If you’re eligible for a VA home loan, it can be one of the most powerful paths to homeownership: flexible underwriting, competitive rates, and the ability to buy with little to no down payment. But the VA program has a few moving parts that can surprise buyers — especially around occupancy rules, funding fees, and the VA’s unique affordability test called residual income.
This 2026 guide breaks the VA loan down into plain language and gives you a practical checklist you can use before you write an offer. If you’re buying in Minnesota (including the Mora area), the same national VA rules apply — the difference is how local taxes, insurance, and property types affect your numbers.
What a VA loan is (and who it’s designed to help)
A VA loan is a mortgage backed by the U.S. Department of Veterans Affairs for eligible Veterans, active-duty service members, and certain surviving spouses. The VA guarantee reduces lender risk, which is why VA loans often offer favorable terms compared with many conventional options.
The VA loan is meant for owner-occupied housing — in other words, a home you plan to live in as your primary residence. You can buy a single-family home, certain condos, and some multi-unit properties (up to four units) as long as you live in one unit.
The biggest VA loan myth in 2026: “There’s a VA loan limit”
You’ll still see “VA loan limits” mentioned online, but for many borrowers the limit doesn’t function like a hard cap anymore. If you have full VA entitlement, the VA does not set a maximum loan amount for a zero-down purchase — your approval is based on your income, credit, and the property.
Where limits can still matter is when you have partial entitlement (for example, you currently have another VA loan or you didn’t restore entitlement after a prior VA loan). In that case, your remaining entitlement is tied to local conforming loan limits, which can affect down payment requirements.
Occupancy: the rule that matters more than people realize
VA purchase loans are for a primary residence. That means you’re expected to move in and live there — not buy it as a pure rental or vacation property.
In real life, timelines happen: jobs change, leases overlap, repairs delay move-in, or you get orders. What underwriters look for is reasonable intent to occupy and a credible plan to do so. If you’re unsure how your situation fits, talk it through before you make an offer so you don’t get stuck late in the process.
Funding fee in 2026: what it is, how much it costs, and who’s exempt
Instead of monthly mortgage insurance, most VA borrowers pay a one-time VA funding fee. You can pay it at closing or roll it into the loan amount (if you choose).
Funding fee rates depend mostly on whether you’ve used your VA benefit before and how much you put down. In 2026, the published purchase and cash-out refinance funding fee rates are:
- 0%–4.9% down: 2.15% (first-time use) or 3.3% (subsequent use).
- 5%–9.9% down: 1.50% (first-time or subsequent use).
- 10%+ down: 1.25% (first-time or subsequent use).
Important nuance: cash-out refinances are typically charged at the “0% down” rates regardless of how much equity you have.
Some borrowers are exempt from the funding fee — commonly Veterans receiving compensation for a service-connected disability. Other exemption categories can include certain surviving spouses and Purple Heart recipients on active duty (with documentation before closing).
Residual income: the VA’s “real life” affordability test
Most mortgage programs focus heavily on debt-to-income ratio (DTI). The VA also considers DTI, but it adds another layer: residual income — how much money you have left each month after major obligations (housing payment, debts, taxes, and estimated utilities).
Residual income requirements vary by region and household size. Minnesota is in the Midwest region for the VA’s residual tables. For loan amounts above $80,000, one commonly referenced residual guideline table lists these monthly minimums for the Midwest:
- Family size 1: $441
- Family size 2: $738
- Family size 3: $889
- Family size 4: $1,003
Why this matters: two borrowers can have the same DTI but very different residual income after accounting for child care, car payments, or credit card minimums. Residual income is one reason VA approvals can look “different” from conventional approvals.
Also note that lenders may add their own overlays. For example, some lenders require a higher residual cushion when DTI exceeds a certain threshold (such as requiring residual income to exceed the guideline by 20% when DTI is over 41%).
Closing costs: what to budget for (and how to reduce cash-to-close)
Even with a zero-down VA loan, you’ll still have closing costs and prepaid items (like homeowner’s insurance and property taxes). A common rule of thumb is that VA closing costs often fall in the 3%–5% range of the loan amount, but your exact number depends on taxes, insurance, title fees, and your rate/points choices.
The VA also limits certain fees a Veteran can be charged, which can help keep costs in check. And you have negotiation tools: sellers can often cover some or even all allowable costs, and VA rules allow up to 4% in seller concessions in addition to certain loan-related costs.
To keep your cash-to-close as low as possible, focus on three levers:
- Ask about seller credits during offer strategy (especially if the home is priced to support them).
- Compare lender credits vs. paying points — sometimes a slightly higher rate can reduce upfront cash meaningfully.
- Get a clear estimate of prepaids early (taxes/insurance) so there are no surprises.
A simple pre-offer VA checklist
Before you make an offer, run through this quick checklist. It helps prevent last-minute underwriting surprises and keeps your timeline smooth.
- Confirm your VA eligibility and request your Certificate of Eligibility (COE).
- Discuss occupancy timing (move-in plan, lease overlap, repairs, or travel) with your lender up front.
- Estimate your monthly payment using realistic taxes, insurance, and utilities — not just principal and interest.
- Review your monthly debts and child care costs so your residual income calculation is accurate.
- Plan for closing costs and decide whether you want to pursue seller credits or lender credits.
How Davis Monroe Financial can help
VA loans are a fantastic benefit — but the “best” VA loan is the one that fits your budget comfortably and closes on time. At Davis Monroe Financial, we help you compare options, estimate total cash-to-close, and structure an offer strategy that matches your goals.
If you’re considering a VA home loan in Minnesota, call (320) 200-2821 or visit www.mydmf.com to talk through eligibility, funding fee scenarios, and what your payment could look like on the homes you’re shopping.
Sources (for readers who want to go deeper)
- VeteransLoans.com — 2026 VA funding fee rate chart and exemptions: https://www.veteransloans.com/resources/how-much-is-the-va-loan-funding-fee-in-2026/
- Veterans United — residual income guideline table (Midwest) and residual vs. DTI discussion: https://www.veteransunited.com/valoans/explaining-the-vas-standard-for-residual-income/
- Veterans United — VA closing costs overview and seller concession note: https://www.veteransunited.com/education/homebuying/closing-costs/