What are the minimum requirements for a VA home loan?
The first requirement for a VA home loan is that you must be eligible for a VA loan. Most veterans, military personnel, National Guard and reservists are suitable.
Other requirements include decent credit (usually 620 or higher), stable income, and stable employment.
Fortunately for veterans and military personnel, the VA home loan does not require a down payment. This way, you don’t need to save up a lot of money to qualify.
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VA loan requirements
Since VA mortgages are military loans, you may be eligible if you are a veterinarian or an active duty soldier. But serving in the military (or the surviving spouse of a soldier) is not an automatic endorsement.
To qualify for a VA loan, you must meet one of the following military service requirements:
- Served 90 days of active service in wartime
- Served 181 days of active duty in peacetime.
- Served more than six years in the National Guard or Reserve (or 90 days under Section 32, with a minimum of 30 consecutive days)
- You are the surviving spouse of a soldier who died in the line of duty or as a result of a service-related disability.
If you meet the requirements, you can get Certificate of entitlement (COE) before applying, which is proof of your eligibility for VA funding.
Your COE also provides information about your VA rights.
If you have not used VA Home Loan Benefit before, you have “every right” and you should be able to borrow without a down payment.
You can request a Certificate of Compliance from the Department of Veterans Affairs’ eBenefits portal.
Or, your lender can access the database and obtain it on your behalf, usually in just a few minutes.
No prepayment requirement
The VA loan program is unique in that it does not require a down payment and borrowers do not pay mortgage insurance.
Private mortgage insurance (PMI) is usually required when buying a home for less than 20%. But VA borrowers avoid this additional monthly fee.
However, this does not mean that VA loans are not free.
VA closure costs
Even if you put zero, you are still responsible for prepaying the closing. These include lender fees and third-party mortgage-related costs, such as:
- Loan disbursement fee
- Title Fees
- Evaluation fee
- Discount points
- Credit Report Fee
- Prepayment of real estate taxes and homeowners insurance
- Entry Fee
- Real estate commissions
VA closing costs vary, but often range from 3-5% of the loan amount for small loans and 2-3% for larger loans.
For example, the final cost of a $ 350,000 VA mortgage can range from $ 7,000 to $ 10,500 (2-3%).
VA funding fee
You must also pay a lump sum VA funding feewhich helps fund the VA program.
The funding fee depends on the type of your loan (home purchase or refinancing), your down payment, and whether you have used a VA loan before.
For first-time buyers of a home with a zero down payment, the financing fee is 2.3% of the loan amount ($ 2,300 for every $ 100,000 in debt).
Please note: you can transfer the funding fee to the loan balance so that you do not have to pay it in advance out of your pocket.
VA Loan Credit Rating Requirements
VA does not set minimum credit score requirements. This is in contrast to a regular loan or FHA loan, which requires an FICO score of 620 and 580 respectively.
However, it should be understood that lenders have their own minimum credit requirements.
Most VA lenders want a credit rating of at least 620. Some will go down to 580.
The lender will also review your credit report to make sure you have a clean credit history.
For example, some lenders only allow one 30-day late payment in the last 12 months.
What if you have had bankruptcy or foreclosure in the past? You will have to wait two years after a Chapter 7 termination to qualify for a VA loan, or 12 months from the date you filed for Chapter 13 bankruptcy. post-foreclosure waiting period two years.
Income Needed for VA Loan
The VA Home Loan Program has no minimum or maximum income restrictions. But your mortgage lender will check your personal income to determine how much monthly payment you can afford.
They will also look at your work record to make sure you have a stable job and a source of income.
You will be required to provide supporting documentation when VA loan application, such as:
- Tax Returns and W-2 Forms for the Last Two Years
- Latest Salary Receipts
- Recent statements of checking accounts, savings accounts, retirement accounts and other investments
- Driver’s license
If you are using other income for qualifying purposes, such as spousal or child support, you will also provide a copy of your divorce decision and other proof of support.
To use support payments for qualifying purposes, you must receive these payments for at least 12 months, and they must continue for at least 36 months after the close of your mortgage.
Keep in mind that lenders often require 24 months of continuous work, preferably with the same employer or in the same field.
If you are Self employed, you must provide tax returns for two years and a profit and loss statement for the current year.
Debt to income ratio on VA loan
Debt to Income Ratio (DTI) it is the percentage of your monthly gross income that goes towards your monthly debt payments.
Lenders will look at your income and calculate your DTI to determine the maximum loan amount.
With a VA loan, you are usually allowed a maximum DTI of 41%.
This means that your existing debts (credit card payments, car loans, student loans, etc.) plus a new mortgage payment should not be more than 41% of your monthly income before tax.
Keep in mind this is not a hard and fast rule. It is possible to qualify with a higher DTI, but only if you have a higher residual income…
This is the income left over after basic expenses such as mortgage payments, installment loans, estimated utility costs, ancillary payments, and revolving bills are paid. Lenders use income records and information from your credit report to measure your residual income.
If you have a large amount of money left over, you can qualify for a higher loan amount.
VA loan limits
According to the U.S. Department of Veterans Affairs, there are there is no limit or limit on the amount you can borrow with a VA loan.
As long as you have full eligibility – that is, you have never used a VA loan before – you can borrow as much as the lender will allow with no down payment.
Keep in mind that the amount you can afford is still limited by your income, DTI, and credit.
Your lender will only approve a large loan amount if he knows you can afford the monthly mortgage payments.
Your credit rating has a huge impact on your mortgage rate. The borrowers with the highest scores are usually eligible for the lowest rates, which increases purchasing power.
VA credits without full right
If you don’t have full entitlement – perhaps because you have an existing VA loan or one that you paid off, but you still own a home – there are limits on the amount you can borrow without a down payment.
This limit varies and depends on the appropriate loan limit for your region.
In 2021, it will range from $ 548,250 to $ 822,375. Loan limits are higher in more expensive housing markets. If you need a higher loan amount with no down payment, a large VA loan is one option.
VA loan requirements
Keep in mind that you can only use a VA loan for the purchase of your primary home. This is the house in which you plan to live permanently.
You cannot use a VA loan to buy a vacation home or rental property. The only exception is when you buy an apartment building and live in one of the apartments.
However, you can buy a home with a VA loan and rent it out later.
Your new home must also meet VA’s minimum ownership requirements, which means it is safe and hygienic.
The lender will order a VA appraisal and your appraiser will inspect the property and determine its market value. Generally, you cannot borrow more than the value of the house.
VA mortgage rates
VA mortgage rates are generally lower than interest rates for other types of loans.
This is because the VA guarantee makes these loans less risky for lenders. As a result, they can charge borrowers lower interest rates.
VA borrowers have different interest rate options. You can choose:
- Fixed rate mortgage – Your interest rate remains the same over the life of the loan, as do your mortgage payments.
- Adjustable rate mortgage – Your rate is fixed for a certain number of years and then resets every year. Your monthly payments will change if your rate is reset
Fixed rates are predictable and are usually the best option if you plan to live in the home for an extended period.
Critical factors affecting mortgage rates include your credit rating and debt-to-income ratio.
The higher your credit rating and the less debt you have, the lower the risk of default. For this reason, paying bills on time and keeping your debt levels low can help you get a good mortgage rate.
Even so, rates vary from lender to lender. So make sure you ask three or four VA approved lenders for quotes to compare rates, terms and fees.
Finding the best deal can save you thousands – even tens of thousands – over the life of your VA home loan.