VA Loan Rates, May 2026: The Spread Is Widening, a New Bill Could Cut Your Closing Costs, and 90,000 Veterans Are Still at Risk

Three things are happening simultaneously in the VA loan market right now, and they paint a complicated picture. Rates are moving in veterans' favor. Congress is trying to modernize a program that has not kept pace with the housing market. And the aftermath of last year's VASP cancellation continues to push thousands of military families toward foreclosure.

This is the first edition of a monthly series where we track what is actually happening with VA loan rates, policy, and the benefit itself -- not what lenders want you to hear, but what the data shows and what the legislation says.

The Rates: VA Is Pulling Away From Conventional

VA 30-Year Fixed: 6.17% (as of May 20, 2026)

Conventional 30-Year: 6.51%

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The spread: 34 basis points -- and widening.

In March, the VA-conventional gap was 22 basis points. It is now 34. Conventional rates climbed this week while VA rates moved down -- a divergence that reflects lender confidence in the government guarantee behind every VA-backed mortgage. Source: Federal Reserve Economic Data (FRED), Optimal Blue Mortgage Market Indices.

What the Spread Means in Real Money

On a $300,000 mortgage, the rate difference alone saves $67 per month. But the full VA advantage is larger than the rate. When you factor in zero down payment and no PMI -- which adds 0.5-1.0% to the effective rate on conventional loans under 20% down -- a veteran purchasing at today's rates saves over $78,000 compared to a civilian buyer putting 5% down on the same property over the life of a 30-year loan.

Where Rates Have Been

VA 30-year fixed rates peaked at 7.75% in October 2023 -- the highest level since 2001. Since then, the trajectory has been gradually downward: 6.70% in January 2024, a brief reversal to 6.95% in June 2024 on inflation fears, 6.30% by October 2024, and a gradual descent to today's 6.17%. The Fed has signaled it is watching employment data closely. A rate cut in the second half of 2026 remains possible if labor market softening continues -- but a 25 basis point Fed cut typically translates to only 10-15 basis points of mortgage rate relief, not a full quarter-point drop.

The Legislation: Two Bills That Could Change What You Pay

VA Home Loan Affordability Act (H.R. 8532) -- Introduced April 2026

More than 528,000 veterans and service members used the VA home loan program in fiscal 2025, according to the House Committee on Veterans' Affairs. But the Committee estimates that 58,000 VA loans go untapped annually in metropolitan areas -- roughly $28 billion in unused VA loan volume in 2024 -- in part because the program's bureaucratic requirements make VA offers less competitive than conventional ones.

H.R. 8532 is the most significant proposed reform to the program in years. Here is what it would change:

Closing costs capped at 1.5% of the loan amount. Non-VA closing costs currently run 2-6%. On a $300,000 loan, this cap could save veterans $1,500-$13,500 at the closing table.

VA appraiser certification time cut from 3-5 years to 12-18 months. We covered the appraisal bottleneck on VeteranLife in January -- veterans are losing offers because VA appraisals take too long and sellers choose conventional buyers. As Levi Rodgers, a retired Green Beret and CEO of Levi Rodgers Real Estate Group, told Stars and Stripes: "Delays, limited appraiser availability, and added costs are slowing veterans down in a market where speed matters."

Minimum property requirements modernized. The bill directs the VA to update property standards that have not been meaningfully revised in decades -- outdated requirements that cause homes to fail VA inspection when they would pass FHA or conventional standards.

Rep. Mike Bost (R-IL), Chairman of the House Veterans' Affairs Committee, stated: "This bill would cut through needless regulations and processes in the VA home loan program, reduce closing costs, and bring the VA home loan program in line with other federal housing programs to get veterans, service members, and their families in their new homes faster."

Rep. Tom Barrett (R-MI), an Army veteran on the House VA Committee, added: "The bottom line is that these reforms will help veterans buy homes more easily and affordably so they can put down roots and raise their families in our communities."

No vote has been scheduled.

