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A home loan backed by the U.S. Department of Veterans Affairs (VA) can be a great way for eligible service members and their beneficiaries to take out an affordable mortgage — but even though they don’t require a down payment, they’re not free. The VA loan funding fee is a one-time charge associated with taking out a VA home loan. The amount you’ll pay depends on what type of loan you’re taking out, how much you are borrowing, whether or not it’s your first time taking out such a loan, and the size of your down payment.

However, there are some circumstances in which you may not have to pay the VA funding fee — or in which you might be eligible for a funding fee refund. Read on to learn everything you need to know about how the VA home loan funding fee works, and how much you might expect to pay if you’re planning to get one.

What Is a VA Funding Fee?

As discussed above, the VA funding fee is a one-time fee an eligible service member, veteran, or survivor must usually pay in order to take out a VA home loan. This is separate from any down payment the borrower might make, homeowners insurance, or any other cost associated with home-buying: the funding fee’s purpose, per the VA itself, is to help “lower the cost of the loan for U.S. taxpayers.”

Whether you’re buying, building, renovating, or repairing a home, or even refinancing an existing mortgage, if you take out a VA loan, you’ll need to pay the funding fee unless you meet an exemption requirement, which we’ll talk about in more detail below. Of course you’ll also need to meet any other VA loan requirements, much the way you would if you were qualifying for a conventional home loan.


💡 Quick Tip: Apply for a VA loan and borrow up to $1.5 million with a fixed- or adjustable-rate mortgage. The flexibility extends to the down payment, too — qualified VA homebuyers don’t even need one!†

How Does the VA Funding Fee Differ From Mortgage Insurance?

Mortgage insurance, also known as private mortgage insurance or PMI, is usually required on conventional mortgages when the borrower makes a down payment less than 20%. In most cases, when you take out a VA loan, you’re not required to make a down payment at all, nor to pay mortgage insurance. The VA funding fee is a totally separate cost.

Even though it might sound like a downer at first, paying the VA funding fee rather than PMI is really good news for borrowers: Although the VA funding fee is calculated as a percentage of your overall home loan, just like mortgage insurance, it’s far less expensive than having to pay mortgage insurance over time. That’s because the funding fee is assessed just once, while mortgage insurance is paid every month as part of your mortgage payment until you’ve paid off more than 20% of the home loan. That means PMI has the ability to stack up to very high amounts over time.

Recommended: The Different Types of Home Mortgage Loans

Why Is the VA Loan Funding Fee Assessed?

As discussed above, the VA loan funding fee is meant to help lower the cost of VA loans to American taxpayers, since these loans don’t require the borrower to make a down payment or pay mortgage insurance. It’s a relatively small, one-time cost that makes the whole program more affordable for everybody in the long run — what some might call a win-win situation.

How Much Is the VA Funding Fee?

The amount of the VA funding fee varies depending on whether or not this is your first time using a VA loan and how large of a down payment you’re planning to make. (Which type of loan to get is one of many things you’ll have to consider if you’re a first-time homebuyer.) The higher a down payment you make, the lower your VA funding fee will be — and the fees are always lowest the first time you take out a VA loan.These fees can be adjusted over time, and they actually went down in 2023. Today, they range from 1.25% to 3.3%.


💡 Quick Tip: Active duty service members who have served for at least 90 consecutive days are eligible for a VA loan. But so are many veterans, surviving spouses, and National Guard and Reserves members. It’s worth exploring with an online VA loan application because the low interest rates and other advantages of this loan can’t be beat.†

2023 VA Funding Fees for Purchase and New Construction Loans

Here are the rates active-duty military members, veterans, and their survivors can expect when taking out a VA loan. If you used a VA loan in the past to pay for a manufactured home, you’re considered a first-timer for the purposes of this fee. And if your loan from the VA is a Native American Direct Loan, you pay a flat 1.25% regardless of whether this is your first VA loan or how much your down payment is.

