The Veterans Affairs (VA) home loan program is a valuable benefit provided to active-duty service members, veterans, and eligible surviving spouses of military personnel by the United States Department of Veterans Affairs (VA). It is not very difficult to qualify for the VA home loan as the process is seamless and easily accessible. These loans are designed to make the dream of homeownership achievable for those who have served our country. To qualify for a VA home loan, individuals must meet specific requirements outlined by the VA.
Criteria required to qualifying for the VA home loan
Generally, eligibility is based on military service, and it may vary depending on the specific period of service and other factors. To be eligible, an applicant must typically meet one of the following conditions:
- Active Duty Service: Active-duty members of the Army, Navy, Air Force, Marine Corps, Coast Guard, and the National Guard with at least 90 consecutive days of service during wartime or 181 days during peacetime.
- Veterans: Veterans who have been honorably discharged after completing their service requirements during wartime or peacetime.
- Reservists and National Guard Members: Individuals who have served at least six years in the Selected Reserve, along with meeting other service criteria.
- Surviving Spouses: The surviving spouse of a service member who died as a result of military service or service-related disability may also be eligible.
Factors to be considered by your Lender
Certificate of Eligibility (COE)
To apply for a VA home loan, applicants must obtain a Certificate of Eligibility (COE) from the VA. This document serves as proof of eligibility and is a crucial part of the loan application process. The COE can be obtained through the VA’s eBenefits portal or by submitting a paper application. The VA lender can also assist in obtaining the COE during the loan application process.
Credit Score and Credit History
While the VA does not set a specific credit score requirement, VA lenders will consider an applicant’s credit history. A good credit score is typically considered a FICO score of 620 or higher, but some lenders may have more lenient requirements. Those with lower credit scores can still be considered if they demonstrate responsible financial behavior.
Lenders will assess an applicant’s debt-to-income (DTI) ratio, which measures the percentage of income that goes towards debt payments. In general, the VA prefers a DTI ratio of 41% or lower, but some lenders may be flexible if an applicant presents compensating factors, such as a stable income and strong credit history.
VA loans can only be used for specific types of properties, including single-family homes, condominiums, and manufactured homes. The property must meet the VA’s Minimum Property Requirements (MPR) to ensure it is safe and habitable.
VA home loans typically require a funding fee, which helps offset the cost of the program. The amount of the funding fee varies depending on factors such as the down payment amount, military service category, and whether it’s a first-time or subsequent use of the VA loan benefit. Some individuals, such as veterans with a service-connected disability, may be exempt from this fee.
The funding fee percentages for first-time and subsequent use of the VA loan benefit are as follows:
Regular Military: 2.30% of the loan amount for first time use and 3.60% of the loan amount for subsequent use, both with no down payment.
Reserves/National Guard: 2.40% of the loan amount for first-time use and 3.60% of the loan amount for subsequent use, both with no down payment.
It is important to first verify the most current fee rates with the VA, from their website or via mail, as these rates are bound to change with time.
For VA home loans, the property must serve as the applicant’s primary residence. This means that the borrower must intend to live in the home they are purchasing.
Key benefits of the VA home loan
- No Down Payment: One of the most significant advantages of VA loans is the ability to purchase a home with no down payment, making it an attractive option for first-time homebuyers.
- Competitive Interest Rates: VA loans typically offer lower interest rates compared to conventional mortgages, which can result in substantial long-term savings.
- No Private Mortgage Insurance (PMI): Unlike conventional loans, VA loans do not require private mortgage insurance, further reducing costs for the borrower.
- Flexible Credit Requirements: While a good credit score is beneficial, VA loans are more forgiving of lower credit scores compared to conventional loans.
- Closing Cost Assistance: The VA limits the amount a veteran can be charged for closing costs, and sellers are allowed to contribute to these costs.