VA Home Loan Guidelines For Veterans

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Va Home Loan Guidelines

After reading the article below about VA home loan guidelines you should be able to decide if you are eligible for Veteran’s benefits. Following real estate market collapse in the last few years, lenders across the state have made their loan lending requirements more stringent. Due to the stringent lending requirements, Veteran borrowers and military homebuyers find it extremely difficult to qualify for traditional mortgages. Thankfully, there is a mortgage option available for Veterans that allows them to qualify for a mortgage for a home despite stringent lending requirements from mortgage lenders. This mortgage option is known as the VA Home Loan.

The VA home loan guidelines is a zero percent down payment loan option available only to Veterans, select military spouses and Service Members. Private lenders issue VA home loans and the U.S. Department of Veteran Affairs (VA) guarantees these loans.

The U.S. government created the VA loan in 1944 in order to help service members acquire a mortgage for a home without paying a single penny in down payment or having excelling credit score. Due to this historic program over 22 million VA home loans have been guaranteed to help active military members, Veterans and their family members purchase new houses or even refinance their loan.

Like all other home loans, VA home loans have considerable information and details to review. In this post, I’ll highlight all the important details about VA home loans to show you how this loan program can help you and what its benefits are. So, without further ado, let’s talk business.

Why Get a VA Loan Over Other Loans?

No Down Payment

Generally, a down payment of 20 percent or more is required to secure a conventional mortgage, which makes many people ineligible for conventional loans. The VA home loan comes with 0 percent down payment, which makes this option more affordable and convenient.

No Private Mortgage Insurance

In conventional loans, borrowers financing more than 80 percent of their total home’s value require private mortgage insurance (PMI). However, that’s not the case with VA home loans since these loans are backed by the government.

Flexible Interest Rates

Since conventional mortgages are not backed by the government, banks and mortgage lenders are at more risk with these loans. Therefore, the interest rates on conventional loans are generally high. On the other hand, the U.S. Department of Veteran Affairs (VA) that backs the VA loan guarantees lenders more flexibility and safety, which allows them to offer lower interest rates.

Easier Qualification Requirements

Conventional loans have more stringent qualification requirements that make it very difficult for homebuyers to qualify for a loan. On the other hand, VA loans are backed up by the U.S. government which means less risk for mortgage lenders and banks. Due to reduced risk, mortgage lenders and banks have less strict qualification requirements for VA home loans and many veteran homebuyers can qualify for this loan.

Eligibility Requirements of VA Home Loans

Veterans, active service members, reservists and National Guard members must meet minimum service requirements that have been declared by the U.S. Department of Veteran Affairs to become eligible for VA home loans. Spouses of that military personnel who died during active duty or because of a disability resulting from their service can also apply for a VA loan as they may be eligible for it.

Ultimately, the VA decides the eligibility for the VA home loan, but those who want to apply for a VA loan should take a look at the basic eligibility VA home loan guidelines  to determine if they can qualify for the loan or not. Take a look at the following conditions by VA:

  • During wartime, the homebuyer has consecutively served 90 days of active service (OR)
  • During peacetime, the homebuyer has served 181 days of active service (OR)
  • The homebuyer has more than six years of service in Reserves or National Guard (OR)
  • The homebuyer is the spouse of a service member who died while on duty or because of a disability resulting from service.
  • Homebuyers who meet one or more of these conditions might be eligible for a VA loan.

Income Requirements

Homebuyers applying for a VA home loan are not required to reach a specific amount of income to acquire the benefits of a VA home loan; however, VA expects borrowers to have a reliable and stable income that can cover their monthly expenses, including the payment of their new loan. Another requirement of VA home loan guidelines is that the borrowers should maintain a specific amount of monthly income reserved every month after they have paid all the expenses. The excess income is for covering typical needs of the family such as transportation, food, etc. and is called residual income. The reason the VA home loan is one of the lending options with the lowest rate of foreclosure is because of the requirement of residual income.

By enforcing the requirement of residual income, the U.S. Department of Veteran Affairs ensures that borrowers earn sufficient income for meeting their financial obligations and also allows them to have enough money to handle emergency situations.

Although the VA home loan guidelines are determined by the VA, private lenders have additional criteria that a borrower must satisfy in order to qualify for a VA home loan.

VA Home Loan Rates

Since the government backs up the VA loans, lenders can charge lower interest rates than conventional mortgages. Those veterans and military service members who are eligible for a VA home loan will find that interest rates are generally much lower with VA loans than other types of loans.  The interest rates are not set by the VA, rather mortgage lenders determine the interest rate on a VA home loan based on the financial situation of the borrower.

The interest rates on a VA home loan are influenced by a borrower’s credit score, loan duration, debt-to-income ratio and market conditions. Like other loans, if you have a good credit score, you will be able to get a lower interest rate. However, don’t fret if your credit score isn’t perfect, you may still be able to qualify for low-interest rate because of VA guaranty.