	Down Payment Amount	VA Funding Fee
First VA Loan	Less than 5%	2.15%
	5% to 9.99%	1.5%
	10% or higher	1.25%
Subsequent VA Loans	Less than 5%	3.3%
	5% to 9.99%	1.5%
	5% to 9.99%	1.5%

How Is the Fee Paid?

The VA funding fee is due when your loan closes. You can either pay it all at once as a lump sum then, or incorporate it into your financing and pay it off over time. Of course, if you choose to finance your funding fee, you will likely accrue interest on it, making it more expensive in the long run.

Are There Any VA Funding Fee Exemptions?

Yes! If you fall into one of the following circumstances, you won’t have to pay a VA funding fee:

•   You’re receiving VA compensation for a disability connected to your service.

•   You’re eligible to receive VA compensation for a disability connected to your service, but you’re being paid for active duty or receiving retirement compensation instead.

•   You’re the surviving spouse of a veteran and you receive Dependency and Indemnity Compensation (DIC).

•   You’ve received, before the date your loan closes, a proposed or memorandum rating that says you’re eligible for compensation because of a pre-discharge claim.

•   You’re an active duty service member who provides evidence before or on your closing date of having received the Purple Heart.

Is Anyone Eligible for a VA Funding Fee Refund?

In addition to the above circumstances, if you’re later deemed eligible for VA compensation due to a disability connected to your service, you may be entitled for a refund of your VA funding fee. To confirm, you’d need to call your VA regional loan center at (877) 827-3702 (TTY: 711). They’re available Monday through Friday, 8:00 a.m. to 6:00 p.m. ET.

Recommended: The Cost of Living by State

What Do You Need to Provide to Get a VA Funding Fee Refund?

While the VA regional loan center will walk you through your funding fee refund claim, be aware that you’ll need to provide some documentation to prove your eligibility for a refund. That includes:

•   A copy of your disability award letter — the office may also be able to verify your compensation in your system if you’ve lost the letter

•   A copy of the signed closing documents

•   A copy of your current mortgage statement

Some or all of your VA funding fee may be refunded depending on the eligibility of your claim.

The Takeaway

The VA funding fee is a one-time fee that borrowers must pay to take out a VA loan. It’s due at closing, and the amount varies depending on how much you borrow, the size of your down payment and other factors. First-time VA borrowers always enjoy lower fees than those who take out subsequent VA loans.

SoFi offers VA loans with competitive interest rates, no private mortgage insurance, and down payments as low as 0%. Eligible service members, veterans, and survivors may use the benefit multiple times.

Our Mortgage Loan Officers are ready to guide you through the process step by step.

FAQ

What is the typical funding fee for a VA loan?

For a first-time borrower who doesn’t make a down payment as part of their home purchase, the VA loan funding fee in 2023 is 2.15% of the loan amount. So if you borrowed $200,000 in this scenario, the fee would be $4,300.

What is the new VA funding fee for 2023?

Fees now range from 1.25% to 3.3% of the loan amount, depending on your circumstances. The VA home loan funding fee percentage was reduced as of April 7, 2023 by 0.15% in most categories — and 0.3% for those taking out a VA loan that is not their first and who put down less than 5%.

How to avoid VA funding fee

Unless you are eligible for an exemption due to a service-connected disability (or in a few other instances), it’s impossible to avoid the VA funding fee entirely if you’re taking out a VA loan. That said, your funding fee will be lower if you put down a higher down payment. It’s also lower for first-time borrowers than those taking out subsequent VA loans.

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Photo credit: iStock/kupicoo

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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Tenants in common is a way for two or more parties to buy a property or parcel of land. Buying real estate is expensive, and pooling your resources with others can be a great way to bring the price within reach and potentially lower your mortgage payment. Perhaps you are buying a house with relatives that you’ll live in and that they will stay in when they are in town. Or maybe you’re eyeing the purchase of several acres of land with some colleagues as an investment.
These are examples of why it may make sense for you to join forces with someone else (or multiple people) when acquiring a property. It can, however, open up a number of other questions and issues.

