VA loans complete guide: funding fee, IRRRL, entitlement, and what makes them different

VA loans are the single best mortgage product available in the United States — IF you qualify. Zero percent down, no PMI, lower rates than conventional, more lenient credit, and the assumable-by-anyone feature that becomes enormously valuable in high-rate environments. Most VA borrowers don’t use the program optimally because of misconceptions and loan officers who don’t know the rules well.

This is a guide, not loan advice for your specific situation. Work with a VA-experienced loan officer (not all LOs know VA well — ask “how many VA loans did you close last year?”).

Eligibility: who can use a VA loan

You need a Certificate of Eligibility (COE). The basic service requirements:

• Active duty (currently serving): 90+ continuous days of active service during wartime is enough to be eligible while still serving
• Veterans (separated): minimum service varies by era — 90 days during wartime; 181 days during peacetime; for enlisted who began active duty after Sep 7, 1980 (or officers after Oct 16, 1981), the longer of 24 months OR the full period ordered to active duty (with limited exceptions for hardship/disability discharge)
• National Guard and Reserves: 6 years of service (any branch), OR 90+ days of federal active duty service, OR 90+ days under Title 32 with at least 30 days consecutive
• Surviving spouses: spouses of service members who died in service, died from a service-connected disability, are missing in action, or are POWs. Some surviving spouses of totally-disabled veterans also qualify.

Get your COE

Three ways:

1. Online via VA.gov (eBenefits) — usually instant
2. Through a VA-approved lender — they pull it from the VA system in minutes during pre-approval
3. By mail with VA Form 26-1880 — the slow route, weeks

Before house shopping, get your COE in hand and confirm your entitlement amount and subsequent-use status (more on entitlement below).

The Funding Fee: the one fee that actually matters on a VA loan

The funding fee funds the program. The VA isn’t directly funded by Congress for loan losses; this fee covers the guarantee. It’s the single largest VA-specific cost and the one most borrowers miscount.

Current fee schedule (purchase loans, post-2023 rates)

First-time use:

• 0% down: 2.15%
• 5–9% down: 1.50%
• 10%+ down: 1.25%

Subsequent use:

• 0% down: 3.30%
• 5–9% down: 1.50%
• 10%+ down: 1.25%

The 2020 NDAA equalized funding fees for Reserve and National Guard borrowers with regular military. The old 0.25% surcharge for Reserves/Guard is gone — same fee schedule applies to everyone.

Cash-out refinance:

• First use: 2.15%
• Subsequent use: 3.30%

IRRRL (streamline refinance): 0.50% — always, no distinction between first and subsequent use.

The fee can be financed

You don’t need to bring it as cash at closing. Most borrowers roll the funding fee into the loan balance — you pay slightly more interest over the life of the loan in exchange for not needing the cash at closing.

On a $400,000 zero-down purchase with 2.15% fee:

• Funding fee = $8,600
• New loan balance = $408,600
• Monthly P&I difference at 7%: about $57/mo extra

For most buyers, financing the fee is the right move. Your monthly payment goes up modestly; your closing-day cash requirement drops dramatically.

Note: financing the fee pushes your loan amount above 100% LTV of the appraised value. The VA explicitly allows this for the funding fee only — it’s the one exception to the LTV cap. You start the loan slightly underwater on paper; appreciation and amortization close that gap quickly.

Funding Fee EXEMPTIONS (no fee at all)

Significant categories of borrowers pay zero funding fee:

• Veterans receiving VA disability compensation — rated 10% or higher
• Veterans entitled to disability compensation but receiving retirement pay instead
• Active-duty Purple Heart recipients (added 2020)
• Surviving spouses of service members who died in service or from a service-connected disability

If you have ANY VA disability rating, even 10%, you pay no funding fee. This is the most-missed exemption. Many disabled veterans pay the fee at closing because their loan officer didn’t check.

If you applied for disability compensation but the rating was pending at closing, you can apply for a refund retroactively after the rating is granted. File with VA via your lender.

Use the VA Funding Fee calculator to compute your exact fee given service status, down payment, prior use, and exemption.

VA Entitlement: how much can you borrow?

VA entitlement is the amount of the loan the VA guarantees to your lender (typically 25% of the loan amount). Lenders generally require this guarantee to issue a 100% LTV loan.

Basic entitlement

• $36,000 of basic entitlement, which historically supported a $144k loan (since 25% × $144k = $36k).

Bonus entitlement

For loans above the basic entitlement, the VA provides bonus entitlement based on the conforming loan limit:

• 25% of the conforming limit, currently around $201,625 of bonus entitlement (for the standard 2026 conforming limit area)
• Combined with basic entitlement, this supports loans up to the conforming limit (around $806,500 for one-unit properties in standard areas in 2026)
• In high-cost areas, the conforming limit is higher, supporting loans up to ~$1.21M zero-down

Loan limits are GONE for full-entitlement borrowers

The Blue Water Navy Vietnam Veterans Act of 2019 (effective January 2020) removed VA loan limits for veterans with full entitlement. If you have your full entitlement available (no other active VA loan), you can borrow ANY amount with zero down, subject to lender approval based on income/credit.

