VA Loans – What are They and Who is Eligible?
Veterans have the distinct advantage of securing VA financing – a 100% financing option for those who served our country. The loan is as straightforward as any other program and provides veterans with an easier way to buy a home.
How Does the VA Loan Work?
VA loans are somewhat different than standard loans, but you still go through a typical lender. As long as the lender is VA-approved, you can use them.
You apply for the loan through the lender, but provide proof of VA loan eligibility. A Certificate of Entitlement works the best. If you don’t have one, your lender can help you obtain it.
Once you determine eligibility, the process works much the same as any other loan, except for the VA requirements.
No Down Payment
No down payment is the largest VA home loan benefit. You can secure a home with no money down, just money to cover the closing costs. If you have money to put down, though, go ahead, as it gives you instant home equity.
Low Credit Score Requirements
Veterans don’t need perfect credit. You don’t have need ‘good’ credit. The average or common minimum is 620, but many lenders allow credit scores as low as 580.
If you don’t have established credit, you may prove your creditworthiness with other ‘tradelines,’ such as utility bills, insurance bills, or rent. Showing a 12 to 24-month timely payment history with these bills may land you the approval.
Flexible Debt Ratio Guidelines
The VA doesn’t have specific debt ratio guidelines like most other loans. Instead, they focus on home your disposable income. This is the money left after paying your bills each month. The VA has a minimum amount each borrower must have based on their family size and location.
As far as the debt-to-income ratio goes, lenders typically allow up to a 43 percent DTI. This means your total bills, including the new mortgage, shouldn’t exceed 43 percent of your income before taxes.
VA Loan Limits
Technically, the maximum loan amount is $510,400, the same as conventional loans. But, VA loans no longer have a loan maximum. You may borrow as much as the lender is willing to lend, and/or the maximum amount you qualify for based on your debt-to-income ratio.
Some lenders stick to the $510,400, so if you need more, make sure you shop around to find a willing lender.
VA lenders lend 100% financing to veterans because of the VA guarantee. The guarantee protects the lenders. If a veteran default (doesn’t pay their loan), the VA will pay the lender back a portion of the funds they lost. This makes up for the lack of down payment.
VA loans are the most attractive loan option for veterans. If you are a veteran determine your eligibility for the program. If you’re eligible, take advantage of the low-interest rates, low closing costs, and flexible underwriting guidelines available to you.