If you’re buying any kind of property with another person, even family, then you’ll need to consider how you want to co-own or take title to it. Tenants in common is one way to take title to a property.

Taking title as tenants in common first became popular in the 1980s in cities where the price of real estate had increased steeply. Acquiring properties in this manner has grown in popularity, especially in expensive urban areas, where merging money from different individuals became a way to increase purchasing power.

Read on to learn more about tenancy in common, including what is tenancy in common, how it works, and what are the pros and cons of tenancy in common.

What Is Tenancy In Common (TIC)?

Tenancy in common, also known sometimes as “tenants in common,” is a way for multiple people (2 or more) to hold title to a property. Each person owns a percentage of the property, but they are not limited to a certain space on the property.

In other words, you might be tenants in common with one or more persons, each holding a percentage of ownership share (which does not have to be equal), but you have a right to the entire property. There’s no limit to how many people can be tenants in common.

Worth noting: Despite the use of the word “tenant,” tenants in common has nothing to do with renting.

Recommended: First-Time Homebuyer Guide

How Tenancy in Common (TIC) Works

Tenancy in common works by people pooling their resources and buying property together. Each tenant, or person who is part of this legal arrangement, may own a different percentage of the real estate, but that doesn’t limit you to, say, just one room of a house.

The TIC relationship can be updated, with new tenants being added. What’s more, each tenant can sell or get a mortgage against their share of the property as they see fit. Each tenant may also name a beneficiary (or beneficiaries) to inherit their share upon their death.

If a group of tenants in common decides to dissolve the TIC agreement, one or more of the tenants can buy out the other tenants. Or the property can be sold and the proceeds split per the ownership percentages.

Property Taxes With Tenancy in Common

You may be wondering how tenants pay taxes on TIC properties. In most cases, a single tax bill will turn up, regardless of how many co-owners are involved or how they have divvied up percentages of ownership. It is then up to the tenants to determine who pays how much.

Another facet of tenancy in common arrangements to consider: Tenants can deduct property taxes when filing with the IRS. A common tax strategy is for each member to pay property taxes equal to the percentage of their ownership and then to deduct what they pay.

Recommended: Understanding the Different Types of Mortgage Loans

Tenancy in Common vs Joint Tenancy

When it comes to shared ownership, tenancy in common isn’t the only option. Another way to handle a shared purchase is joint tenancy. Here are some points of comparison for a tenant in common vs. joint tenant:

•   In TIC, the tenants can divide up ownership of property how they see fit. In a joint tenancy, the tenants hold equal shares of a single deed.

•   With a TIC arrangement, when an owner dies, their portion of the property passes to their estate. With joint tenancy, however, the property’s title would go to the surviving owner(s).

Recommended: How to Choose a Mortgage Term

Marriage and Property Ownership

Tenancy in common and joint tenancy are often ways that property is held in marriage. This will vary depending on the state you live in. Some states consider TIC the default way to own property in marriage. Elsewhere, it may be joint tenancy.

There is one other option possible, known as tenants by entirety (TBE). In this case, it’s as if the property is owned by one entity (the married couple) in the eyes of the law. Each spouse is a full owner of the real estate.
As with most things in life, there are pros and cons to TIC arrangements. First, the benefits:

•  With the high cost of real estate, especially in expensive markets, taking title as tenants in common can be one way to pool money and buy property you couldn’t otherwise own as an individual. It’s a way to bring home affordability into range.

•  Because tenants in common also allows for flexibility in terms of how you work out the specifics of living arrangements, it lends itself well to situations where friends decide to go in together on a vacation home or property where they won’t all be occupying the property at the same time.

•  You can transfer your share at any time without the consent or approval of the other tenants. You also have the right to mortgage, transfer, or assign your interest and so do your partners.

Now, for the disadvantages:

•  Tenants can decide to sell or give away their ownership rights, without the consent of the others, which means you might end up co-owning a property with someone you don’t know or even like.

•  In terms of real estate law, one of the main issues with a tenancy in common is that if you all signed the mortgage loan in order to purchase the property, you could end up being liable for someone else not paying their portion of the mortgage or for creditors forcing a sale or foreclosure of the entire property.

