through the VA.

Additionally, some veterans think that both the VA and private lenders offer VA loans, and they wonder why they'd go through a private lender if they could just go straight to the VA.

The VA, however, does not lend money directly to veterans. Instead, it guarantees a certain percentage of each VA loan. The loans themselves are offered through private lenders.

How Does the VA Guaranty Help Veterans?

The VA guaranty means that even if a veteran defaults on a loan, their lender will receive a percentage of the loan back from the VA.

This makes it less risky for lenders to take on VA loans, allowing them to offer major advantages, such as:

  • Lower rates than conventional loans
  • No down payment
  • Requirements that are easier to meet
  • No private mortgage insurance (PMI)

The VA also has certain qualifications that must be met by lenders who offer VA loans, as well as specifications on how they can use the loans. These limitations are in place to protect veteran borrowers from predatory lenders.

Keep in mind that these requirements don't mean that every VA-approved lender offers similar loans. Once the basic requirements are met, there is breathing room for lenders to offer different rates and terms.

This is why you will want to do your research to find the best deal you can. Comparing lenders is essential to getting the lowest rates possible.

Additionally, even though private lenders offer VA loans, this doesn't mean they all specialize in this type of loan or have experience with it. So look for a lender who focuses on serving veterans and regularly closes VA loans.

Myth #2: You Can Only Use the VA Loan Once

Another misconception about the VA loan is that veterans can only use it on one purchase or refinance.

The way it really works is simple.

Each qualifying veteran has a certain amount of VA entitlement, which is the amount of money the VA will guarantee on the loan. If you don't use all of your entitlement on the purchase of your first home, you can usually use the remainder when you buy your next home.

In addition, you can also restore your entitlement in some situations. Restoring your entitlement only works if you have either:

  1. Sold the home under specific circumstances (listed in the graphic below), or
  2. Paid off the loan
Restoring VA Entitlement

Your entitlement may be restored if you meet one of the following requirements:

  • Pay off the initial house you used your entitlement on and have your entitlement restored to get a loan for a second property
  • Have another veteran assume your VA loan, renewing your entitlement
  • Have the original loan paid off after it's taken on by a civilian
  • In some cases, you don't have to have your loan paid off, but you do have to have enough leftover entitlement to get another loan without restoring that entitlement

When your entitlement is restored, it's as if you've never used it, and you can have full access for your second VA loan.

For more information about your specific situation and entitlement, you should speak to a VA-approved lender.

Myth #3: You Need Great Credit to Qualify

What Are Overlays?
VA lender overlays are when lenders add their own requirements to a loan, on top of what the VA requires.

One major benefit of the VA loan program is that the VA has no required credit score.

However, private lenders may have their own overlays, including specific credit requirements. Because these requirements vary, veterans should make sure to contact multiple lenders, even if they've been turned down by one for having less-than-excellent credit.

Myth #4: VA Loan Requirements Are Hard to Meet

One misconception is that VA loans have strict requirements. This myth is especially surprising considering that the requirements on VA mortgages are more relaxed, which is one of their biggest benefits.

As discussed above, your credit doesn't have to be perfect to get a VA loan. Though some lenders hold strictly to their overlays, others, like Low VA Rates, are willing to talk to borrowers to look at their individual situation and do what we can to help them qualify.

On top of having no VA-imposed credit requirements, VA loans:

  • Have lower average interest rates than other loan types
  • Don't require a down payment
  • Limit the closing costs a veteran has to pay
  • Have no prepayment penalties
  • Don't require private mortgage insurance (PMI)

Check out our video below to learn just how simple it is to qualify for a VA loan.


Myth #5: You Must Be a Combat Veteran to Qualify

Contrary to what you may have heard, many veterans and servicemembers are eligible for a VA loan.

Check out our graphic below for the basics.

VA Service Requirements

You may meet service requirements for a VA loan if you:

  • Have 90+ consecutive days of service in active duty military
  • Served on active duty during peacetime for at least 181 consecutive days
  • Have 6 or more years of service in the National Guard
  • Are the surviving spouse of a veteran who died as a result of service

Myth #6: The VA Loan Process Is Too Complicated

Because the VA loan is part of a government program, some veterans worry about the paperwork and time frame involved.

However, as previously discussed, the VA loan is not offered directly through the government. Instead, it's offered through private lenders, which take care of any government-related details for you.