Fees and Regulations

The VA home loan is a government program, but the VA doesn’t make the loans to veterans directly. Instead, the loan is financed by private mortgage lenders while the U.S. Department of Veteran Affairs offers mortgage lenders a guaranty.

This guaranty provided by the VA protects mortgage lenders against loss in case the buyer defaults.

Limits on the Loan

With the VA loan program, veteran homebuyers can qualify for a VA home loan for purchasing a house worth up to $453,100 without any down payment. Although there isn’t a maximum amount imposed by the VA that a veteran may borrow with a VA loan, but since the maximum guaranty amount is limited to $453,100, mortgage lenders won’t provide a mortgage greater than this amount.

Funding Fees

The funding fees of VA home loan goes to the U.S. Department of Veteran Affairs to ensure that the VA loan program keeps running to benefit the future generations of Veteran and military homebuyers. The funding fees vary depending on the circumstances of the borrower. For example, for those who are using the VA home loan for the first time, the funding fee is normally 2.15% of the home’s purchase price. For those who are using the VA loan for the second time, the fee is typically 3.3%.

Types of VA Loans

Fixed Rate VA Home Loan

In the fixed rate VA home loan, whether interest rate increase or decrease, the rate of interest on your loan is fixed and will not change. Generally, the same amount of payments need to be made each month. No down payment is required on the fixed rate VA home loan. Private mortgage insurance is also not required. There is a limit on closing costs. VA guaranty allows low-interest rates of fixed rate VA home loan.

Adjustable Rate VA Home Loan

In the adjustable rate VA home loan, a margin is added to an index that the mortgage specifies to periodically adjust the interest rate. Due to the adjustment of the interest, payments in this VA loan generally fluctuate. No down payment is required on the adjustable rate VA home loan. Private mortgage insurance is also not required. There is a limit on closing costs and the interest rates are lower due to VA guaranty.

VA Home Loan Process

If you want to apply for a VA home loan, search for a lender specializing in this mortgage program. The mortgage lender you choose will help you in determining if you meet the requirements of service set by VA, gather your financial information, find and point out issues in your credit and provide important specifics about your purchasing power.

Things You Will Need for the Loan Application

Once you have found a home that is ideal for you, it is time to finalize your application for a VA home loan. All lenders require you to provide detailed information about yourself, your partner or spouse and your employer. Documents required for the VA home loan application are used by mortgage lenders to verify your history of employment, creditworthiness and overall financial condition.

The documents that a mortgage lender usually requires include:

  • Most recent pay stubs
  • Photo ID issued by the government
  • W-2 statements of two years
  • Investing, retirement and bank statements
  • For rental income, 1099 or self-employed, federal tax returns of last 2 years
  • Copy of DD-214
  • For active military personnel, a statement of service letter with signature of the commanding officer.

A mortgage lender may request additional documentation to determine your financial situation. Potential borrowers who want to apply for a VA home loan should know that they must complete their VA home loan application accurately. If they fail to disclose key facts related to their finances or don’t provide requested documentation, the VA loan process will get delayed and their loan application may be rejected.

Getting Preapproved

Once you have provided all the documents and the mortgage lender finds them satisfactory, you’ll be approved for the VA home loan by your lender. VA mortgage lenders rely on AUS (automated underwriting system) – a computer program through which a borrower’s eligibility is instantly evaluated- to determine the preapproval status of a buyer.

Not all borrowers get approval from AUS; however, this doesn’t mean that your application for a VA home loan has been denied. Instead, a manual underwrite may be considered by your mortgage lender, which means that a person will manually assess your loan application. Those who require a manual overwrite have late mortgage payments, foreclosure, bankruptcy or poor credit history and may have to face more stringent income and credit requirements.

Underwriting

Before getting a final approval, your application for a VA loan is submitted for underwriting. Your loan file’s final review is called underwriting and in this review, everything is checked to ensure that you meet all the requirements set forth by the lender and the VA home loan guidelines. After your file has been reviewed, the underwriter will give a denial, conditional approval or clear to close.

If conditional approval is given, you’ll be required to provide additional documents for you loan application to move forward. Once a clear to close has been given to your VA loan file, you are all set and you only have to wait until the day of closing to sign the loan paperwork and move into your new home.

If you have been denied a home loan or have any questions about real estate or mortgage please contact the author, Matt Herbolich, MBA, JD, LLM by phone or text at 786.390.9499 or by email at mherbolich@usa-mortgage.com. Mr Herbolich works when you work, so feel free to contact him any time.

Matthew Herbolich
Matthew Herbolich
Mr. Herbolich is a Senior Loan Officer at USA Mortgage, a division of DAS Acquisition Company, LLC NMLS 227262. He is an expert not only in lending but multiple facets of real estate, particularly the title industry. Matt Herbolich trains his fellow loan officers on title industry topics, real estate investing, and countless mortgage guidelines. Have any questions? Call at 888-900-1020 or send email to: mherbolich@usa-mortgage.com

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