Increasingly, though, some banks and lenders are offering fractional loans for tenants in common on real estate that is easier to divide into separate units. This then allows each tenant to sign their own loan tied just to their percentage of the property. A mortgage calculator can help you figure out what your payments might look like.

Example of Tenancy in Common

Here’s an example of how tenancy in common might look in real life: Sam wants to buy a condo in Florida for $300,000 but can’t afford to do so; his limit is $200,000. His sister Emma loves Florida and says she would like to go in on the condo if she can spend a couple of months there in the winter. She adds her $100,000, and together, they can afford the condo. They pool their resources and make a down payment of 20% on the $300,000 property. After reading up on mortgage basics, they decide Sam will take out the mortgage. The mortgage principal on the purchase is $240,000.

Sam owns two-thirds and Emma owns one-third and Emma pays Sam for one-third of the cost of the mortgage, property taxes, and homeowners association dues. They both have the right to occupy the property. If Emma decides that she wants to get her own place in Florida, she could sell her share in the condo, while Sam retains his interest.

The Takeaway

Buying a house can seem overwhelming, but it doesn’t have to be. Tenancy in common presents one avenue to affordable ownership by allowing you to purchase property with others. Another way to manage costs is to get the best possible mortgage to suit your needs and budget.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Can tenancy in common be dissolved?

A tenancy in common can be dissolved. A single or multiple tenants may agree to end the arrangement by buying out the others in the shared ownership. If there is a situation in which the tenants can not agree on a path forward, the courts can be involved.

What are the responsibilities of tenants in common?

In a tenancy in common relationship, each tenant must pay their share of the costs involved, which can involve the mortgage principal and interest, homeowners insurance, and property taxes. A tenant’s share of these costs will reflect how much of the property they own. In addition, you may need to manage a portion of the property (say, if you’ve divided a house up or own a plot of land with others). Lastly, a TIC agreement may involve rights of first refusal if any tenants want to sell their share.

What happens when a tenant dies?

When a tenant in a tenants in common agreement dies, their share of the property is passed along to their beneficiary or beneficiaries; it does not automatically go to the other tenants.

What are the disadvantages of tenants in common?

Typically, the most important disadvantages of a tenants in common agreement are: Each member can sell their share independently, meaning you could be stuck with a tenant you don’t know or like; the TIC could be dissolved by tenants buying out one another; and if the tenants cosigned a mortgage for the property and one or more don’t pay, the other tenant could be stuck with liability for additional costs.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

This article is not intended to be legal advice. Please consult an attorney for advice.

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Escrow isn’t the most euphonious word, but it’s important when you’re a homebuyer and homeowner. In real estate transactions, escrow is the process of keeping money in trust until certain conditions are met. There are a couple different ways that escrow might be used, so let’s look more closely at this important process.

What Is Escrow?

There are a couple of ways that escrow is used. The first time you might encounter it is during the home-buying process, when your good-faith deposit (also known as “earnest money”) is held in escrow until the sale is finalized.

The funds are kept in the care of an escrow agent, who ensures that the deal terms are met by both sides. This protects both the buyer and the seller during the homebuying journey, which can sometimes be bumpy.

After you purchase a home, an escrow account is often used again as a way to help the mortgage lender ensure that an owner pays property taxes and home insurance fees in a timely and consistent fashion (more on that later). In this scenario, your mortgage loan payments will include taxes and insurance. An escrow account set up by the lender or mortgage servicer will accrue that portion of your monthly payment and pay the tax and insurance bills when they’re due.

When you make an offer on a home and the seller accepts it, you’ll typically submit some earnest money. This good-faith deposit shows the seller that you are serious about buying the property. Once the seller accepts your offer, the buyer’s or seller’s agent opens an escrow account with an escrow provider, often a title company. The earnest money, as well as the purchase agreement, the seller’s deed, and other documents are held there in escrow until the sale is final.

