Deciding to buy a house is exciting, and as a veteran, you will probably want to take advantage of the U.S. Department of Veterans Affairs’ (VA) Home Loan Program to finance it.
Before you start the process of walking through homes and making an offer though, you’ll want to make sure the bank will approve you for a VA Home Loan.
First, you will need to make sure you will be able to obtain a Certificate of Eligibility (COE) from the VA. Eligible veterans are those that meet one or more of the following conditions:
- Served 90 consecutive days of active service during wartime.
- Served 181 days of active service during peacetime.
- Have more than six years of service in the National Guard or reserves.
- Are the spouse of a service member who died in the line of duty or as a result of a service-related disability.
Don’t worry about applying for a COE from the VA yourself though. Oftentimes a VA Home Loan lender can help you get one when you start to go through the loan process.
Once you have determined that you meet the VA’s eligibility requirements, you can start researching and comparing VA Home Loan lenders on the rates they offer and any associated fees they may charge during the underwriting process.
After selecting a VA Home Loan lender, it’s time to see how much you prequalify for. This will give you a better sense of how much money you’ll be able to borrow so you can start looking at houses in your price range.
The next step in the process is to get a pre-approval letter from your VA Home Loan lender. This is what you will show real estate agents to prove you are financially able to purchase a home, and can be an advantage when making a competing offer on a house against someone who has not been pre-approved.
Lenders vary in what documents they require during the pre-approval process, but be prepared to bring your last two W-2 statements, pay stubs from the past two months and your DD-214 discharge papers. It’s also a good idea to review your credit report before applying for pre-approval to make sure all the information on it is accurate.
While there is no minimum income threshold you have to meet to apply for a VA Home Loan, the VA does require that you have stable income and a certain amount of money left over each month after all your monthly bills, including your new mortgage payment, are paid. Known as residual income, this is to ensure that you have enough to cover your family’s other needs throughout the month such as food and transportation. To calculate if you will meet the residual income requirements, your debt-to-income ratio should be at or less than 41 percent.
You will also have to meet your lender’s credit criteria to qualify as well. While different lenders have different credit requirements, a good rule-of-thumb for VA Home Loan approval is a credit score of 620 or higher, which is much less stringent than the credit score requirements of a conventional loan.
If you are worried about meeting the VA’s or your lender’s credit requirements, it is still a good idea to research and compare lenders. Many times lenders are more than willing to work with and counsel you on improving your credit, and can usually help you fix it faster than you would be able to fix it on your own.
The VA Home Loan program is an excellent benefit that has helped millions of veterans and service members become homeowners. If you’re interested in reading up on the advantages of this great mortgage loan option, be sure to check out our article on the “Top 10 Benefits of the VA Home Loan Program.”