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VA Loan Requirements

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Photo by Samuel Branch on Unsplash
Josh Rapaport
February 3, 2023

A VA loan is a mortgage loan type available to eligible veterans, service members, and surviving spouses of army members. People under these categories are eligible to apply for the low-cost mortgage to help them acquire a new home.

The government guarantees this loan but provides the loan through VA-approved lenders such as banks, credit unions, and brokers like District Lending. People serving in the US military, surviving spouses, and veterans are encouraged to apply for these loans to help them acquire new homes.

However, there are certain conditions that one has to meet before the completion of the process. Certain conditions also exempt you from paying certain fees during application. The article below provides you with the general VA loan requirements.

What is a VA Loan?

A VA loan is a government-backed-up loan developed by Veterans Affairs. Since the Department of Veterans Affairs guarantees the loans, eligible members incur few charges and do not require making down payments.

Before applying for a VA loan, it is important to speak to a qualified loan officer from a VA-approved lending company to help you on which loan type will be beneficial.

How do VA Loans Work?

The Department of Veterans Affairs does not issue the loan directly to the applicant but helps determine who qualifies for a VA loan. VA loans fall under non-conforming loans since they do not meet the general guidelines set by Fannie Mae and Freddie Mac.

The loan offers more flexibility to qualified clients and has more advantages than conventional loans. Some benefits include no down payment, low-interest rates, and no private mortgage insurance costs.

Who Qualifies for a VA Home Loan?

VA loans are more attractive for several reasons, especially because eligible members do not make any down payment. They also have low-interest rates compared to other mortgage loans. Qualified VA loan members can only apply for the loan at a VA-approved lender such as District Lending.

Lenders also set their minimum VA loan requirements to determine who qualifies for a VA loan. However, the VA requirements are more lenient, making it easy for eligible members to qualify even with a poor credit score and a high debt-to-income ratio.

Serving in the military does not guarantee direct qualification for a VA loan. One must meet at least one of the following conditions to qualify. These conditions include:

  • You have done 181 days of active service during peacetime
  • You have done 90 consecutive days of active service during the war
  • You have served more than six years as a National Guard or Reserves
  • You are an active spouse of a service member who died in the line of duty or due to a disability connected to the service.

Some people may not meet the basic requirements to qualify for a VA loan but remain eligible. In such scenarios, the eligibility depends on the discharge type. These discharge categories that make you still qualified include:

  • Your discharging was due to hardship, convenience for the government, or reduction in force
  • The discharging was due to a medical condition or service-related disability
  • You were discharged for early out and served a minimum of 21 months of a two-year enlistment

Speaking to an approved lender and seeing where you stand is important.

Verification of Your VA loan Eligibility

Applicants need to provide a Certificate of Eligibility to the lenders. This certificate helps to prove that the applicant meets all the minimum requirements for a VA home loan. For veterans, obtaining the Certificate of Eligibility is easy. The lender can access the certificate through your social security number and date of birth.

Some cases may make it complicated to obtain the COE. However, you can still apply for the loan as the certificate is processed. Other main ways to obtain a COE include:

  • Applying online through the VA’s eBenefits portal
  • Fill out a VA Form 26-1880 and send it through mail
  • Apply through a VA-approved lender

How Do Spouses Verify Their Loan Eligibility?

Surviving spouses also qualify for a VA home loan. They also need to produce a CoE to verify their VA loan eligibility. However, obtaining the Certificate of Eligibility depends on whether you receive the Dependency and Indemnity Compensation.

Spouses receiving the compensation need to fill out the VA form 26-1817, also known as the Request for Determination of Loan Guarantee Eligibility-Unmarried Surviving Spouses. They also need a copy of the veteran’s separation paperwork, the DD Form 214.

Spouses not receiving the compensation benefits can apply using the VA form 21P-534-EZ and present it to the state’s VA pension management center. Other requirements include the following;

  • Marriage license
  • Veteran’s death certificate
  • Veteran’s separation paperwork

VA Loans Requirements 2022

After verification of all minimum requirements, lenders will consider other factors before granting you the loan. These factors vary from one lender to the other. However, some of the common lender requirements include the following:

VA Loan House Requirements

VA loan beneficiaries can use the loan to purchase homes that will be used as their primary residence. Therefore, one cannot purchase a seasonal home or rental property. Therefore, the VA sets the Minimum Property Requirements that the home must meet before approving the loan.

The VA reviews all homes to find the estimated value of the property. The appraisal helps determine whether it is sufficient for the amount of the proposed loan. The appraisal is unlike a home inspection, which considers repairs and operational checks.

VA loans can also be used to purchase condos. However, the VA provides a list of approved condos. Therefore, if the condominium you intend to buy is not on the list, one should submit the project for review to ensure that it meets the minimum requirements.