“VA jumbo” loans now go to several million dollars zero-down for qualified high-income veterans. The lender will require strong documentation but the program allows it.

Partial entitlement

If you have an EXISTING VA loan still in place (e.g., you PCS’d and kept the old house, then bought at the new duty station with another VA loan), some of your entitlement is “tied up.” For loans on the second property:

• Conforming loan limit applies (around $806,500 standard 2026)
• Your remaining entitlement determines the zero-down limit
• Above the entitlement-supported amount, you may need a down payment

Restoring entitlement

Your entitlement comes back when:

• You sell the VA-financed property and pay off the loan
• You refinance out of the VA loan into a non-VA loan (conventional refi)
• You request a one-time entitlement restoration for a kept-and- paid-off property

Once restored, you can use the full entitlement again on a new VA loan.

VA loan assumability: the underrated feature

This is the feature that becomes enormously valuable in high-rate markets and most sellers don’t realize they have it.

VA loans are assumable by qualified buyers. The buyer doesn’t even need to be VA-eligible themselves — any buyer who can qualify with the lender can assume the loan, taking over the existing rate, balance, and terms.

What this means for sellers

If you locked in a 3.0% VA loan in 2021 and you’re selling in 2026 at 7% market rates, your assumable loan is a massive selling advantage. A buyer assuming your $400k loan at 3% has a payment of ~$1,686 P&I; the same loan at 7% would be $2,661 P&I. That $975/mo savings is worth $100k+ to the buyer in present value terms.

Smart sellers in this position price the home higher to capture some of that value. Smart buyers seek out assumable VA loans specifically.

Mechanics of assumption

• Buyer applies to the VA loan’s servicer for assumption
• Lender underwrites buyer (income, credit, DTI — same standards as a new VA loan)
• Process takes 60–120 days, sometimes longer with slow servicers
• Buyer pays a 0.50% assumption funding fee to the VA
• Lender may charge a small processing fee
• Closing transfers ownership and loan obligation simultaneously

The seller’s entitlement caveat

When a non-veteran buyer assumes your VA loan, your entitlement remains tied up until the loan is paid off (the assumer eventually sells or refinances). You cannot use that entitlement for another VA loan in the meantime.

If a VA-eligible buyer assumes the loan with a substitution of entitlement, your entitlement is freed up and theirs is tied up instead. This is the cleaner option if both parties have VA eligibility.

If you plan to use VA again soon, this matters. If you’re retiring from service or don’t plan another VA-financed home, it’s a non-issue.

See Assumable Mortgage calculator to model the buyer’s math on an assumption.

IRRRL (Interest Rate Reduction Refinance Loan)

The VA streamline refinance program. The official name is “Interest Rate Reduction Refinance Loan” (everyone calls it the IRRRL, pronounced “earl”).

What makes IRRRL special

• No appraisal required in most cases
• No income verification in most cases
• No credit pull at many lenders (some use a soft pull; lender overlays vary)
• 0.50% funding fee (vs 2.15%+ on a VA cash-out refi)
• Closing costs and up to 2 discount points can be financed into the loan; additional discount points must be paid in cash at closing

This is the easiest refinance available in mortgage finance. It exists because the VA wants veterans to lower their rates when market opportunities arise.

IRRRL requirements

• Must be refinancing an existing VA loan (you can’t use IRRRL to convert a conventional loan to VA)
• Must lower the rate by at least 0.50% (some lender overlays; exceptions for switching ARM-to-fixed)
• 210-day waiting period from your previous VA loan’s first payment due date
• Six monthly payments must have been made on the prior VA loan
• The new loan must be net tangible benefit to the veteran (lower rate or shorter term, generally)

When IRRRL is a no-brainer

When current VA rates are 1%+ below your existing rate, IRRRL almost always makes sense. The fee is minimal (0.50% of loan) and break-even is usually under 12 months. Run refinance break-even math to confirm for your specific loan.

In a falling-rate environment, set a price alert for IRRRL-rate thresholds. The product is designed to be used.

VA cash-out refinance

VA allows up to 100% LTV cash-out refinance — vs the typical 80% on conventional cash-out. This can be useful for major life events, debt consolidation, or investment opportunities.

Mechanics:

• Cash-out funding fee: 2.15% (first use) / 3.30% (subsequent use). The down-payment-tier reductions (1.50% / 1.25%) do NOT apply to cash-out refis — only to purchase loans.
• Full appraisal required (unlike IRRRL)
• Full income/credit/DTI underwriting
• Seasoning: 210 days from the first payment due date on the loan being refinanced, AND at least 6 monthly payments made (same seasoning as IRRRL, per the 2018 Economic Growth Act / VA Circular 26-19-5)
• A “Net Tangible Benefit” test must be met — lender certifies the refi actually helps the veteran (lower rate, shorter term, ARM-to-fixed, eliminated MI, etc.)

