Are you active or retired military? You may be able to qualify for a Veteran’s Administration financing, also known as the VA home loan. For borrowers who are or were in the US military, VA home loans are one of the best options for people serving in the U.S. Armed Forces to buy a house.
If you want to buy a home and are a military veteran or active duty, keep reading to learn more about current VA home loan guidelines for 2018.
Overview of VA Home Loan Guidelines
VA loans are one of the significant benefits you get for serving your country. People who qualify for a VA loan do not have to deal with as much hassle as far as qualifying for a VA loan, and the rates are usually excellent as well.
Here are some of the key things to know about VA home financing in 2018:
- No down payment needed: For most Americans, no down payment home loans are a thing of the past. The closest most people can get is a 3.5% down-payment issued via FHA loan guidelines. But if you can qualify for a VA loan, it usually can be with no money down. Qualified VA borrowers love the $0 down home loans. All you need to pay is closing costs and the VA funding fee.
- No mortgage insurance: If you qualify for a VA loan, you do not have to pay for mortgage insurance or PMI. This is usually required for people who have less than 20% stake in the property. PMI will typically add $100 or more to your monthly payment.
- Flexible lending requirements: Many other lenders have higher credit standards than a decade ago. But the VA home loan is a military benefit, so the standards are quite flexible. As long as you have a credit score of 620 or higher, you should be able to qualify for a VA home loan.
- Low interest VA rates: VA home loans are usually lower than market rates, so you should be able to have one of the lowest possible monthly payments.
- No pre-payment penalties: If you want to pay off the loan early or refinance, you will not be penalized.
Those are the most important features of buying a home guaranteed by the VA today. The VA-loan requirements have not changed much of the last few years. Now let’s examine what you need to qualify.
Military Service Requirements
You have to be eligible for a VA loan to get one. Active military and veterans must mean certain qualification standards regarding their service. The current standards to qualify from a service perspective are:
- Serve at least 90 consecutive days active during wartime
- Serve at least 181 consecutive days during peacetime
- Serve at least 6 years for the National Guard or Reserves
- Be the surviving military spouse for those who died in the line of duty or with a service-related, major disability
If you meet some or all of these requirements, you qualify for a VA loan from a service perspective. You will still need to qualify financially, however.
Pre-Approval VA Home Loan Requirements
Once you have shown a lender your income, tax and payroll documentation, he or she can give you a pre-approval letter. This letter is usually needed when you are going to look at homes to purchase. The owner of the property wants to see that you have the ability to get a home loan.
The VA pre-approval letter will usually say that you have been pre-approved for a VA home loan up to a certain amount. You will still need to fully qualify for a VA loan, but the pre-approval letter is a critical step.
Credit for VA Home Loan Qualification
VA loans are very flexible in terms of qualifying, but you will still need to have acceptable credit to get a VA-house loan. Here are some of the common things you will need to answer with your lender:
- Credit score: As long as it is 620 or higher, you should be able to qualify with most VA mortgage companies. If you are lower than that, you may have problems. Ask the lender to check with all three credit bureaus and try to get a score at or above 620. However some VA approved lenders will offer VA loans for bad credit as long as the borrower meets the other VA guidelines.
- Collections or judgments: If you have past due accounts or accounts that have gone into collection, you may have problems getting a VA loan until those are resolved.
- Foreclosures or bankruptcies: If you have a bankruptcy or foreclosure, you will usually need to wait at least a year before being approved for VA home financing
- Current income: Is your income stable and can you afford the monthly payment? Even though most veterans can get a VA home loan, the lender must ensure that you have the ability to pay the loan.
VA Home Loan Amounts
How much home you can buy with a VA loan depends upon your income and debts, but most lenders currently cap VA home loans at $417,000. Higher than that and VA will not pay back the lender in case you default.
Closing Costs on VA Loans
All mortgages have closing costs. You will need to pay for an appraisal, title charges and possibly discount points. Also, you may need to pay a credit report fee.
