When home shopping, comparing mortgage options can reduce the cost of homeownership. One of the best home buying programs is the VA home loan. It’s known for its lack of down payments and PMI. As such, it’s among the most affordable mortgages on the market. Here’s everything you need to know if they sound enticing.
Make Sure You’re Eligible
In 2022, the VA’s eligibility requirements are relatively clear-cut. Anyone who’s served 90 days of active duty qualifies automatically.
90 days of wartime service is another automatic qualification, too. If you’ve only served during peacetime, 181 days is the minimum.
National Guard and Reserve members must serve 6 years. Otherwise, they’re ineligible for a VA-subsidized mortgage.
There are several ways to prove your length of service to verify eligibility. Usually, veterans request a Certificate of Eligibility by asking for one online. They just have to enter their service info, and they’ll get one for free.
A DD214 may also be used to show your length of service. If you mail one, remember to include a completed VA Form 26-1880.
Many lenders will obtain proof of service on your behalf if asked. So, if you’d rather them handle it, talk about it to them.
Credit and Income Requirements
Once you’ve proven your eligibility, there are still a few requirements. Depending on the lender, there’s a minimum credit score, typically around 620.
Also, there must not be any federal debts in collections on your credit report. Otherwise, VA funding remains frozen until they’re repaid.
There’s no down payment requirement on most loans funded by the VA. So, if you’re short on funds, it’s a great way to get a foot on the homeownership ladder.
Delinquent student loans can halt the underwriting process, too. That’s why it’s crucial to keep all your payments current while shopping for mortgages.
Debt-to-Income Ratios
As part of the approval process, lenders examine applicants’ debt and income. They’ve also designed an algorithm to use while calculating your residual income.
Depending on your family size, it sets aside a certain portion of residual income. The rest is what’s considered your free income.
Usually, most lenders prefer applicants with 2-year job histories. But, exceptions are made for recent discharges if they’ve proven employment.
For most applicants, DTI may not exceed 41%. However, if you have large residual payments, it’s possible to go over that. A good credit history helps get approved on loans with a DTI above 41%, too.
Property Guidelines
Most buyers complain about the VA home loan program’s property requirements. Unlike conventional loans, you can’t just buy anything you’d like with them. VA approved homes for sale aren’t always easy to find, either.
Sometimes, it’s best to work with a lender that has experience helping buyers find homes. But, there are a lot of new tools available online that can make things easier, too.
The specific rules vary each year, so pay attention to recent changes. Don’t get too excited about making an offer on someplace until it’s passed inspection.
For a ton of people, premature expectations might end in disappointment. That’s why we’ve always worked with experienced VA specialists. By getting them to help, you don’t have to worry about whether a home will pass.
Closing Costs and Funding Fees
As part of their program, the VA stipulates limits on how much lenders may charge at closing. They’ve limited them to a 1% closing cap, based on the overall loan size.
The 1% limit includes everything from origination fees to tax monitoring. There’s one exception, though. Discount points don’t count toward the 1% limit.
Remember to ask your lender about the VA funding fee, too. Typically, borrowers must pay a one-time funding fee when the loan is first made. Most of the time, lenders let you roll them into the monthly payments if preferred.
Occupancy and Loan Limits
If using the VA loan program, you must live in the property for at least a year. Also, the loan’s size must stay within lending limits. This varies by area. So, ask your lender how much they’ll let you borrow.
Understanding the VA Home Loan Program
VA home loans provide an affordable path to homeownership for America’s veterans. Speak to a licensed mortgage broker to learn more about how the program works.
