Guide to VA Loans: How They Work and Who Qualifies

January 3, 2024 min read

Pennymac proudly supports our nation's heroes by offering Department of Veterans Affairs (VA) loans. We service over 445,000 VA loans on behalf of service members, veterans and their families – over 43,000 of which originated in the first 9 months of 2023.*

If you’re connected with the United States military, you may be eligible for VA loans, such as no down payment purchase loans and low-interest refinance loans. In this guide, we’ll look at what a VA loan is, the qualification criteria, the benefits and how to find the one that could be right for you.

*As of 9/30/2023

What Is a VA Loan?

A VA loan is a mortgage loan guaranteed by the United States Department of Veterans Affairs. It’s available to eligible veterans, service members and surviving spouses and offers numerous benefits, including:

  • No down payment on home purchase loans
  • Competitive interest rates
  • More flexible credit requirements than conventional non-VA loans
  • Lifetime benefit — you can use your VA loan entitlement multiple times

VA loans are specifically designed to meet the needs of veterans and their families, opening up increased opportunities for homeownership and building equity.

How Does a VA Loan Work?

VA loans are government-backed loans that offer veterans and service members more flexible borrower criteria than conventional loans. The VA guarantees the loans, reducing the risk for lenders and enabling lower credit scores and down payment requirements.

Not Just For First-Time Homebuyers

While you can use a VA loan for your first home, you can take advantage of the VA loan benefit again if you sell or refinance.

Navigating the VA Purchase Loan Process Step by Step

VA loans and the process to obtain them are similar to other types of Pennymac mortgage loans, with some key differences. Here’s a breakdown of the steps involved in applying for and securing a VA home purchase loan.

1. Start your application online or talk to a Pennymac Loan Expert. One of the unique aspects of a VA loan is that we’ll use your Certificate of Eligibility (COE) to confirm that you meet the basic VA loan requirements, but you don’t need it to begin your application.

You can visit the eBenefits section of the U.S. Department of Veterans Affairs website to request your COE online or obtain VA Form 26-1880 to make your request through the mail. If you prefer, your Loan Expert will be happy to guide you through the steps involved to verify your eligibility and obtain your COE.

2. Receive a Pennymac BuyerReady Certification. The BuyerReady Certification is Pennymac’s unique loan certification process that confirms how much of a mortgage you will likely qualify for based on submitted financial documents. While it doesn’t guarantee a loan, BuyerReady Certification can help you house-shop with confidence so you’ll know which homes will fit your budget.

BuyerReady Certified homebuyers also qualify for Pennymac’s Lock & Shop program,* which allows you to lock in a rate before locating a property. Protect yourself from future rate increases and potentially save thousands of dollars in the lifetime cost of your mortgage.

3. Look for homes. Meet with a real estate agent and begin looking for homes. Once you’ve found a home you’d like to purchase, you can continue with the VA loan process. Pennymac Home Connect can assist in finding a reputable real estate agent in your area.

4. Complete underwriting and loan process. Since you’ve already submitted most of the documentation and information you’ll need for the mortgage through the BuyerReady Certification process, loan processing is typically smoother and faster.

5. Close and get the keys! Once your loan is approved, you’ll have your closing, where all necessary paperwork will be signed.

At this time, you’ll get the final details of your loan terms and required closing costs, which are the extra fees buyers and sellers pay to close on a real estate transaction beyond the home’s purchase price. One of the fees unique to the VA loan is the funding fee, which can be paid in full at closing or rolled into the total loan amount.

About the VA Loan Funding Fee

The funding fee is a one-time charge, typically between 1.25% and 3.3% of the loan amount. The fee goes to the U.S. Department of Veterans Affairs to support the VA loan guaranty program, which helps keep VA mortgages low-cost and available for future veterans to achieve homeownership.

Funding Fee Exemptions

The following individuals are exempt from paying the VA funding fee:

  • Purple Heart recipients
  • Veterans eligible for compensation for service-connected disabilities or who would be eligible if they didn't receive retirement pay
  • Veterans eligible for compensation based on a pre-discharge exam or review
  • Veterans eligible for compensation but not receiving it due to being on active duty
  • Surviving spouses eligible for VA loans

If the borrower's exemption status is unclear, the VA will make the final decision on funding fee exceptions.

How to Qualify for a VA Loan

VA loans are available to active-duty service members, veterans and their surviving spouses. If you meet one or more of the following criteria, you may be eligible for a VA home loan:

  • Service totaling 181 days or more of active service during peacetime
  • Service totaling 90 consecutive days or more of active service during wartime
  • Service totaling six years or more in the National Guard or Reserves or served 90 days (at least 30 of them consecutively) under Title 32 orders
  • You suffered a service-connected disability
  • You are the spouse of a military member who died while on active duty or from service-connected causes

VA Loan Benefits

VA home loans are valuable financing solutions to help qualified service members and veterans achieve their homeownership aspirations. The primary benefits of VA home loans include:

  • No down payment requirement on home purchase loans. Buy your home sooner or use your savings for other expenses.
  • Lower interest rates. Interest rates are lower than conventional loans, making homeownership more affordable.
  • No monthly mortgage insurance premiums. Purchase a home and start building equity without the extra expense of monthly mortgage insurance.
  • Less stringent credit requirements. While there are specific financial criteria you'll need to meet, perfect credit isn't required, making homeownership more attainable and accessible.