The VA loan is a great finance vehicle for those who have previous military service. It is really the only choice if you qualify for the program. The reason is that the benefits and qualification criteria are so generous.
11 Useful Tips for Military Home Loans with the VA
The VA home loan program offers current and retired military members with a great opportunity to get a home loan. VA loans are an excellent deal: If you qualify, you can get a home loan with an interest rate at least .5% lower than current rates. You also can have a low credit score, no mortgage insurance, and no down payment.
The great benefits of VA loans are why 18 million vets have used the program in the last seven decades. If you are considering applying for a VA loan, here are some useful tips to get you through the approval process faster:
#1 Eligibility for VA Home Loans
To be eligible for a VA loan, you have to meet one of these criteria:
- Be a National Guard or Reserve member with at least six years of service
- Regular active duty military who has been in service at least 181 days or 90 days for the Gulf War
- Retired veterans must have completed at least 181 days of service or 90 days for the Gulf War and gotten an honorable discharge
- Surviving spouses may be eligible if they remarry on or after the age of 57
#2 Credit Score Requirements for VA Loans
You do not have to have an especially high credit score to be approved for a VA loan. But generally the typical VA mortgage company will be looking for you to have a score of at least 620. Higher is better to ensure approval. There are brokers and lenders out there that offer VA home loans for bad credit. These VA lenders are looking for compelling compensating factors, such as high income, low debt to income ratios and be prepared to write a strong letter of explanation to justify the home mortgage with bad credit.
#3 Debt to Income Ratio (DTI)
It is recommended that your total DTI not be above 41%. This means that your total monthly debt payments including housing should not exceed 41% of your gross monthly income.
#4 Other Debts
You need to prove in your financial documents that you can afford your mortgage payment, and also be able to pay all of your existing debt payments and afford a minimum standard of living.
#5 VA Loan Is an Entitlement
This means that while you do have to qualify for the loan, your military service entitles you to the VA benefit. So, as long as you meet very flexible standards, most people can be approved for a VA loan with enough military service.
This means if you can qualify, you really should only consider a VA loan. You will enjoy a lower down payment, no mortgage insurance and an interest rate that is below market rates.
#6 Know Your Limit on VA Home Loan Amounts
The maximum amount you can be approved for is based upon both your income and where you want to live. VA determines the maximum loan amount it will approve you for based upon the county, city and state you live in. Knowing what the maximum VA loan amount is will help you to focus on what to buy.
#7 Know Your Needs Before Applying for a VA Loan
Before you start to look at homes, you should consider all of the features, location and size you want in your home. This way, you are not spending time looking at homes that do not suit your needs. If you meet the eligibility requirements, we suggest that you take the time to apply for a VA loan.
#8 Decide If a 15-Year or 30 -Year Mortgage Is Better
Your monthly payment can vary by several hundred dollars between a 15 year and a 30 year loan. You need to decide if you can afford those higher payments and pay off the loan faster. The VA will also determine for you if your income is high enough to make the higher 15-year loan payment.
#9 Energy Improvements
You can include as much as $6000 in energy efficiency improvements in the VA loan. This can help you to reduce your energy costs and improve your resale potential.
#10 Organize Your Paperwork
To get approved faster, you should have all of your financial information, bank statements, W-2s, tax returns and pay stubs so that you can get approved fast. Also, you need your social security number and address information for at least the last one or two places you have lived.
#11 Get Pre-Approved for VA Financing
Once you have all of your necessary financial and other information together, you can get pre-approved by your VA approved lender. This lets the potential seller know that you have been approved for financing. It will mean you are a serious potential buyer. If you have not been pre-approved for a VA loan, many sellers will not even want to talk to you. Take a few minutes, apply for a VA home loan and get pre-qualified so the seller takes you seriously.
The Bottom Line on VA Home Loan Financing
A VA home loan is one of the best benefits today of military service once you get home. You can get a loan with no money down, no mortgage insurance and a very low interest rate. It also is easy to qualify for a VA home loan.
If you are a military vet or current military, you should see if you can qualify for a VA loan before you consider any other mortgage product.