What Are the Requirements for a VA Loan?

If you’re a veteran or active military member, you may be wondering if you qualify for a VA loan. In this blog post, we’ll go over the requirements for a VA loan so you can see if this type of financing is right for you.

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Introduction

The Department of Veterans Affairs (VA) offers home loan programs to help eligible service members, veterans, reservists, and National Guard members finance the purchase of a primary residence. VA-guaranteed loans are available through private lenders, such as banks and mortgage companies. The VA backs these loans, but it doesn’t actually lend the money.

Basic Requirements

In order to obtain a VA loan, there are a few requirements you must meet.

Eligibility

In order to be eligible for a VA loan, you must be a current or former member of the U.S. Armed Forces, a reservist or National Guard member, or the spouse of a service member who has died in the line of duty. You must also meet certain credit and income requirements, and have a Certificate of Eligibility (COE) from the Veterans Administration.

If you are not sure if you meet the eligibility requirements, you can check the VA’s website or contact a VA-approved lender.

Loan Limits

Loan limits are updated annually and typically released each December for the coming new year. Limits are broken down by both property type (i.e. single-family, two-unit, three-unit, etc.) and county, and they generally remain the same each year regardless of changes in median home prices.

For 2020, the standard loan limit for most counties across the U.S. is $510,400 for a one-unit property. Higher loan limits may be available in certain high-cost areas of the country. You can check the 2020 VA loan limits by state here.

In addition to loan limits, to qualify for a VA loan you must:

Certificate of Eligibility

One of the first steps to getting a VA loan is obtaining your Certificate of Eligibility (COE). You can apply for a COE through eBenefits, by mail, and often through your lender.

If you’ve already applied for a VA loan or have other VA benefits, you may already have a COE. You can check to see if you have a COE by logging into your eBenefits account.

There are three main pieces of information that will be on your COE: entitlement codes, status and character of service, and priority date.

Down Payment

For most VA loans, there is no down payment requirement unless the sales price of the home exceeds the appraised value. This down payment can be coming from the seller, a gift, or other grant or loan program. If you are using your VA eligibility for a purchase that requires a down payment, that down payment can sometimes be included in your loan.

Additional Requirements

In order to qualify for a VA loan, you’ll need to meet a few additional requirements. In addition to being a veteran, you’ll need to have a good credit score and a steady income. You’ll also need to be a US citizen.

Minimum Credit Score

You must have satisfactory credit, sufficient income, and a valid Certificate of Eligibility (COE) to be eligible for a VA-guaranteed home loan.

The home must be for your own personal occupancy. You must be a qualified veteran who has available entitlement. The lender will verify your eligibility and calculate your available loan amount and then obtain a COE on your behalf.

Debt-to-Income Ratio

The debt-to-income (DTI) ratio is a VA Loan eligibility factor used to determine whether a prospective borrower can responsibly manage monthly loan payments. The DTI ratio is calculated by taking the sum of all monthly debt payments and dividing it by the borrower’s gross monthly income.

There are two types of DTI ratios that lenders will look at when considering a VA Loan:
-The front-end ratio is a borrower’s monthly housing expenses divided by their gross monthly income. This excludes all other debts and obligations from the calculation.
-The back-end ratio includes all monthly debt payments, including the proposed housing expense, divided by the borrower’s gross monthly income.

For both ratios, a lower number is better. Most lenders prefer to see a front-end ratio of no more than 28% and a back-end ratio of 36% or less. However, there may be some flexibility for borrowers with strong credit profiles and reliable incomes.

Residual Income

In order to qualify for a VA loan, veterans, service members, and eligible surviving spouses must meet thebasic eligibility requirements set forth by the Department of Veterans Affairs. Beyond that, there are additional requirements for those seeking to obtain a VA loan in order to make sure that the loan serves its intended purpose: to help veterans become homeowners. One such requirement is residual income.

Residual income is the money that is left over each month after all debts and other mandatory expenses are paid. This helps to ensure that borrowers will still be able to afford their home even if there is a change in their circumstances, such as the loss of a job or an unexpected medical expense. The Department of Veterans Affairs has established minimum residual income standards for all applicants seeking a VA loan.

Borrowers who do not have sufficient residual income may still be eligible for a VA loan if they have a non-occupant co-borrower who does have sufficient income. In addition, there are some cases where the Department of Veterans Affairs will make exceptions for applicants who do not meet the residual income requirements. These exceptions are generally made on a case-by-case basis.

Employment History

In order to qualify for a VA loan, borrowers must show a steady employment history. This requirement applies to both full-time employees and self-employed individuals. In most cases, borrowers will need to provide proof of employment for the past two years. However, those who have recently changed jobs may still qualify if they can show a good employment history over a longer period of time.

There are some exceptions to the employment history requirement. For example, borrowers who are currently serving in the military may be able to use their service record as proof of employment. Veterans who are retired or have a disability rating from the VA may also be exempt from this requirement.

Conclusion

In conclusion, to be eligible for a VA loan, you must:
-Be a veteran, active duty service member, National Guard or reservist
-Serve at least 90 days during wartime or 180 days during peacetime
-Have a discharge other than dishonorable
-Meet the lender’s credit and income requirements
-Occupy the property as your primary residence

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