The earnest money deposit (typically 1% to 3% of the purchase price, though it can be more in a hot market) is verified by the escrow agent, and evidence is sent to the lender in writing.

Buyers who minimize contingencies in their purchase agreement risk forfeiting their earnest money deposit.

Common contingencies include the mortgage contingency, which allows either party to walk away from the deal if the buyers are unable to secure financing by the agreed-upon deadline, and the sale of current home contingency, when buyers need the proceeds from the sale of their existing home to afford the new home.

Others are appraisal and home inspection contingencies. These will all be written into the purchase contract.

As the process moves forward, the escrow agent is responsible for ordering a title search, and tracking and verifying the items laid out in the escrow instructions for the home sale.

The earnest money deposit is held in escrow and when the sale goes through it is used toward the down payment and closing costs.

Sometimes, funds are held in escrow beyond the closing. When this happens, it’s called an escrow holdback. It might occur if, for example, you and the seller make an arrangement that allows the seller to stay in the house for a month after the closing. Money would be held in escrow to pay the seller’s final utility bills. Or perhaps the seller has agreed to make a repair to the home but the work is not completed at the time of closing. Funds might be held in escrow to cover the cost until the repair is made.

What’s the Benefit of Escrow?

Escrow is designed to protect the buyer, seller, and lender until the transaction is complete. Having a neutral third party handle the paperwork and transfer of funds can benefit all parties in a real estate sale.

Escrow is required when you obtain financing, but it is used in cash sales as well. As a buyer, it can be comforting to know that all the transaction details are being handled by the appropriate parties.

As a seller, escrow provides a safeguard if anything goes wrong with the sale. For example, if the borrower backs out of the sale and breaks terms of the contract, the earnest money deposit may be forfeited by the buyer.

Recommended: Selling a House With a Mortgage

How Much Does Escrow Cost?

Escrow companies usually charge a base fee plus a percentage of the purchase price. That typically comes to 1% to 2% of a home’s sale price, but the cost varies by state and county.

For a $400,000 house, an escrow charge of 2% would be $8,000.

You may want to ask your real estate agent or mortgage lender to recommend a title company with low rates.

In many states, the buyer and seller split escrow fees or negotiate how they will be divided. The market temperature — buyer’s or seller’s market — can affect the negotiation.

Escrow After the Sale of the House

If you put less than 20% down on a conventional loan or take out a government-backed loan, your lender will typically establish an escrow account at closing where you will place money to pay homeowner’s insurance, property taxes, and, if necessary, private mortgage insurance (commonly called PMI). If your home is required to have flood insurance, then your lender is, in turn, required to escrow your insurance fees for this policy.

Once established, the account is maintained by monthly contributions that you make as part of your mortgage payment. When taxes and insurance are due, the lender or servicer pays them.

The escrow amount will be reflected on your mortgage statements. Once a year, your lender or loan servicer will examine your escrow account to make sure it is collecting the proper amount to cover your property taxes and insurance, and adjust your monthly payment as necessary.

If an excess of more than $50 is anticipated, you’ll receive an escrow refund. If the excess is less than $50, the loan servicer can choose whether to send you a refund or apply the overage to the following year. In the event of an escrow shortage, the homeowner might be asked to make an extra payment to escrow (this happens, for example, if there is an unexpected increase in property taxes). A loan servicer may also allow the homeowner to make up the shortage by adding to their monthly payments going forward. Either way, the monthly payment will be adjusted to ensure that, going forward, it reflects the true cost of the year’s taxes and insurance bills.

Using an escrow account for taxes and insurance helps protect you and your lender by ensuring that you maintain proper insurance coverage and pay your taxes on time. Consider what could happen if a property owner allows home insurance to lapse and then the home is damaged or destroyed: There would be no insurance funds to pay to repair or rebuild the home, and both the owner and lender would take a loss financially.

Recommended: What Is PMI and How to Avoid It

The Takeaway

What is escrow in real estate? It’s the holding of money and documents by an impartial third party during a home sale, or the lender’s collection of funds from a mortgage holder so that the lender can ensure that insurance fees and taxes are paid. Escrow is intended to protect buyer, seller, and lender and should bring peace of mind to all involved in a real estate transaction or mortgage.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What is an escrow balance?

