- Eligibility for VA loans depends on your length of service and whether that service took place during times of war or peace. Eligible applicants are those who served during World War II, the Korean or Vietnam wars or certain periods in more recent conflicts in the Middle East and those who were honorably discharged from the service. If you served during peacetime, VA loans require at least two years of active service. You may also qualify if you were discharged for a service-related illness or injury after 181 days of active service.
- You must apply for a loan through a qualified lender. The VA backs the loan with a guarantee of repayment to the lender if you default on your payments and the home is foreclosed. This allows lenders to extend loans with lower interest rates and easier terms. It also helps veterans -- who are paid well but not lavishly in the military -- afford homes they otherwise could not.
- A lender may qualify your VA loan with no down payment and no buyer-paid closing costs -- thus the "no-no" moniker. This makes a significant difference to people with limited savings and little cash to spend on the ordinary fees and charges typically levied by commercial lenders as well as local taxing authorities. The no-down-payment option is available if the loan includes a "funding fee," which can range from 2 to 3.3 percent of the loan amount.
- In this highly desirable "no-no" loan, the seller agrees to pay closing costs. Sellers are also allowed to contribute to "points" that directly lower the interest rate. Many lenders will limit seller contributions to a percentage of the loan amount, but in many transactions, this limit is adequate to finance the entire range of fees and costs imposed by the lender and the law. No-no loans backed by the VA are popular with sellers who are motivated to sell their properties in a weak housing market and to close the transaction as quickly and efficiently as possible (short of simply accepting cash from a well-financed buyer).
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