Once the loan is approved, homebuyers should occupy the property within 60 days after purchase. You can also purchase a one-to-four-family home but must occupy one of the units.

Credit and Debt Requirements

VA loans do not have any credit score requirements. However, the VA needs the lender to review the entire loan profile of the applicant. The lender must consider all the qualifications without putting much weight on the credit score. Other qualifications include the following:

  • Assets
  • DTI ratio
  • Current job status
  • Employment history

Despite not being a requirement, some lenders recommend borrowers have a minimum credit score of 580 to 620 to qualify for the loan. Regarding the debt-to-income ratio, the VA has no set limits. However, most agencies set a maximum of 41%.

Income Requirements for a VA Loan

Like any other conventional loan, lenders require one to show proof of stable and reliable income, which is likely to continue up to the end of the loan period. One must also be in employment for at least two years. If not, you should confirm that the employment would last two years.

The VA provides income guidelines stipulating the minimum amount of cash the borrower should have after deducting all debts and living expenses. The VA defines this amount as residual income. The residual income varies by family size, loan amount, and location.

The VA requests lenders to reduce the residual income by 5% if you are on active duty or retired military.

Down Payment Requirements

VA loans do not require a down payment unless the appraised property price exceeds the highest loan limit. The VA guarantees to disburse a portion to the lender if the loan beneficiary defaults in making payments.

However, paying a down payment can be beneficial to your loan status. It lowers the monthly payment, interest rate, and outstanding loan amount. A down payment of 5% reduces the VA funding fee if you do not fall on the exempted list.

Funding Fee

VA loan beneficiaries need to pay a one-time funding fee. The funding fee ranges from 1.4% to 3.6% of the total loan amount. For people with existing VA loans and doing a VA streamline, you pay a funding fee of 0.5% funding fee.

Several factors determine the amount of funding fee. These factors include:

  • Type of service
  • Amount paid as a down payment
  • Whether you are a first-time beneficiary
  • Whether you are buying or refinancing the property.

Not every member pays the funding fee. Special groups that are exempted from the funding fee include:

  • Spouses to military personnel who died in the line of duty or due to a service-related disability
  • Veterans who receive disability compensation
  • Purple heart recipients serving in an active-duty capacity

Benefits of VA Home Loans

VA home loans have several benefits compared to conventional mortgages. These benefits include:

  • Low-interest rates
  • VA loans require no down payments
  • Provides 100% loan to Equity value
  • No private mortgage insurance
  • Lenient borrowing requirements

How to Apply for a VA loan?

Applying for a VA loan follows the same procedure as applying for a conventional mortgage. The application process consists of 6 main steps that include:

Obtain a Certificate of Eligibility

You will need a Certificate of Eligibility for the VA loan. The Certificate of Eligibility proves that you served in the military. VA-approved lenders such asDistrict Lending can help you retrieve your VA certificate of eligibility without difficulties.

Apply for Approval

It is important to get early pre approval before purchasing a home. The approval will help you determine how much you can afford. It also helps in negotiating if you attach a preapproval letter with the purchase request.

Shop around for your Preferred House

VA-approved homes are similar to any other mortgage-approved homes. However, the properties must meet the minimum VA requirements to ensure that it is safe. The requirements vary depending on the risks within the area.

Make an Offer

Once you obtain a home that falls under the price range, put in an offer to buy the home. The seller might accept or reject the offer. Therefore, settling on an agreed price is important to help draft a sales agreement.

Proceed with the VA Appraisal and Overwriting

Underwriters from the lender can help assess your financial situation. It helps determine if you qualify for the VA loan. The VA will also perform an appraisal before approving the loan. The appraisal process for VA loans is stricter than a conventional loan as they look at more aspects to ensure that it meets the minimum property requirements.

Close on the New Property

Once the appraiser approves the new home, it is time to sign into the new home. The lender disburses the funds, and you will finally move into the new house.

Apply for a VA home Loan

A VA loan is similar to a conventional home loan but is available only to military personnel. Applicants must provide proof of income and other financial information to help the lender decide on the status. Unlike conventional loans, applicants need to provide a Certificate of Eligibility to show that they meet all the requirements for a VA loan.

Frequently Asked Questions

What is a Certificate of Eligibility?

A Certificate of Eligibility is a document the VA provides to prove that you qualify for a VA loan. People serving in the military can obtain the certificate through different means, such as:

  • Applying through the lender
  • Apply through the official online portal
  • Fill out a VA Form 26-1880 and send it through mail

What are the Benefits of a VA loan?

A VA loan has several benefits compared to conventional mortgage loans. These benefits include:

  • Low-interest rates
  • No down payment
  • No private insurance mortgage
  • Lenient borrowing requirements
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