VA loans are an excellent benefit afforded to Veterans, Service Members and select military
spouses. However there are requirements that must be met in order to qualify for a VA loan.
Additionally, because the VA itself does not make the home loans, individual lenders may have
additional qualifications beyond what is required by the VA.
According to the laws associated with VA loans, it is required the applicant meet the following
- You must be an eligible veteran with VA loan entitlement
- The credit score of the applicant must be such that it does not provide an inordinate risk
to the lender
- Any and all income of the applicant and their spouse must be declared in order to
determine if there is adequate funds to cover the mortgages, as well as the associated
costs of homeownership and other obligations
- Occupancy must be established in a reasonable time after closing the loan. However,
there are some circumstances where your lender may be able to cater to your individual
- The loan itself must be for a permitted purpose
It is important to choose a lender experienced with VA loan origination, as they will be more able
to assist in the idiosyncrasies of the VA Loan process than a typical lender is necessarily
equipped to. These include factors such as credit history, individual income, debt-to-income
ratio, as well as others.
Debt-to-income Ratio and Credit Score
While the VA itself does not specify a particular credit score for loan eligibility, the third party
lenders who originate VA Loans typically do. Usually this score is approximately 620, however
individual lenders may have different requirements.
Likewise, the debt-to-income ratio is an important part of the screening process on the part of
the lenders. In essences, this is simply the total combined income of the applicant(s) in relations
to the total combined debt/expense payments per month. Typically the VA favors applicants with
a debt-to-income ratio of 41 or lower, however lenders regularly permit higher ratios. Again, this
may change from one lender to another.
Residual (left-over) income
Part of the reason foreclosure rates for VA loans remain low is because of the residual income
requirement. This is a measure of the amount of money left over after monthly debts/expenses
are paid. The reason for this requirement is to make certain that applicants and their
dependents will have the necessary funds for basic costs of living. There are many factors that
can play into this requirement such as family size and cost of living in a particular city.
Part of the process that differs from a conventional loan is the VA Appraisal. After
applicant/buyer goes under contract on a property, the VA performs and individual appraisal to
determine the condition and market value of the subject property. A VA appraisal is not the
same a home inspection, and though home inspections are not required; it is a wise investment
to employ a professional to perform one. This helps gain insight with potential issues of the
property that may not be outwardly apparent.
The purpose of the VA appraisal is to ensure that the market value of the property serves as
adequate collateral for the amount of the loan being taken out. They do this by comparing
similar sales that have occurred recently in the area to provide evidence the contracted price is
at or below market value.
The condition of the property is also subject to scrutiny by the VA. The appraiser will consult the
VA’s Minimum Property Requirements, or MPRs during their assessment. Being familiar will
these requirements can often times prevent setbacks in the loan approval process if any
necessary issues are repaired prior to the appraiser’s assessment. Otherwise if the appraiser
identifies conditions which must be remedied prior to closing, a reappraisal must be performed
to ensure that the repairs have been conducted.
If a property is valued below market value or the loan amount that you intend to take out, this
can create a major roadblock in the loan approval process. Options if this occurs is to request a
Reconsideration of Value, find a different home to purchase, or make up the difference between
the appraised value and the contracted price out of pocket.
For more detailed information, contact a lender experienced in VA Loans