The 100% LTV is the differentiator. Conventional caps at 80%; FHA caps at 80%. VA cash-out at 100% is unique.

See Cash-Out vs HELOC for tradeoffs.

VA-specific property requirements (MPR)

VA loans require a VA appraisal with Minimum Property Requirements (MPR) that are stricter than conventional appraisal. Common issues that delay or kill VA closings:

• Peeling paint on pre-1978 homes — lead paint hazard, must be remediated
• Missing GFCI outlets in kitchens, bathrooms, garages, exteriors
• Active termite infestation or visible damage (must be treated and repaired)
• Failing roof — less than 3 years of remaining useful life (per VA appraiser’s judgment)
• Inadequate water supply or sewage system — private wells must meet local potability standards
• Inadequate heating — must be a permanent heat source capable of maintaining 50°F in living areas
• Crawlspace issues (standing water, lack of ventilation)
• Broken windows, unsafe stairs, missing handrails

These issues need to be fixed before closing (typically by the seller, sometimes negotiated). In tight markets, sellers sometimes reject VA offers because of MPR repair concerns. Veterans should use a strong agent who can negotiate around this.

Tidewater Initiative

If a VA appraiser sees the appraisal coming in below the contract price, they trigger the Tidewater process — they notify the VA-designated point of contact (lender, sometimes agent) BEFORE finalizing the report. The point of contact has 48 hours to provide additional comparable sales that justify the higher value.

If accepted, the appraisal can come in at the higher number. If not, the official low appraisal lands and the buyer/seller negotiate from there (or buyer requests a Reconsideration of Value, formal appeal).

This gives VA buyers more leverage than conventional buyers in low- appraisal scenarios. Make sure your agent and lender know to push comps when Tidewater is invoked.

See Appraisal Gap for handling low appraisals generally.

Common misconceptions

• “VA is only for purchase loans” — wrong. There’s cash-out refi and IRRRL for existing VA loans.
• “I can only use VA once” — wrong. You can use it repeatedly across your life as long as you have remaining entitlement (or restore it).
• “VA loans are slow” — not anymore. VA loans close in 30-45 days routinely, comparable to conventional. The “slow” reputation is outdated.
• “I have to live in the home forever” — wrong. Occupancy requirement is within 60 days of closing AND for at least 12 months. After that, you can convert it to a rental and keep the VA loan. Many veterans build rental portfolios this way through PCS moves.
• “Zero down means I get any loan size automatically” — only with full entitlement. Check yours first.
• “I have to use a VA-only lender” — no. Most major lenders do VA. Pick one with VA experience.
• “My disability rating doesn’t exempt me from the funding fee” — if you have ANY rating 10%+, you ARE exempt. Always check.

Common mistakes

• Not pulling COE before house shopping — finding out at pre-approval that your entitlement is partially used can derail an offer.
• Not checking funding fee exemption — thousands of dollars lost to fees that shouldn’t have been paid.
• Not understanding assumability when selling — price advantage of $50k-$200k missed because the seller listed without marketing the assumable loan.
• Using IRRRL when cash-out makes more sense (or vice versa). They serve different purposes; pick deliberately.
• Trying to skip MPR issues — the appraiser will catch them. Plan for the repairs in negotiation.
• Refinancing a VA loan into a conventional loan and forgetting to request entitlement restoration — happens silently; check your COE after the refi.
• Choosing a non-VA-experienced lender — missed funding fee exemptions, mishandled MPR issues, missed entitlement nuances. Ask the LO directly: “How many VA loans did you close last year?” Under 20 is a yellow flag.
• Not using VA on second/third home purchase — many vets buy conventional after the first VA loan, not realizing they could keep the first VA-financed property as a rental and use VA again at the new duty station with remaining entitlement.

When to consult

• A VA-experienced loan officer — not all LOs know VA well
• A CPA if you’re using VA across multiple properties as part of a rental strategy (depreciation, passive activity rules, see REPS guide)
• A VSO (Veterans Service Officer) at the VA for benefit questions, especially around disability rating updates that affect funding fee exemption

Tools you’ll use

• VA Funding Fee — compute your exact fee given service status, down payment, prior use, and exemption
• Mortgage calculator — payment math with VA loan terms
• Affordability — what you can buy with VA’s more lenient DTI rules
• Assumable Mortgage — the assumability math from the buyer side
• Refinance — IRRRL break-even
• Cash-Out vs HELOC — comparing VA cash-out to alternatives

Related reading: inheriting a home, divorce and your mortgage, REPS status.