How to Qualify for a VA Home Loan

Looking to revamp your home or buy a house? A VA loan could be what you need to accomplish your dreams. People who have served in the army, or are still serving there, have shown their bravery and the United States appreciates their excellent work. The Department of Veteran Affairs(VA) guarantees veterans a home loan in the private financial sector, making it easy for them to qualify for a loan. Should the member default in paying for the loan, the VA will reimburse the lenders a certain amount.

To be considered for a VA loan, you must have adequate credit and a stable income. VA loans are desirable because:

• The government guarantees the loan

• They require low or no down payments

• The loan does not enforce a prepayment penalty

• Have low-interest rates

• You can apply more than once

• Do not require private mortgage insurance

Who is Eligible for the Veteran Affairs Loan?

The loan is available to a broad range of former and current military service members. For you to be eligible, you must have:

• Served the country 90 days of active duty during wartime

• Served 181 days of service during peacetime

• Six years of active duty in the Reserves or National Guard

• You are a spouse of a veteran who died in the line of duty or as a result of service-related disabilities, and you have not remarried

Borrowing Requirements

The applicant must meet these three general requirements.

I.     Have adequate credit

II.   Have a stable source of income

III. Obtain a Certificate of Eligibility (COE)

Only one of these requirements is determined by the veteran affairs only, the COE. The others are determined by the financial institution that will issue the loan. Different lenders have different income requirements and credit score requirements. Some may charge lower or higher interest rates. Nevertheless, all lenders must follow VA lending guidelines. Let’s take a more in-depth look at the borrowing requirements.

Income Requirements

The veteran affairs community has not set a minimum income level required for someone to qualify for the VA home loan. However, the credit union or bank issuing the loan will require proof of sufficient income to service the loan. This amount is dependent on the amount you want to borrow. 

Credit Scores

As with the income level, each financial institution sets the required credit score for VA borrowers. As stated in this article, there is a higher chance of getting a low VA loan rate when your credit score is good. On a FICO score ranging from 300 to 850, a score of 670 and more significant is considered good, 740 is very good, and more than 800 is exceptional. The lender is likely to check the credit score in their screening process. Hence, they set a cutoff or a minimum score that all applicants must exceed for the loan. 

If your VA loan application has been disqualified due to insufficient credit score, the lender must give you a written explanation and advise you on how you can get a free copy of the credit report. A veteran or the spouse can use this information to start working towards improving their credit score for future loan applications. 

Certificate of Eligibility

When you have an impressive credit score and finances, the lender will request for the COE to show that you or your spouse meet the military service requirements listed above. To get the certificate, you have to submit an application and attach the documents of your service or relation to a qualified military service member. The attached documents may vary depending on the nature of your service. Veterans may have to attach discharge papers while current members and reservists attach a statement of service. Some lenders do the application for their clients as part of the screening process. 

Other Requirements

You have to be honorably discharged

There are three types of discharge with the military service: honorable, under other than honorable, and other than honorable. To qualify for a VA loan, your release has to be characterized as anything but dishonorable. 

Debt-to-income (DTI) ratio

The relationship between your viable monthly income and your debt is referred to as the debt to income ratio. The lender will first determine the applicant’s verifiable income per month. The income used to calculate your DTI has to be stable with less likelihood of termination. Some income may not qualify, and they will be left out of the ratio for your DTI. If you are self-employed, you will have to show your lender a pattern of stability over time, usually 24 months. 

Like income, not all of your debts are taken to calculate the DTI ratio. Some expenses, such as medical insurance premiums, are not counted. Some of the loans that count include:

• Personal loans

• Credit cards

• Home expenses

• Commercial credit

• Utility bills

• Alimony and alimony

To get the verifiable income, the lenders divide your significant debts by your verifiable monthly income. The resulting figure is converted into a percentage. The lower the rate, the easier it is for you to get approved for the loan. It would help if you kept in mind that the lenders’ standards vary. 

Type of property

The VA only approves a loan to buy a residential house. With the loan, you can buy a single-family home, a condominium in VA passed neighborhoods, self-built houses (a new construction), and a multi-unit property (provided the applicant will stay in one of the units). The VA will not guarantee your loan for an investment property, property in foreign lands, or a house on unimproved land.

The VA home loan program was started to assist veterans and military service people in achieving the American dream of owning a home. It is part of the benefits package offered to people who serve in the army and national police service. This program focuses solely on helping qualified people purchase residential homes where they will live in the future. You will notice that all lenders do not require the same requirements for the DTI, viable income, loan interests, and the credit score. Shop around and determine which lender is ideal for you.