VA Pamphlet 26-7: Lender’s Handbook for VA Home Loans

VA Pamphlet 26-7, the Lender’s Handbook for VA Home Loans, is the Department of Veterans Affairs’ official rulebook telling private lenders how to originate, underwrite, and service every loan backed by the VA guaranty. If a lender asked you for a specific document, denied your application, or quoted you a fee, the rule almost certainly came from this handbook. It implements the regulations at 38 C.F.R. Part 36, which give the VA authority over every stage of the loan from eligibility through long-term servicing.¹

The handbook is long and technical, but the parts that actually decide whether you get a loan, at what cost, and on what property fall into a handful of areas. Here’s what each one requires.

Who the Handbook Says Qualifies

The benefit is open to veterans, active-duty service members, certain National Guard and Reserve members, and some surviving spouses. Minimum service depends on when and how you served. Active-duty members need at least 90 continuous days. Veterans who served during the Gulf War era (August 2, 1990, to present) generally need 24 continuous months of active duty, or at least 90 days if that was the full period they were called up for.²

National Guard and Reserve members qualify with 90 days of non-training active duty, or six creditable years in the Guard or Selected Reserve if still serving or honorably discharged. Veterans discharged for a service-connected disability may qualify with fewer than 90 days. Other early-separation paths include hardship discharges, involuntary reductions in force, and convenience-of-the-government separations after at least 20 months of a two-year enlistment.²

Getting Your Certificate of Eligibility

Before a lender can process the loan, you need a Certificate of Eligibility (COE). You can apply online through the VA website, ask your lender to pull it electronically through the VA’s Web LGY system (often in minutes), or mail VA Form 26-1880 to your regional loan center. Surviving spouses receiving Dependency and Indemnity Compensation use VA Form 26-1817; those not receiving DIC submit VA Form 21P-534EZ with a marriage license and the veteran’s death certificate.³

Loan Types the Handbook Governs

The handbook covers three main products, each with different rules and funding fees:

Purchase and construction loans. The core VA loan. No down payment is required with full entitlement, and private mortgage insurance is never charged.
Interest Rate Reduction Refinance Loan (IRRRL). A streamlined refinance available only to borrowers who already have a VA-backed loan. You must certify that you live in or previously lived in the home. The funding fee is 0.5% of the loan amount.⁴
Cash-out refinance. Lets you refinance an existing loan (VA or non-VA) and pull equity as cash. Requires a new appraisal and full underwriting. You must live in the home.⁵

Entitlement and Loan Limits

The VA doesn’t lend money on most loans. It guarantees a portion so that if you default, the lender recovers part of its loss. For loans over $144,000, the VA guarantees 25 percent of the loan amount.⁶ That 25 percent is what lets lenders offer zero-down financing without private mortgage insurance.

Veterans with full entitlement (no prior VA loan outstanding) face no VA-imposed loan limit. You can borrow above the conforming limit, though lenders may cap you on their own. Veterans with reduced entitlement, because a previous VA loan is still active, are tied to the conforming loan limit. For 2026 that is $832,750 for a single-family home in most areas, up to $1,249,125 in designated high-cost counties.⁷ If the loan exceeds your remaining coverage, you’ll need a down payment for the gap.

Restoring Entitlement

The benefit is not one-time. Selling the property and paying off the VA loan in full lets you submit VA Form 26-1880 to update your COE. A qualified veteran buyer can also assume your loan with a substitution of entitlement, which restores yours without a sale. A one-time restoration is also available: if you refinance into a non-VA loan and keep the home, you can restore your entitlement once without selling. After using that exception, future restorations require a sale and full payoff.

Credit and Income Standards

Chapter 4 of the handbook is where most approvals or denials get decided. VA underwriting is more flexible than conventional lending in some ways, but it adds a step (residual income) that conventional loans skip.

Credit History

The VA does not set a minimum credit score. Lenders look for a pattern of reliable repayment. Late payments in the past 12 months generally require a written explanation. Charge-offs and collections do not automatically need to be paid off. If they are being repaid under a steady plan, underwriters may view that favorably; paying them off at application does not erase the negative history.⁸

Court judgments, federal debts, and tax liens are treated more strictly. These must be paid in full or covered by a written repayment agreement before closing, and if a repayment plan is in place that payment is included in the debt analysis.⁸

Bankruptcy

Chapter 7 requires a two-year waiting period from discharge. One year may be sufficient if the borrower documents re-established credit and shows the bankruptcy resulted from circumstances beyond their control. Chapter 13 requires at least one year of on-time payments under the plan plus written permission from the bankruptcy trustee.⁹

