A VA-backed loan can be one of the most affordable ways to buy a home in Central Florida. In most cases it allows a purchase with no down payment and no monthly mortgage insurance. But the program has its own vocabulary: Certificate of Eligibility, entitlement, funding fee. Here is what each one means, using the Department of Veterans Affairs’ own published rules, so you can walk into a lender conversation prepared.

How a VA loan actually works

The VA does not usually lend the money. A private lender makes the loan, and the VA guarantees part of it. That guaranty protects the lender if the loan defaults, which is why lenders can offer terms such as no down payment in most cases. According to the VA, the program does not require a down payment or monthly mortgage insurance. If you are weighing it against other low-down-payment options, our guide to FHA loans for Florida first-time buyers and our comparison of FHA MIP and conventional PMI show what those loans charge instead.

Who is eligible

Eligibility is built on service history, then on credit, income and occupancy requirements from both the VA and the lender. The VA’s minimum active-duty service rules depend on when you served. A few examples from the VA’s eligibility page:

  • Service members: 90 continuous days of active service.
  • Veterans who served from August 2, 1990 to the present: at least 24 continuous months, or the full period (at least 90 days) you were called to active duty, or a qualifying discharge exception.
  • National Guard: at least 90 days of qualifying active-duty service, or 6 creditable years of service.
  • Reserve members: at least 90 days of non-training active duty, or 6 creditable years in the Selected Reserve.
  • Surviving spouses: may qualify in certain situations, such as receiving VA Dependency and Indemnity Compensation.

Earlier service periods have different minimums, and some people qualify under exceptions such as a service-connected disability discharge. The VA reviews your records to decide, so you do not have to work it out alone.

Start with the Certificate of Eligibility (COE)

The COE shows your lender that you qualify and how much entitlement you have. You can request it from the VA, and your lender can often request it for you online. It is smart to do this early, before you make offers, because it shows whether you have full or partial entitlement.

Entitlement in plain English

Entitlement is the amount the VA will guarantee to your lender. The VA describes two tiers:

  • Basic entitlement: $36,000 listed on a COE means full entitlement. It covers loans of $144,000 or less. For larger loans the VA guarantees up to 25% of the loan amount.
  • Bonus entitlement: the second tier for loans above $144,000. With full entitlement, it generally equals 25% of the loan amount.

Full entitlement means you do not have a VA loan limit, as long as you can afford the loan and the appraisal supports the price. That does not mean you can borrow any amount. The lender still decides what you can afford from your credit history, income, debts and assets. The VA does not set a minimum credit score, although many lenders have their own, which is one reason to compare more than one lender. The maximum VA loan on a property is the lower of the appraised value or the purchase price.

If you have used some entitlement before: your remaining bonus entitlement equals the county loan limit (the one-unit limit published by the Federal Housing Finance Agency) times 25%, minus the entitlement already charged on your COE. The VA’s example: a $900,000 limit gives $225,000; subtract $50,000 already used and $175,000 remains. Most lenders want your entitlement, down payment, or both to cover at least 25% of the loan, so $175,000 multiplied by 4 means roughly $700,000 with no down payment. Look up your Orange, Osceola, Seminole, Lake, Volusia or Polk County limit on the FHFA site rather than guessing.

You can sometimes reuse entitlement: if you sold the earlier home and paid that loan off, if a qualified Veteran assumes the loan and substitutes their entitlement, or once if you repaid the loan but kept the home.

The VA funding fee

Instead of monthly mortgage insurance, most VA borrowers pay a one-time funding fee, calculated as a percentage of the loan amount, not the purchase price. For purchase loans, the VA’s schedule effective April 7, 2023 is:

  • First use: 2.15% with less than 5% down; 1.5% with 5% or more down; 1.25% with 10% or more down.
  • After first use: 3.3% with less than 5% down; 1.5% with 5% or more; 1.25% with 10% or more.

The VA’s own example: a $200,000 home with $10,000 down (5%) means a $190,000 loan and a 1.5% fee, or $2,850. Other loan types differ: an interest rate reduction refinance (IRRRL) is 0.5%, a loan assumption is 0.5%, and a first-use cash-out refinance is 2.15%. Always check the current chart on VA.gov, since the VA can change it.

You can pay the fee at closing or finance it into the loan. The funding fee is the only closing cost you can finance on a purchase loan; everything else is due at closing.

Who does not pay it? The VA lists several groups, including people receiving VA compensation for a service-connected disability, those eligible for that compensation but receiving retirement or active-duty pay instead, surviving spouses receiving DIC, and active-duty members who provide proof of a Purple Heart on or before closing. If you are later awarded compensation retroactive to before your closing date, you may qualify for a refund.

Closing costs and seller credits

Buyers and sellers can negotiate who pays many closing costs. The VA allows sellers or builders to give credits toward the buyer’s closing costs, but limits seller concessions to 4% of the home’s reasonable value shown on the VA Notice of Value. Concessions include things like funding-fee credits and prepaid hazard insurance. Florida-specific charges such as documentary stamps and the intangible tax still apply; see our Florida mortgage closing costs breakdown. Discount points are also negotiable, and our explainer on discount points versus lender credits helps you decide whether buying the rate down is worth it.

Florida details worth planning for

Common mistakes

  • Assuming “no down payment” means “no cash needed.” You still have closing costs, prepaids and reserves.
  • Assuming full entitlement means unlimited borrowing. Your income, credit and debts still decide the number.
  • Skipping the COE until after you find a house.
  • Not asking whether you qualify for a funding fee exemption.
  • Comparing only one lender. Rates and fees vary by lender, as the VA itself notes.

Frequently asked questions

Do I need a down payment for a VA loan?

In most cases no. The VA guaranty is what allows it. A down payment of 5% or 10% does lower the funding fee, and it may be needed if you do not have enough entitlement for the loan size.

Is there monthly mortgage insurance on a VA loan?

The VA states that its program does not require monthly mortgage insurance. There is a one-time funding fee instead, unless you are exempt.

What credit score do I need?

The VA does not set a minimum credit score, but many lenders do. Requirements differ, so compare more than one lender.

Can I use a VA loan more than once?

Yes. You may use remaining entitlement, or restore entitlement in the situations listed above. A later use can carry a higher funding fee if you put less than 5% down.

Can the seller pay my closing costs?

Yes. Sellers can offer credits, and the VA limits seller concessions to 4% of the home’s reasonable value.

Can I finance my closing costs into a VA purchase loan?

No. On a purchase, only the funding fee can be added to the loan; all other costs are paid at closing.

Written by Tariq AbouAdma, Mortgage Loan Originator, NMLS #2724176 (Loan Factory NMLS #320841). Sources: U.S. Department of Veterans Affairs (va.gov home loan eligibility, funding fee and entitlement pages). This article is educational, not a loan offer or commitment; programs, fees and terms vary by lender and borrower and can change. Questions about your own VA scenario? Call Quality Real Estate Finance at 407-476-6667.