Below are the basic requirements to obtain a VA loan. Although it would seem very straight forward and simple, VA loans require quite a bit of detail and knowledge on the VA Loan Representative’s part to assure the VA loan process goes smoothly for you. In fact, there is so much more that goes into originating VA loans, that most banks require VA training before offering VA loans to customers. This assures the bank’s reputation is held up and it’s customers are well taken care of. In most cases, brokers do not require or offer VA training to its employees.
Service Requirements
Most veterans or service members of the US military are eligible for a VA loan if they completed any one of the following requirements:
- 181 Days of Peacetime Active Duty Service
- 91 Days of Wartime Active Duty Service
- 6 Years of Reserves or National Guard Service
If any of those are true or you are the spouse of a servicemember who was killed in action, more than likely, you are eligible for a VA Loan. You will need to get a copy of your Certificate of Eligibility from the VA Eligibility Center or an easier way would be to contact a VA Loan Specialist to help you obtain your certicate of eligibility and let you know exactly how much you qualify for.
VA Loan Certificate of Eligibility
Before you can get a VA Home Loan, you must first obtain your VA Loan Certificate of Eligibility (COE). To obtain your Certificate of Eligibility, you must complete the VA Form 26-1880 Certificate of Eligibility request. You may be able to obtain your COE by submitting your completed VA Form 26-1880 and your Form DD-214 Discharge Papers to your lender. If your lender is approved to use the VA’s Automated Certificate of Eligibility system (ACE), you may be able to get your COE in less than 24-48 hours. If your lender is not approved to use the ACE system, it could take longer.
Credit Requirements
The VA does not set a minimum credit score requirement to insure VA Loans. However most lending institutions require a 620 FICO score or better, to approve a VA Loan Application. The VA Loan underwriter will be generally looking for at least one year of good credit history. A past Bankruptcy may be OK, but all mortgage payments must have been made on time for at 12 months prior to closing on the loan. If the Bankruptcy was a Chapter 7, the veteran must wait at least two years from the discharge date to apply for a VA Loan.
Income Requirements
To be approved for a VA loan, there are two methods used to qualify a veteran’s income. The primary method of evaluating a veteran’s income is “residual income”. This method determines if a veteran has sufficient income to cover daily living expenses after paying housing expenses, taxes, and other debts such as car payments and credit card payments. The second uses the debt-to-income ratio method like other mortgage products. VA Loans only use one ratio which is the ratio of total debt to income including your new house payment. Using this method, the veteran’s total debts should not exceed 45% of the veterans total income. However, this is generally if VA doesn’t automatically agree to insure the loan. VA may agree to insure the loan with ratios in excess of 55% and higher with compensating factors such as excellent credit, proof of significant assets in reserves and exceedingly high residual income levels. It will be up to the lender to agree to finance the VA loan with the elevated debt ratios.
