The VA doesn't actually make loans, they guaranty them by backing them with a protection against loss to the lenders that make the loans. This is why veterans can purchase a home for $0 down and still have no mortgage insurance.
The VA guaranteed loan does come at a cost in the form of a "funding fee". The VA collects this fee on all of their loans, this fee is then added to VA's reserves and helps to offset the cost in the event that a veteran has a home foreclosed on.
Vets with a service related disability are exempt from paying any funding fees.