Types of VA Loans

Veterans and service members have access to several types of VA loans, whether you’re buying a home or refinancing.

VA Purchase Loan

Buy a home with zero down payment and a competitive interest rate.

Who is it for? Qualified first-time or repeat homebuyers who are purchasing a primary residence.


  • No down payment, unlike conventional or FHA loans*
  • No private mortgage insurance (PMI) or upfront mortgage insurance premium (UFMIP) to keep your monthly payments low
  • Lower interest rates
  • Borrowers can choose to finance the VA funding fee into the loan

*As long as the sales price does not exceed the appraised home value.

VA Interest Rate Reduction Refinance Loan (IRRRL)

An IRRRL, also known as a Streamline Refinance Loan, allows you to refinance your existing VA loan to a lower interest rate, which may potentially lower your monthly payments. You may also be able to refinance an ARM into a fixed-rate mortgage.

Who is it for? Individuals who already have a VA loan.


  • Lower interest rates compared to conventional loans
  • Designed to be easy to apply and quickly close
  • Flexible loan terms — there’s no need to extend your current payment schedule
  • Minimal paperwork and income documentation required
  • No appraisal
  • More flexible eligibility requirements
  • No out-of-pocket cost refinance options are available to qualifying borrowers. Does not apply to taxes, insurance or pre-paid interest.
  • Option to reduce mortgage term without significant payment increases

Your rate and monthly payment after refinancing must be lower than your current payment, except when refinancing an ARM to a fixed-rate mortgage.

VA Cash-Out Refinance

VA cash-out refinance loans allow you to refinance your existing loan — which doesn't have to be a VA loan — for a higher balance and receive the difference as cash. Use the funds for any purpose, such as paying off debt, funding education or making home improvements.

Who is it for? Qualified veteran homeowners who want to use their equity in their homes.


  • Pay off higher interest rate debt, such as credit cards
  • It can be used to refinance a non-VA loan into a VA loan
  • Pennymac will lend up to 90% of the value of your home*
  • Low-to-zero out-of-pocket costs
  • Only one monthly mortgage payment to make
  • Access cash from your equity and potentially lower your rate at the same time
  • Roll your closing costs into the loan

*Loan limits are established by the VA and can vary by county.

By refinancing your existing loan, your total finance charges may be higher over the life of the loan.

VA Loan Funding Options

A VA loan is a versatile, flexible financing option designed to empower veterans, service members and their families.

VA Purchase Loans

VA purchase loans can be used to finance a primary residence, including:

  • Single-family home, up to four units
  • Condominiums in a VA-approved project
  • A home that needs improvement
  • Manufactured home or lot
  • A new home build
  • Energy-efficient upgrades

VA Interest Rate Reduction Refinance Loan (IRRRL)

VA IRRRL loans are used to replace an existing VA loan at a lower interest rate. This can potentially reduce your monthly payments, freeing up money you can use for other expenses, such as home renovations, college tuition or credit card debt. You can refinance:

  • Single-family homes, up to four units
  • Condominiums
  • Manufactured homes

The home must be your primary residence, and you must already have a VA loan. You can also refinance an ARM into a fixed-rate mortgage.

VA Cash-Out Refinance

With a VA cash-out refinance, you may be able to obtain funds for:

  • Home improvements, repairs and renovations
  • Education
  • Consolidating debt
  • Managing other large expenses

You can also use a VA cash-out refinance to replace a non-VA loan with a VA loan. The home you are refinancing must be your primary residence.

Apply for a VA Loan

As part of our nation’s military, you've dedicated your life to serving our country. Pennymac is proud to serve you. We provide VA purchase loans and refinancing options that can make homeownership more attainable and affordable for America’s heroes. Contact a Pennymac Loan Expert today to learn more.

*Lock & Shop Program allows consumers who have a Pennymac BuyerReady Certification for a purchase loan with Pennymac to lock a rate prior to locating a property. The program requires a non-refundable fee of $595 due at the time of the rate lock. Consumers with a Pennymac BuyerReady Certification for a purchase loan with Pennymac must meet appropriate underwriting conditions to obtain a mortgage loan. Consumers may choose between a 60-day, 75-day or 90-day lock period. Consumers must initiate a mortgage loan application for a specific property and be under purchase contract for the property at least 30 days prior to lock expiration in order to extend the locked rate. All rate lock extensions are subject to Pennymac’s standard rate lock extension fees. After the rate lock and subject to favorable market conditions, consumers may be eligible for a one-time reduction in rate once the loan application for a specific property has been initiated (0.50 % maximum reduction in interest rate allowed). Eligible loan products are Conventional Fixed, Conventional ARM, FHA Fixed and VA Fixed. Program excludes Jumbo, refinance, third-party and in-process loans. Program subject to termination in Pennymac’s sole discretion and without notice.



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