The escrow balance is the money that is held in a mortgagor’s escrow account to pay taxes, insurance, and if applicable, private mortgage insurance and flood insurance.

What is an escrow agreement?

An escrow agreement is a contract that outlines the terms and conditions of a transaction for something of value, which a third party holds until all conditions have been met.

What does it mean to be in escrow?

It means that an escrow agent is holding the earnest money, loan funds, and property deed until an appraisal and title search are done and financing has been approved. The earnest money typically will be applied to the down payment or closing costs as the closing progresses.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

This article is not intended to be legal advice. Please consult an attorney for advice.

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A VA (Veterans Affairs) home mortgage loan offers qualified people with a military background the opportunity to get financing to buy a home.

Who qualifies for a VA loan? There are several requirements individuals generally need to meet to qualify for a VA loan. These include a history of military service, passing a credit check, and receiving a Certificate of Eligibility. They must also plan on using the home as their primary residence.

What Is the VA Home Loan Program?

If you’re wondering, what is a VA loan?, here’s what you need to know: The VA Home Loan Program aims to increase access to home mortgages to people who have served in the military. The U.S. Department of Veterans Affairs created the program for qualified veterans, active-duty service members, and some surviving spouses.

The VA pays a percentage of the loans, lowering risk for lenders so they can offer better rates and terms.

This program not only assists veterans in achieving their dream of homeownership, but also promotes stability and financial security for those who have served their country. Whether purchasing a first home or doing a mortgage refinance, eligible veterans and their families can take advantage of this opportunity to enjoy affordable and accessible financing.


💡 Quick Tip: You deserve a more zen mortgage. Look for a mortgage lender who’s dedicated to closing your loan on time.

Pros and Cons of a VA Home Mortgage Loan

As is the case with many different types of mortgage loans, VA home mortgage loans have benefits and disadvantages borrowers should be aware of before applying. These include:

Pros

•   No down payment: One of the main advantages of VA loans is that they don’t require a down payment.

•   Lower interest rates: VA loans often have lower interest rates than other types of mortgage loans.

•   No private mortgage insurance (PMI): With conventional loans, if you make a down payment that’s less than 20% of the purchase price of the home, you may have to buy PMI. With a VA loan, there’s no PMI requirement which can help buyers, especially first-time homebuyers, save money.

•   Flexible credit standards: VA loans typically have less stringent credit requirements than other types of loans. Borrowers can even qualify after a foreclosure or bankruptcy under certain conditions.

•   Streamlined refinancing: The VA has a refinancing program called the Interest Rate Reduction Refinance Loan (IRRRL).

•   Lifetime benefit: Veterans can use the program at any time.

Cons

•   Funding fee: VA loans come with a one-time financing charge that helps taxpayers cover the costs of the loan program. The amount of the fee depends on the size of the down payment, the type of military service performed, and other factors. Certain veterans, including those who are disabled, do not have to pay the fee.

•   Limited to primary residences: VA loans can only be used to buy a first home or primary residence, they can’t be used to buy a second home or investment property.

•   Potential seller limitations: Not all sellers or agents understand the VA loan program or want to work with VA loan borrowers. This may make negotiations harder and limit which houses can be purchased.

•   Additional property requirements: There are special criteria that properties must meet to ensure they are physically sound, clean, and secure.

•   VA loan limits: There are lending limits that determine the maximum loan amount the VA will guarantee. These may differ depending on the state and county.

Recommended: Cost of Living By State

What Are the Eligibility Requirements for VA Home Loan Programs?

Who qualifies for a VA home loan? The Department of Veterans Affairs sets the eligibility requirements for VA home loan applicants. Generally, to qualify for a mortgage in this case, borrowers must meet prerequisites such as proving their military service history, receiving a Certificate of Eligibility, and passing a credit check. Eligibility requirements are different depending on the type of service performed.


