Being a veteran gives you more than just the pride of serving and the gratitude of your fellow citizens. Veterans get a range of benefits from the federal government for serving. One of these benefits is the VA loan. If you want to purchase a home after you leave the service, this is a benefit you’ll want to take advantage of. VA loans are the cheapest mortgage type available today. This article covers all of the VA loan requirements and guidelines.
What is a VA Loan?
a VA loan is insured by the U.S. Department of Veterans Affairs (VA) and offered by many lenders across the country. The VA program was created to help Veterans become homeowners without a downpayment even if they have low credit scores. The VA does not offer the loan directly, they just insure the loan incase the loan is defaulted on. There are several great benefits of VA loans but the largest benefits are NO downpayment and no mortgage insurance. VA loans can be used to purchase, or refinance a home.
VA Mortgage Benefits
- No downpayment
- No mortgage insurance
- Low interest rates
- Higher DTI ratios accepted
- Low closing costs
- Easier to qualify for than traditional loans
VA Eligibility Guidelines
If you’ve served in the active military for at least six months, or in the reserves or National Guard for six years, or a spouse of someone who meets these conditions, you’ll likely qualify.
If you are approved, you’ll receive a document called a VA certificate of eligibility which will prove to lenders that you qualify for a VA loan. However, you don’t need one on hand to start the process. Lenders can get this document from the government on your behalf during pre-approval.
Basic VA Service Requirements:
- Served for 90 consecutive days of active service in wartime, OR
- Served for 181 days of active service during peacetime, OR
- Has more than 6 years in the Reserves or Nations Guard
- Active-duty Servicepersons
- Servicepersons on active duty who have served for 90 consecutive days of active service are eligible
- Reservists and Members of the National Guard
Dishonorably discharged veterans are ineligible for any type of VA home loan.
Qualifying VA Income
- Salary/W-2 Income
- LES stipulated military income
- Part-time Income
- Second Job
- Bonus or Overtime Income
- Seasonal employment
- Self-employed Income
- Child support or Alimony (divorce decree and timely payments past 12 months
Non-Qualifying VA Income
- lottery winnings
- Unemployment payments
- One time bonuses
- One time payments from an employer
- non-occupying co-borrower income
- inconsistent income history
- Unverified income
- Rental Income
VA Loan Limits
In most parts of the country, veterans who qualify for military VA Loans can purchase a home worth up to $424,100 with no money down. However, with the 2017 VA Limits, high-cost counties such as Los Angeles and Denver have higher limits as high as $636,150. You can check VA loan limits in your county here.
VA Loan Requirements for Credit Scores
The VA hasn’t set any minimum credit score requirements for VA mortgages. Although, each VA lender sets their own minimum credit requirements, typically that score is 620. There are some situations in which someone can qualify for a VA loan with bad credit. Some VA mortgage lenders are able to accept a credit score of 580 or higher.
VA Debt to Income Ratios
VA loan requirements do not state a maximum debt to income (DTI) ratio. However, lenders set there own maximum DTI requirements for these mortgages. Typically, lenders max DTI ratio fir VA 41%. However, 41% isn’t a hard limits there are exceptions in some cases. To qualify for a VA mortgage with a DTI over 41% you should have strong compensating factors, such as:
- Ability to make a downpayment
- High net worth
- Large amount of reserves
- Minimal increase in current housing payment
- Increased earning potential
- High credit score
VA Interest Rates
VA loans have lower interest rates than conventional mortgages. However, like all loans the interest rate will be better the higher your credit score is. In order to avoid high interest rates, you should work on increasing your credit score as much as possible. The exact interest rate you’ll be charged on a VA mortgage depends on many factors.
The maximum loan amount is around $450,000, but that can increase if you live an area with high housing costs. If you have bad credit for your VA loan, there are still options available.
VA Funding Fee
While you don’t have to have a down payment with a VA loan, there are some special fees you’ll have to pay. First, closing costs aren’t covered, you can expect to pay between 1%-4%. Second, there is a special one-time VA funding fee you have to pay in lieu of a down payment.
If you are getting a VA loan for the first time with no down payment, you need to pay a VA funding fee equal to 2.15% of the loan amount. If you do put down 10% of the loan, this fee is lowered to 1.25%. The exact percentage will vary based on your down payment and the type of veteran you are. If you were discharged for disability reasons, this funding fee is waived.