What Is Automatic Authority?

Automatic authority is when lenders obtain permission from the VA to close loans independently without VA oversight.

Look for lenders that have automatic authority, which allows the loan process to go smoothly and simply. Unlike other lenders, those with automatic authority don’t have to get approval from the VA every time they close a VA loan.

Additionally, lenders must meet the VA's experience requirements to be eligible for automatic authority.

Finally, to make the VA loan process even easier, you should also look for lenders that focus on VA loans and close them regularly.

Myth #7: Every Veteran Gets a VA Loan—No Matter What

As previously outlined, you have to meet service requirements as well as other financial requirements in order to get a VA loan. No lender is required to give a VA loan to a veteran if that veteran does not qualify.

Keep in mind that some veterans may meet qualifications with one lender but not another.

Myth #8: The VA Appraisal Is a Huge Hassle

There are a few extra requirements for a VA appraisal. These VA requirements, called Minimum Property Requirements (MPRs), ensure that the home is safe, sound, and sanitary. They can be thought of as an added protection or benefit for veterans.

Let's say the home you're looking at has termite or structural damage or is otherwise in bad condition. In these cases, even though the appraisal may take longer, it's worth it because you'd want to know this kind of information before you buy the house.

Franco Firpo, a former loan officer with Low VA Rates, adds that another reason it can take longer is because, as of 2019, "the VA has to assign the VA-approved appraiser, and there usually aren‘t as many VA-approved appraisers in a specific area."

But even with their extra requirements, VA appraisals, on average, only take around 10 days. In comparison, conventional appraisals can usually get approved and done within 24-72 hours. While there is a difference, it's not very significant.

Additionally, the VA requires that VA appraisals close within set time frames that vary between states (and sometimes counties). Visit the online appraiser schedule and click on your state to learn what the VA-mandated appraisal timeline is for your area.

Myth #9: Foreclosures or Bankruptcies Disqualify You for a VA Loan

How Long Do I Have to Wait?

If you've had a Chapter 7 foreclosure, you can apply for a loan after waiting for 2 years.

If you've had a Chapter 13 bankruptcy, you can apply as long as you've made on-time payments for 1 year.

Even if you have a bankruptcy or foreclosure in your history, you can still apply for a VA home loan. In fact, VA loans require a shorter waiting period for these situations than conventional loans do.

Keep in mind that it's still not guaranteed that you'll qualify, and it can be hard work building credit and other qualifications back up again. If you don't meet the requirements just yet, a good VA lender will help you create an action plan to get back on track.

To listen to loan expert Maurice Navarro discuss the reality of foreclosure and VA loans, watch the video below.


Myth #10: You Can Only Own One House with a VA Loan

As discussed under Myth #2, if you have enough entitlement to get a second loan and meet the requirements, you can purchase a second home with your VA entitlement.

However, the details depend on your specific situation and get pretty complicated, especially in regards to the occupancy rule.

What Is the Occupancy Rule?

In general, this rule states that you must intend to live in the home you're purchasing with a VA loan as your primary residence within 60 days.

However, there are some exceptions, like for servicemembers with PCS orders.

To find out if you qualify to buy a second property with a VA loan, you should talk to a VA lender.

Myth #11: VA Loans Can't Be Used on Condos or for Construction

Both condos and new homes can be purchased using a VA loan.

You can use a VA loan to buy a condo as long as the property is approved by the VA. To find out if the condo you're interested in is VA-approved, you simply need to check out the VA's list of approved condos.

If a property you like isn't already on the list, you can still get it approved through the VA. A realtor familiar with VA loans can help, or you can talk to the property manager to get the process started.

In addition, contrary to what you may have heard, it is possible to use a VA loan to build a new home.

Some VA lenders don't offer VA financing for building a home because it can be a more complex process than what they want to take on. (No wonder some vets think they're not offered at all!)

Other lenders, like us at Low VA Rates, do offer the loan type and are happy to work with you as you build your dream home.

Check out our video below for more information on how you can use a VA loan to finance a newly constructed home.


More Myth-Busting

What else have you heard about VA loans?

Leave a comment with anything you'd like to know more about, and we'd love to answer in the comments, or even add it to the article!

Meanwhile, for more resources, check out our videos and posts below.