Chapter 2: VA Home Loan – Eligibility and Qualifications
The VA home loan benefits let qualifying service members, veterans and surviving spouses to purchase a home without any down payment and no private mortgage insurance needed. VA loans are beneficial because they make homeownership possible and comparatively cheaper. If you are a veteran, a VA loan can let you purchase a home at the present time without having to wait for the next 10 years to save for the 20% down payment.
For you to be eligible for a VA home loan, you need to meet set requirements concerning prior military service, discharge status, length of service, and entitlement. Here is a breakdown of the main VA loan eligibility criteria:Here is a breakdown of the main VA loan eligibility criteria:
Military Service Requirements You must have spent not less than 90 days of active duty service during a wartime, or 181 days or more during a peacetime. The VA defines wartime by the official start and end dates of wars, conflicts, or operations.
These include members of the services on duty or those who are defined as veterans or the surviving spouses. Title V defines the eligibility of the National Guard and Reserve members; it states that the member must have at least six years of service and must be honorably discharged or have met the initial obligation of service.
Discharge Type You must have received an honorable or under honorable conditions discharge. Ineligibility is a requirement if you have received a bad conduct or dishonorable discharge.
However, one can be exempted if one was given a less than fully honorable discharge, due to reduction in force. You may still be able to get the benefit if you otherwise meet all the requirements for eligibility based on your service.
Length of Service To be eligible for an honorable discharge, veterans and surviving spouses require only 24 months of continuous active duty service. For peacetime era veterans and surviving spouses with an other than dishonorably discharge, the period of continuous service must be at least 181 days.
VA Entitlement A VA home loan can only be used once, provided the entitlement is not refunded and the beneficiary has not served more years. Since your eligibility is tied to your length and era of service, verify that you have enough remaining entitlement for the loan.
To qualify for the benefits, surviving spouses cannot remarry and the eligibility of their deceased veteran spouse must be included. They can use the benefit multiple times if the veteran never used the entitlement.
Therefore the credit and income requirements for the meeting must be met to ensure that the goal is achieved. In addition to the VA guidelines on prior military service, you must meet the usual mortgage loan requirements regarding credit, income, and overall financial health:In addition to the VA guidelines on prior military service, you must meet the usual mortgage loan requirements regarding credit, income, and overall financial health:
Credit Score In VA loans, the preferred credit score is 620 and above, although, there are cases that lenders will accept borrowers with a score of 580 but must have other compensating factors. Any score below 580 requires a special permission. Collection and judgements can lower your credit score; so, clearing them will increase the score.
Debt-to-Income Ratio It is recommended that your DTI should not exceed 50%. Find out your DTI by summing up all your monthly payments and then divide the total by gross monthly income. Ideally, the ratio should be lower, and the best score according to analysts is 36% and lower. Reduce your debts or raise your income until you meet your lender or the VA’s DTI ratio.
Residual Income The VA also takes into consideration residual income, and there is still a certain amount of cash that must be left every month after paying for the house mortgage and other requirements. This may differ depending on the number of people in a household and the state. This means that areas with higher cost of living have attained higher residual incomes.
Stable Income If using the W2 wage income, then you need to prove two years of stable employment history. Interim gaps should not elapse for more than six months. Bonus, overtime, commission and self-employment income needs just a little bit more attention.
The lender looks at your liquid and non-liquid assets, credit records and any other financial obligations you have. Mitigate problems that may prevent approval beforehand.
Other Qualifying Factors Homebuyers must meet a few other requirements to close on a VA loan:Homebuyers must meet a few other requirements to close on a VA loan:
Occupancy Requirement One of the spouses or the borrower must provide a statement that he or she intends to use the property as a principal residence within 60 days after the closing date. There are higher requirements in place for non-owner occupied VA loans.
Funding Fee Any borrower who intends to make a down payment of less than 5% on the first time VA loan, the funding fee will be 2. 15%. It is included in the total loan amount that you are supposed to pay depending on the interest rate charged. This rises to 3. 6% for the subsequent use of a VA loan entitlement. This fee should be included in your loan calculations; it is mandatory.
Appraisal The property must appraise for equal to or higher than the agreed upon sales price or the purchase contract value. The lender arranges the appraisal and may ask for improvements to be made prior to the closing of the valuation disparity.
When submitting your application, ensure that you meet or exceed all the qualifications, credit, and income standards set by the lenders. It also aids in speeding up the pre-approval and underwriting phases. VA loan approval is still possible as long as the client can provide the necessary documents showing military service and proof of financial capability.