💡 Quick Tip: A VA loan can make home-buying simple for qualified borrowers. Because the VA guarantees a portion of the loan, you could skip a down payment. Plus, you could qualify for lower interest rates, enjoy lower closing costs, and even bypass mortgage insurance.†

Minimum Active-Duty Service Requirements

The VA loan eligibility requirements differ depending on the type of military service performed, as follows.

Service Members

Active-duty service members are eligible for the VA loan program, but may have different requirements than veterans. Service members must have served for at least 90 days continuously in order to meet the minimum active-duty service requirement.

Veterans

Veterans will meet the minimum active-duty service requirement if they served for one of the following:

•   At least 24 continuous months

•   The full period (at least 90 days) of active duty

•   At least 90 days if discharged for a hardship, or a reduction in force

•   Less than 90 days if discharged for a service-connected disability

National Guard Members

National Guard members must have served on active duty for a minimum of 90 days straight

Reserve Members

Generally, reserve members are required to have served on active duty for a minimum of 90 days straight during wartime. Or they may qualify if they have served for more than six years.

How to Request a Certificate of Eligibility (COE)

There are several steps you’ll need to take to get a Certificate of Eligibility. Here’s how to do it.

1.    First, check your eligibility with the VA. Your military service record will need to show that you served for a certain amount of time as indicated above.

2.   Next, provide other documents and information, including your Social Security number, proof of service such as dates of service and discharge papers, and a marriage and death certificate for surviving spouses.

3.   Apply for a certificate on the VA’s eBenefits online portal. You can also request a COE through a VA-approved lender.

Recommended: Home Loan Help Center

What If You Don’t Meet the Minimum Service Requirements?

There are alternative mortgage loan programs you can apply for if you don’t meet the minimum service requirements for a VA loan. These options include:

•   Federal Housing Administration (FHA) loans. These may have more lenient credit score criteria than VA loans and could be a good choice for first time homebuyers.

•   Conventional loans provided by private lenders, such as banks, credit unions, and online lenders. You may need a higher credit score to qualify for these loans.

•   State and city homebuyer aid programs and grants that provide support for down payments, closing costs, and other types of support.

You may also want to consider strengthening your credit score and saving up money for a downpayment in order to qualify for a loan in the future.

The Takeaway

The VA loan program is designed to help eligible veterans, active-duty service members, and surviving spouses qualify for a home loan. Key benefits of the program include no down payment required, low interest rates, and flexible credit requirements.

If you’re looking to take out a mortgage to buy a home or to refinance your current mortgage, there are other loan options you can consider as well.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Who are eligible borrowers on a VA loan?

Eligible borrowers on a VA loan include veterans, active-duty service members, and some surviving spouses. Eligibility depends on length of service performed and the type of home being purchased, among other factors.

What is the major criteria for a VA mortgage?

The major criteria for a VA loan is the individual’s type and duration of military service and their creditworthiness. Also, the applicant needs to show that they have enough income to meet the monthly mortgage payments.

How long do you have to serve in the military to get VA benefits?

Service duration requirements for VA benefits depend on the type of service, but generally one must have served for at least 90 days in a row. For certain situations such as service during wartime, the 90-day requirement may be reduced to as little as 30 days of consecutive military service to be eligible for VA benefits.

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Photo credit: iStock/CatLane

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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Looking for a relatively affordable property? Let’s hit the town. For many buyers, a townhouse is the sweet spot in real estate. But what is a townhouse? It’s not a detached single-family home, but it isn’t a condo, either. Let’s see how townhomes stack up.

What is a Townhouse?

A townhouse, or townhome, is distinct among the different types of homes. It is defined as a single-family unit that has:

•   Two or more floors

•   A shared wall with at least one other home

•   Ownership that differs from a condo: You own the inside and outside of your unit and the land it sits on, whereas a condo owner owns the interior of the condo

The meaning of the word townhouse can be traced back to 19th century England. The rich and royalty would have a large manor in the country but also a home “in town.” The definition has evolved over the years. A townhome doesn’t need to be a second home, and it doesn’t even need to be in the city. In some parts of the U.S., townhouses with a similar design and facade are also called row houses.


