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 VA loan benefits. Most Veterans, Military, National Guard and Reservists are eligible.
Other requirements include decent credit (usually 620 or more), stable income, and stable employment.
Fortunately for veterans and the military, the VA home loan does not require a down payment. So you don’t need a lot of saved money to qualify.
Check your VA loan eligibility (June 28, 2021)
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VA loan eligibility conditions
Since VA mortgages are military loans, you might qualify if you are a veterinarian or an active duty member. But serving in the armed forces (or being the surviving spouse of a service member) is not automatic approval.
To get a VA loan, you must meet one of the following military service requirements:
- Served 90 consecutive days of active wartime service
- Served 181 days of active peacetime service
- Served over six years with the National Guard or Reserves (or 90 days under Title 32 with at least 30 of those consecutive days)
- You are the surviving spouse of a member who died in the line of duty or from a service-related disability
If you qualify, you can obtain a Certificate of Eligibility (COE) prior to applying, proof of your VA funding eligibility.
Your COE also provides information about your VA entitlement.
If you’ve never used your VA home loan before, you are “fully entitled” and should be able to borrow without any down payment.
You can request your Certificate of Eligibility through the Department of Veterans Affairs eBenefits portal.
Or, your lender can access the database and get one on your behalf, usually in just a few minutes.
Connect with a VA Lender and Get Your COE (June 28, 2021)
No down payment requirement
The VA loan program is unique in that it does not require a down payment and borrowers do not pay for mortgage insurance.
Private mortgage insurance (PMI) is generally required when buying a home with less than 20% down payment. But VA borrowers escape these additional monthly fees.
However, that does not mean that VA loans are not cost free.
VA closing costs
Even if you put zero, you are still responsible for the initial closing costs. These include lender fees and expenses related to third party mortgages, such as:
- Loan origination fees
- Title Fee
- Assessment fees
- Discount points
- Credit file fees
- Prepayment of property taxes and home insurance
- Registration fees
- Real estate commissions
VA closing costs vary, but often range from 3 to 5% of the loan amount for small loans and 2 to 3% for larger loans.
For example, the closing costs for a $ 350,000 VA mortgage could be around $ 7,000 to $ 10,500 (2-3%).
VA financing costs
You must also pay a one-time VA funding fee, which helps fund the VA program.
The amount of the finance charge depends on your type of loan (buying or refinancing a home), your down payment, and whether you have used a VA loan before.
For first-time home buyers with no down payment, the finance charge is 2.3% of the loan amount ($ 2,300 for every $ 100,000 borrowed).
Note that you can factor the financing costs into your loan balance so that you don’t have to pay them upfront out of pocket.
VA Loan Credit Score Requirements
The VA does not set a minimum credit score requirement. This is different from a conventional loan or an FHA loan, which require FICO scores of 620 and 580 respectively.
Be aware, however, that lenders have their own minimum credit requirements.
Most VA lenders want to see a credit score of at least 620. Some will go as high as 580.
The lender will also examine your credit report to make sure that you have a clean credit history.
For example, some lenders allow only one 30-day late payment in the past 12 months.
What if you have filed for bankruptcy or foreclosure in the past? You will have to wait two years after a Chapter 7 discharge to be eligible for a VA loan, or 12 months from the date of filing for a Chapter 13 bankruptcy. The waiting period after a foreclosure is two years.
Income needed for a VA loan
The VA home loan program has no minimum or maximum income limits. But your mortgage lender will look at your personal income to determine how much of a monthly payment you can afford.
They will also review your employment record to make sure you have a stable job and a source of income.
You will need to provide supporting documents when applying for a VA loan, such as:
- Tax and W-2 declarations for the last two years
- The most recent pay stubs
- Recent statements for checking accounts, savings accounts, retirement accounts and other investments
- Driving license
If you are using other income for qualifying purposes, such as spousal support or child support, you will also need to provide a copy of your divorce decree and other evidence of support.
To use the support payments for qualifying purposes, you must have received these payments for at least 12 months and they must continue for at least 36 months after the mortgage is closed.
Keep in mind that lenders often require 24 consecutive months of employment, preferably with the same employer or in the same field.
If you are self-employed, you must provide two years of income tax returns and an up-to-date statement of profit and loss.
Debt-to-income ratio for a VA loan
Debt to Income Ratio (DTI) is the percentage of your gross monthly income that goes towards monthly debt payments.
Lenders will look at your income and calculate your DTI to determine your maximum loan amount.
With a VA loan, you are generally entitled to a maximum DTI of 41%.
This means that your existing debt (credit card payments, car loans, student loans, etc.), as well as your new mortgage payment, should not be more than 41% of your monthly pre-tax income.
Keep in mind that this is not a hard or fast rule. It is possible to qualify with a higher DTI, but only if you have a higher residual income.
This is the income that is left over after paying major expenses like your mortgage payment, installment loans, estimated utility costs, support payments, and revolving accounts. Lenders use income statements and information from your credit report to assess your residual income.
If you have a lot of money left over, you may be eligible for a larger loan amount.
Check your maximum VA loan amount (June 28, 2021)
VA loan limits
According to the US Department of Veterans Affairs, there is no limit or cap on the amount you can borrow with a VA loan.
As long as you have all the rights, that is, you’ve never used a VA loan before, you can borrow as much as the lender allows without a 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 if they know you can afford the monthly mortgage payments.
The credit score has a huge impact on your mortgage rate. The borrowers with the highest scores are generally entitled to the lowest rates, which increases purchasing power.
VA loans without full right
If you don’t have all of the rights – maybe because you have an existing VA loan or have paid off but still own the home – there are caps on how much you can borrow without a down payment.
This limit varies and depends on the conforming loan limit for your area.
In 2021, it ranges from $ 548,250 to $ 822,375. Loan limits are higher in more expensive housing markets. If you need a larger loan amount without a down payment, one option is a VA jumbo loan.
VA Loan Property Requirements
Also be aware that you can only use a VA loan to purchase a primary residence. This is a house that you plan to live in full time.
You cannot use a VA loan to buy a vacation home or rental property. The only exception is when you buy a multiple unit home and live in one of the units.
You can, however, buy a house with a VA loan and rent it out later.
Your new home must also meet the minimum VA 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. As a general rule, you cannot borrow more than the value of a house.
VA Loan Mortgage Rates
VA mortgage rates tend to be lower than the interest rates for other types of loans.
This is because the VA guarantee makes these loans less risky for the lenders. And so they can charge borrowers lower interest rates.
VA borrowers have different options for their interest rate. You can choose one:
- Fixed rate mortgage – Your interest rate stays the same throughout the life of the loan, as do your mortgage payments
- Adjustable rate mortgage – Your rate is fixed for a number of years, then is reset each year thereafter. Your monthly payments will change if your rate is reset
Fixed rates are predictable and are usually the best option when planning to live in a house for the long term.
Critical factors that influence mortgage rates include your credit rating and your debt-to-income ratio.
The higher your credit rating and the less debt you have, the lower your risk of default. For this reason, paying your bills on time and keeping your debt low can help you qualify for a great mortgage rate.
Even so, the rates vary from one lender to another. So be sure to ask for quotes from three or four VA approved lenders to compare rates, terms, and fees.
Finding the best deal can save you thousands, if not tens of thousands, over the life of your VA home loan.
Check your new rate (June 28, 2021)