In more detail
The Department of Veterans Affairs guarantees part of the loan, so the lender takes less risk and can offer no-down-payment loans without monthly mortgage insurance, usually at competitive rates. Most borrowers pay a one-time funding fee instead, which can be financed into the loan; it is a percentage of the loan that depends on the down payment and on whether it is the first VA loan, and veterans receiving VA disability compensation are exempt. Eligibility depends on length and type of service and is shown by a Certificate of Eligibility. The home must be your primary residence. Fee rates change, so check the current table.
Why it matters
For eligible buyers, a VA loan is often the cheapest way to buy with little cash, because there is no monthly insurance to pay. Financing the fee with no down payment, though, means starting with almost no equity.
Example
A $300,000 home with no down payment, using the 2.15% first-use funding fee that has applied to no-down-payment purchase loans since 2023: fee 300,000 × 2.15% = $6,450, financed, so the loan is $306,450. At 6.25% over 30 years the principal and interest payment is $1,886.87, with no monthly mortgage insurance on top.
Common confusion
An FHA loan is open to anyone who qualifies, needs at least a small down payment and charges mortgage insurance every month.