DTI and Residual Income

The handbook uses 41 percent as the debt-to-income benchmark: total monthly debts, including the proposed mortgage, should not exceed 41 percent of gross monthly income. Going over that does not automatically kill the loan; the handbook lists compensating factors such as high residual income or long-term employment.⁹

Residual income is where VA underwriting departs most from conventional lending. After subtracting taxes, the mortgage payment, and all other debts from gross monthly income, what’s left must meet or exceed the VA’s minimum for your region and family size. For a family of four borrowing $80,000 or more, minimums range from roughly $1,003 in the Midwest and South to $1,117 in the West. Household size counts everyone living in the home, not just borrowers on the loan. Non-purchasing spouses and dependent parents are included.⁹ Falling short can lead to a denial even when credit and DTI look fine on paper.

Employment and Self-Employment

Lenders verify at least two years of continuous employment or a stable income source. Self-employed borrowers face more scrutiny. The VA prefers two years of self-employment history, though an underwriter may accept one full year with prior employment or education in the same field. Depreciation from tax returns can be added back to net income for qualifying purposes, and a year-to-date profit and loss statement is typically required.¹⁰

Property Condition and Occupancy

Chapter 12 requires every property financed with a VA loan to be safe, structurally sound, and sanitary. These aren’t cosmetic standards. They target conditions that make a home unsafe or create heavy maintenance costs. An appraiser flags issues during inspection, and unresolved problems can delay or block closing.

Heating capable of maintaining at least 50°F in any area with plumbing.
A roof in serviceable condition with reasonable remaining useful life.
Continuous safe drinking water and a functional sewage disposal system.
A water heater with a temperature and pressure relief valve discharging to the building exterior.
Electrical service adequate for the dwelling and free of visible hazards.
Professional treatment and certification for any wood-destroying insect damage before closing.
No peeling or chipping lead-based paint in homes built before 1978.

Access must be by a permanent all-weather surface such as asphalt or concrete.¹¹ For properties on a private road or shared driveway, the VA eliminated the old joint maintenance agreement requirement in late 2022. A recorded permanent easement or right-of-way to a public road is still required, but owners no longer need a formal cost-sharing arrangement for upkeep.¹²

Occupancy

VA loans are for primary residences only. You must move in within 60 days of closing. Narrow exceptions apply: a veteran retiring within 12 months can negotiate a later move-in date; if the home needs extensive repairs, the borrower must certify intent to move in as soon as work is finished; active-duty members who deploy after purchase are treated as being in temporary duty status; a spouse living in the home satisfies occupancy while the veteran is on active duty or working far away.

The Appraisal Process

Every VA purchase loan and cash-out refinance requires an appraisal by a VA-assigned appraiser. IRRRLs generally do not. The lender requests the appraisal through the VA’s centralized system and the VA assigns an independent appraiser; the lender cannot choose. The appraiser determines the property’s reasonable value and checks for minimum property requirement violations, and the result becomes a Notice of Value that sets the maximum amount the VA will guarantee.¹¹ All VA appraisals follow the Uniform Standards of Professional Appraisal Practice.

If the purchase price exceeds the appraised value, you either pay the difference out of pocket or renegotiate a lower price. The VA won’t guarantee more than the appraised value. Two safeguards exist for low appraisals.

Tidewater Initiative

When an appraiser believes value will come in below the sales price, they must notify the lender’s designated point of contact before finalizing the report. The lender then has two business days to submit additional comparable sales or market data, formatted like the comparable sales grid on a standard appraisal report. The appraiser must include a Tidewater addendum in the final report either way, explaining why any additional data did or did not change the value. The appraiser cannot discuss the content of the appraisal beyond stating that more information is needed, so don’t expect a preview of the number.¹³

Reconsideration of Value

If the appraisal comes back low even after Tidewater, you can ask the lender to file a Reconsideration of Value. This is not a second appraisal. It’s a request for the original appraiser to review additional comparable sales or correct factual errors.¹⁴ The lender’s staff appraisal reviewer assembles the request. You need concrete evidence: better comparable sales the appraiser missed, documentation of upgrades, or proof of square-footage discrepancies. A vague objection that the number should be higher will go nowhere.

Fees, Closing Costs, and the Funding Fee

Chapter 8 restricts what lenders can charge veterans. VA closing costs tend to run lower than conventional costs because several categories of fees are flatly prohibited.

The 1 Percent Origination Cap

Lenders may charge a flat origination fee of up to 1 percent of the loan amount to cover processing and underwriting. When that flat fee is charged, the lender cannot also tack on itemized charges for the same services. The 1 percent is inclusive.¹⁵ Reasonable discount points to buy down the rate are allowed on top of it.