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

Pros and Cons of a Townhouse

Townhouses come with a fair share of benefits, but like any home, it’s not one size fits all. Consider these pros and cons of buying a townhouse.

Pros

•   Makes the most of space. As townhomes share a wall or two with neighbors, and are often in densely populated areas, they use space efficiently.

•   Affordability. Because of their shared walls and space-saving layout, townhomes are often more affordable than single-family homes in the area.

•   Independence, with less maintenance. Townhouses usually have less upkeep than single-family homes. There might be a small yard, and your own roof, to maintain.

•   Lower property taxes. A townhome owner may pay less in property taxes than the owner of a standalone home.

•   HOA perks. Some townhomes are part of homeowners associations. If amenities like a pool, gym, and maintenance of common areas and possibly your own little yard are a priority, a townhome with an HOA could be a good fit.

•   Looser rules. The HOA rules may not be as strict as those for a condo.

Cons

•   Limited landscape options. Townhouse lots are small. If you want space for landscaping, it’s unlikely you’ll find much with a townhouse.

•   Uncreative exteriors. If the townhome is part of an HOA, the ability to decorate the exterior of the unit could be limited. Townhomes typically look very similar to their neighboring units as well, so standing out could be a no-no.

•   Stairs, stairs, and more stairs. Townhomes have an efficient build for spaces where land is at a premium. That means building up, not out. A townhome may have three (or more) floors, meaning climbing stairs repeatedly.

•   Less privacy. Townhouses have at least one “party wall,” or wall shared with another property. That could be a problem for buyers who prioritize peace and quiet if the neighbors are loud.

•   Less appreciation. As a rule of thumb, townhomes don’t gain as much value as single-family homes do.

•   HOA fees. If the community has an HOA, it will charge a monthly or quarterly fee to cover communal perks. The fees usually rise over time, and can be high at a complex full of amenities.

Finding a Townhouse

Finding a townhouse will depend on where a buyer is looking. Most commonly, they’re encountered in densely populated areas where land might be pricey and scarce. The search may be more restricted if a buyer wants to purchase a townhome in an HOA community. One place buyers typically won’t find townhomes is in rural or secluded areas. Land may be more affordable and plentiful, which means properties don’t need to be condensed.


💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

Who Should Get a Townhouse?

A townhome might be the right option if the buyer:

•   Isn’t interested in much maintenance. Maintaining your unit and your parcel of land will almost always be less intensive than maintaining a detached single-family home and yard. If there are HOA fees, they might include landscaping services.

•   Is a first-time buyer. The lower cost and maintenance of a townhouse might be the right fit as a first-time homebuyer learns the ropes of homeownership and looks into homeowner resources.

•   Is an investor or buyer of a second home: Both may see the benefits of a townhouse.

•   Is on a budget. Generally, a townhouse will cost less than a single-family home in the same area. Buyers could live in a desirable area without paying top dollar. (A calculator for mortgage payments helps buyers see the effect of different down payments.)

•   Wants to live in an urban or suburban area. Because townhomes are built in areas where space is at a premium and the cost of living is high, a townhouse could be the right fit.

The Takeaway

With less maintenance (and potentially a lower price tag) than a detached single-family home, a townhome can be a great opportunity for buyers. Townhomes qualify for the same kind of mortgages that detached single-family homes do, and they require less exterior maintenance than a detached home. So there’s a lot to love about living in a townhouse.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How is a townhouse different from a house?

The biggest difference between a townhouse and a detached single-family house is the shared walls. A townhome may have one or more “party walls” with the properties adjacent to it.

Do townhouses have backyards?

Some townhomes may have a small backyard or patio, but that’s not a requirement for a home to be considered a townhouse.

Can you get a loan to buy a townhouse?

Yes. Similar to purchasing a traditional single-family home, townhouse buyers can use a home loan to purchase the property.

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Photo credit: iStock/JARAMA

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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