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 above), stable income, and stable employment.
Fortunately for veterans and the military, the VA home loan requires no down payment. So you don’t need a lot of saved money to qualify.
Check Your VA Loan Eligibility (January 17, 2022)
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VA Loan Eligibility Requirements
Since VA mortgages are military loans, you may qualify if you are a veterinarian or active duty member. But serving in the armed forces (or being the surviving spouse of a military member) is not an automatic endorsement.
To get a VA loan, you must meet one of the following military service requirements:
- Served 90 consecutive days of active wartime duty
- Served 181 days of active duty in peacetime
- Served more than six years in 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 military member who died in the line of duty or from a service-related disability
If you meet the requirements, you can get a Certificate of eligibility (COE) before you apply, which proves your eligibility for VA funding.
Your COE also provides information about your VA rights.
If you haven’t used your VA home loan benefit before, you have “full entitlement” 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 obtain one on your behalf, usually in just a few minutes.
Connect with a VA Lender and Get Your COE (January 17, 2022)
No down payment requirement
The VA loan program is unique because 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 with less than 20% down payment. But VA borrowers escape these additional monthly fees.
However, that doesn’t mean that VA loans aren’t cost-free.
AV closing costs
Even if you put nothing in, 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 fees
- Expert fees
- Discount points
- Credit application fees
- Prepayment of property taxes and home insurance
- Registration fees
- Real estate commissions
VA closing costs vary, but often range from 3-5% of the loan amount on small loans and 2-3% on larger loans.
For example, the closing costs for a $350,000 VA mortgage might be around $7,000 to $10,500 (2-3%).
VA financing fees
You also have to pay only once VA financing fees, which helps fund the VA program.
The amount of the finance charge depends on your loan type (home purchase or refinance), your down payment, and whether you’ve 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 defer finance charges to your loan balance so you don’t have to pay them out of pocket upfront.
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.
Understand, 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 low as 580.
The lender will also review your credit report to ensure that you have a clean credit history.
For example, some lenders only allow one 30-day overdue payment in the last 12 months.
What if you have a bankruptcy or foreclosure in the past? You will have to wait two years after a Chapter 7 discharge to qualify for a VA loan, or 12 months from the filing date of a Chapter 13 bankruptcy. waiting period after an entry 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 monthly payment you can afford.
They will also review your employment record to ensure that you have a stable job and a source of income.
You will need to provide supporting documents when apply for a VA loan, such as:
- Tax returns and W-2s for the last two years
- latest payslips
- Recent statements for checking accounts, savings accounts, retirement accounts and other investments
- Driving license
If you are using other income for eligible purposes, such as spousal or child support, you will also provide a copy of your divorce decree and other proof of support.
To use child support payments for qualifying purposes, you must have received those payments for at least 12 months and they must continue for at least 36 months after the mortgage closes.
Keep in mind that lenders often require 24 months of consecutive employment, preferably with the same employer or in the same field.
If you are self employed, you must provide two years of business tax returns and a year-to-date profit and loss statement.
Debt ratio for a VA loan
Debt-to-income ratio (DTI) is the percentage of your gross monthly income that is allocated to the monthly repayment of your debts.
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 debts (credit card payments, auto loans, student loans, etc.), plus your new mortgage payment, should be no more than 41% of your pre-tax monthly 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.
It’s the income that’s left over after paying big expenses like your mortgage payment, installment loans, estimated utility costs, alimony payments, and revolving accounts. Lenders use income records and information from your credit report to assess your residual income.
If you have plenty of money left, you may qualify for a larger loan.
Check your maximum VA loan amount (January 17, 2022)
VA loan limits
According to the US Department of Veterans Affairs, there are no limit or cap on the amount you can borrow with a VA loan.
As long as you’re eligible — meaning you’ve never used a VA loan before — you can borrow as much as the lender allows with no down payment.
Keep in mind that the amount you can afford is always 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.
Credit rating has a huge impact on your mortgage rate. Borrowers with the highest scores generally qualify for the lowest rates, which increases purchasing power.
AV loans without full right
If you don’t have full rights — perhaps because you have an existing VA loan or a loan you’ve paid off but still own the home — there are caps on how much you can borrow without deposit.
This limit varies and depends on the lending limit conforming to your region.
In 2022, it ranges from $647,200 to $970,800. Loan limits are higher in more expensive housing markets. If you need a larger loan amount with no 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 purchase a vacation home or rental property. The only exception is when you buy a multi-unit home and live in one of the units.
You can, however, buy a home with a VA loan and rent it out later.
Your new home must also meet the VA’s minimum ownership requirements, which means it’s 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 a house is worth.
VA Mortgage Rates
VA mortgage rates tend to be lower than interest rates for other types of loans.
This is because the VA guarantee makes these loans less risky for lenders. And they can charge borrowers lower interest rates as a result.
VA borrowers have different options for their interest rate. You can choose one:
- Fixed rate mortgage — Your interest rate stays the same for the life of the loan, as do your mortgage payments
- Adjustable rate mortgage — Your rate is fixed for a number of years and then resets each year thereafter. Your monthly payments will change if your rate resets
Fixed rates are predictable and are generally the best option when planning to live in a home for the long term.
Critical factors that affect mortgage rates include your credit score and your debt-to-income ratio.
The higher your credit score and the less debt you have, the lower your risk of default. For this reason, paying your bills on time and reducing your debt can help you qualify for a low mortgage rate.
Even so, rates vary from lender to lender. So be sure to get quotes from three or four VA-approved lenders to compare rates, terms, and fees.
Finding the best deal can save you thousands, or even tens of thousands, over the life of your VA home loan.
Check your new rate (January 17, 2022)