The VALOR Act -- Pending

This bill addresses a long-standing inequity: veterans who paid the VA funding fee at closing and later received a service-connected disability rating. Currently, the funding fee exemption only applies at the time of the loan. Under the VALOR Act, the VA would be required to reimburse those fees retroactively. For a veteran who paid the 2.15% fee on a $300,000 loan ($6,450) and subsequently received a 10%+ rating, that is $6,450 returned.

The Funding Fee: Now Tax Deductible

Starting in the 2026 tax year, the VA funding fee is deductible as an upfront mortgage insurance premium. This is new. Patrick Zondervan, Executive Director of the VA's Loan Guaranty Service, announced: "VA just recently reached a milestone of granting the 29 millionth VA-guaranteed home loan to Veterans, service members and surviving spouses who served and sacrificed on behalf of our grateful nation. We are pleased that eligible new borrowers can now deduct the funding fee and potentially put more money back in their pockets, which is where it belongs."

To claim the deduction, itemize on Schedule A (Form 1040) and report the funding fee as an upfront mortgage insurance premium. The VA notes that this information "is not intended to be, and should not be construed as, tax, legal or accounting advice" -- consult your tax advisor for your specific situation.

For a first-time VA buyer with zero down, the 2.15% funding fee on a $300,000 loan is $6,450. In the 22% tax bracket, the deduction saves approximately $1,419 in federal taxes.

The Crisis That Has Not Ended: 90,000 Veterans Behind on Mortgages

This section is not about rates or policy. It is about what is happening right now to military families.

In May 2025, the VA terminated the Veterans Affairs Servicing Purchase program. VASP had helped more than 33,000 veterans by purchasing their delinquent loans and modifying them to a 2.5% fixed rate. We covered the cancellation when it happened and the foreclosure fallout that followed.

One year later, according to ICE Mortgage Technology data reported by NPR: more than 10,000 veterans have lost their homes to foreclosure since VASP ended. An additional 75,000 VA borrowers are at least three months behind on their loans, and 90,000 total are behind on payments or in the foreclosure process.

Congress responded with the VA Home Loan Program Reform Act, signed into law on July 30, 2025, which created a Partial Claim Program. But as of May 2026, that program is still being implemented and is not yet fully operational nationwide.

What to Do If You Are Behind

Call the VA Regional Loan Center: 877-827-3702. The VA can negotiate directly with your servicer on your behalf.

Contact your loan servicer and ask about loss-mitigation options: repayment plans, loan modifications, forbearance.

Do not ignore correspondence. Texas, Virginia, and North Carolina -- three of the largest military population states -- are non-judicial foreclosure states where the process can move quickly once initiated.

Ask about the Partial Claim Program. The VA is rolling it out in phases. Your Regional Loan Center can tell you if it is available in your area.

What This Means For You

If you are considering buying: The rate environment is the most favorable it has been since late 2024. The VA-conventional spread is the widest this year. If H.R. 8532 passes, closing costs could drop significantly. And the funding fee is now tax deductible for the first time.

But rates are one input. Your duty station and PCS exit strategy are the equation. Today's 6.17% produces a very different outcome at Fort Sill (+$390/month cash flow at PCS) than at San Diego (-$1,870/month). Use the Should I Buy? Calculator to run your numbers before making a decision.

If you already own with a VA loan: Watch the VALOR Act. If you paid a funding fee and later received a disability rating, retroactive reimbursement may be coming. And if you purchased before October 2023 at a higher rate, talk to your lender about a VA Interest Rate Reduction Refinance Loan (IRRRL).

If you are behind on payments: Act now. The options exist but they require you to initiate. Call 877-827-3702.

Compare current rates and get pre-qualified: VA Loan Rates

This is the first edition of a monthly series. Next update: late June 2026.

Learn more about VA loan eligibility, benefits, and how to get started: VA Home Loan Guide.

VA loan rates sourced from the Federal Reserve Economic Data (FRED) system, Optimal Blue Mortgage Market Indices. Legislative information from Congress.gov and the House Committee on Veterans' Affairs. Foreclosure data from ICE Mortgage Technology via NPR. Military Brands is not a lender and does not provide mortgage advice.