Fees You Cannot Be Charged

Veterans are prohibited from paying the lender’s attorney fees associated with settlement, though attorney fees for title examination are allowable if they reflect actual cost. The VA cannot publish an exhaustive list because fee types vary by lender and location, but the principle is that if the origination fee is charged, no additional lender-side administrative fees may pass to the borrower.¹⁵ Some normally non-allowable costs become permissible in specific states under a VA deviations list, such as wood-destroying insect inspections when required by the Notice of Value.¹⁶

Seller Concessions

Sellers can contribute toward the buyer’s normal closing costs (appraisal fees, title insurance, prepaid taxes) with no percentage cap. Concessions beyond standard closing costs are limited to 4 percent of the loan amount. Those extras include paying off the buyer’s debts, funding a temporary interest rate buydown, or covering the VA funding fee.¹¹ Many buyers and agents wrongly believe the 4 percent cap applies to all seller contributions; it applies only to the extras.

The VA Funding Fee

Most VA loans include a one-time funding fee paid to the VA to sustain the program. The rate depends on your loan type, down payment, and whether you’ve used the benefit before. For purchase loans closed between April 7, 2023, and June 9, 2034:¹⁷

First use, less than 5% down: 2.15%
First use, 5% or more down: 1.50%
First use, 10% or more down: 1.25%
Subsequent use, less than 5% down: 3.30%
Subsequent use, 5% or more down: 1.50%
Subsequent use, 10% or more down: 1.25%
Cash-out refinance, first use: 2.15%
Cash-out refinance, subsequent use: 3.30%
IRRRL, any use: 0.50%

The fee can be rolled into the loan balance instead of paid at closing, though that increases the total financed. You are exempt entirely if any of the following apply: you receive VA compensation for a service-connected disability; you are eligible for disability compensation but receive retirement or active-duty pay instead; you are a surviving spouse receiving DIC; you received a proposed or memorandum disability rating before closing on a pre-discharge claim; or you are an active-duty service member with a Purple Heart on or before the closing date.¹⁷

Loan Assumptions and Release of Liability

VA loans are assumable, a real advantage when rates are high. A buyer can take over your existing VA loan at its original rate. The buyer does not need to be a veteran but must qualify through the lender and be approved by the VA. The process centers on VA Form 26-6381, which the seller submits with a remittance fee.¹⁸

Here’s what most sellers miss. Transferring the property does not automatically release you from liability. If the new buyer defaults, the VA can come after the original veteran for the loss unless you obtained a formal release. To get one, the buyer must assume all of your liability to both the government and the loan holder, typically through a deed clause or a separate assumption agreement. The seller must also deliver VA Forms 26-6382 and 26-6807 to the purchaser for completion.¹⁹

Even with a release, your entitlement stays tied up in the assumed loan unless the buyer is a veteran who substitutes their own entitlement. Without that substitution, you may not have enough remaining entitlement to buy another home with a VA loan until the assumed loan is paid off.

1
eCFR. 38 CFR Part 36 – Loan Guaranty
2
U.S. Department of Veterans Affairs. Eligibility for VA Home Loan Programs
3
U.S. Department of Veterans Affairs. How to Request a VA Home Loan Certificate of Eligibility (COE)
4
U.S. Department of Veterans Affairs. Interest Rate Reduction Refinance Loan
5
U.S. Department of Veterans Affairs. Cash-Out Refinance Loan
6
Office of the Law Revision Counsel. 38 USC 3703 – Basic Provisions Relating to Loan Guaranty
7
FHFA. FHFA Announces Conforming Loan Limit Values for 2026
8
VA Home Loans. Credit Standards – Late Payments and Collections
9
Veterans Benefits Administration. VA Lenders Handbook 26-7 Credit Underwriting Conference Presentation
10
VA Home Loans. VA Credit Standards Course – Income
11
U.S. Department of Veterans Affairs. VA Pamphlet 26-7 Lenders Handbook
12
Veterans Benefits Administration. Circular 26-22-17 – Private Roads and Shared Driveways
13
Department of Veterans Affairs. Circular 26-17-18 – Procedures for Improving Communication with Fee Appraisers in Regards to the Tidewater Process
14
U.S. Department of Veterans Affairs. VA Home Loan Toolkit
15
Veterans Benefits Administration. Circular 26-10-01
16
U.S. Department of Veterans Affairs. VA State Fees and Charges Deviations List
17
U.S. Department of Veterans Affairs. VA Funding Fee and Loan Closing Costs
18
Department of Veterans Affairs. Application for Assumption Approval and/or Release from Personal Liability to the Government on a Home Loan – VA Form 26-6381
19
U.S. Department of Veterans Affairs. Application for Assumption Approval and/or Release from Personal Liability to the Government on a Home Loan