If you've served in the military, one of the most valuable benefits available to you may be the VA home loan program.
VA-backed home loans can offer eligible Veterans, active-duty service members, and certain surviving spouses some significant advantages when buying a home. These can include the possibility of no down payment and no monthly private mortgage insurance (PMI).
But having military service doesn't automatically mean a VA loan will be approved.
There are really two questions we need to answer:
1. Are you eligible for the VA home loan benefit?
2. Do you qualify financially for the mortgage you want?
Those sound like the same question, but they're actually two different parts of the VA home loan process.
VA home loan eligibility is generally based on your military service history and duty status.
Depending on your circumstances, you may be eligible if you are:
The exact service requirement can vary depending on when and how you served, so there isn't one service-length rule that applies to every Veteran.
For example, current active-duty service members may meet the minimum active-duty service requirement after 90 continuous days of service, while requirements for Veterans can depend on the period during which they served.
Rather than trying to determine eligibility based on something you read online, we can help you determine whether you may qualify for the benefit.
One of the first terms you'll hear when discussing a VA loan is Certificate of Eligibility, usually called a COE.
Your COE is the document that verifies to your mortgage lender that you meet the VA's service-related eligibility requirements for the VA home loan benefit.
Here's an important distinction:
A Certificate of Eligibility does not mean that your mortgage has been approved.
It establishes your eligibility for the VA home loan benefit. You still need to qualify for the actual mortgage based on your finances and the lender's underwriting requirements.
Many borrowers don't need to obtain the COE themselves before talking to a lender. A VA-approved lender can often request the Certificate of Eligibility electronically on the borrower's behalf.
So if you don't have your COE yet, don't let that stop you from starting the conversation.
This is one of the biggest misconceptions about VA loans.
The Department of Veterans Affairs does not establish a minimum credit score for VA-backed home loans.
However, the private lenders that actually make VA-backed mortgages may establish their own credit requirements.
Your lender will also evaluate more than just the number attached to your credit score. Your overall credit history and ability to repay the mortgage are important parts of the underwriting process.
So don't assume you're disqualified from using your VA benefit simply because your credit score isn't where you'd like it to be.
Let a mortgage professional look at the complete picture first.
Qualifying for a VA mortgage isn't based solely on credit.
Your lender will evaluate your income, debts, proposed housing expenses and other financial obligations to determine whether you can reasonably afford the mortgage.
You may hear the term debt-to-income ratio, or DTI. This compares certain monthly debt obligations with your gross monthly income.
But VA underwriting also places significant importance on something called residual income.
Residual income looks at how much income your household has remaining after certain major monthly obligations have been accounted for.
That's one reason it's dangerous to look at a single number—whether that's your credit score or debt-to-income ratio—and decide for yourself whether you'll qualify.
VA loan qualification looks at the overall financial picture.
One of the biggest advantages of a VA-backed purchase loan is that eligible borrowers can often purchase a home with no down payment, provided the requirements of the VA loan are met.
That doesn't necessarily mean you'll need zero dollars to buy a house.
There may still be closing costs, prepaid expenses, inspections, deposits or other transaction-related expenses to consider.
The important point is that a traditional down payment isn't necessarily required simply because you're buying a home.
That's one of the reasons eligible borrowers should explore their VA benefit before assuming they need to save a large down payment.
VA-backed home loans do not require monthly private mortgage insurance (PMI).
That's a significant distinction from some other low-down-payment mortgage options.
VA loans do, however, have a VA funding fee for many borrowers. This is a one-time fee that helps support the VA home loan program.
The amount can vary depending on factors such as the type of VA loan, your down payment and whether you've previously used your VA home loan benefit.
Some borrowers are exempt from paying the VA funding fee, including certain Veterans receiving VA compensation for a service-connected disability and certain other eligible borrowers.
Your lender can help determine whether a funding fee applies to your particular situation.
Generally, a VA-backed purchase loan is intended to help you purchase a home that you will occupy as your residence.
It isn't designed simply as a financing program for purchasing traditional investment properties or vacation homes.
The property must also satisfy VA and lender requirements, and a VA appraisal will generally be part of the process.
One important thing to remember:
A VA appraisal is not the same thing as a home inspection.
The appraisal helps establish the property's value and evaluates certain VA property requirements. A home inspection is a separate evaluation of the property's condition that can help you understand what you're buying.
Many Veterans mistakenly believe their VA home loan benefit is a one-time benefit.
It isn't necessarily.
Depending on your circumstances and available VA entitlement, you may be able to use your VA home loan benefit again after previously using it.
You may even have situations where some entitlement remains tied to another VA loan.
Because entitlement can become more complicated after you've used the benefit, this is another area where it's better to have a VA lender review your actual Certificate of Eligibility rather than assuming you've used up your benefit.
Being turned down previously doesn't necessarily mean you'll never qualify for a VA loan.
Your financial situation may have changed. Your credit may have improved. Your debts or income may be different. And lender requirements can vary.
More importantly, VA eligibility and mortgage approval aren't the same thing.
If you're eligible for the VA benefit but don't currently qualify for the mortgage you want, the next question should be:
“What would I need to change to put myself in a better position?”
That may give you something specific to work toward rather than simply giving up on the benefit.
Absolutely.
If you're planning to use a VA loan, getting pre-approved before seriously shopping for a home can help you understand:
It also allows your real estate agent to know that you've already discussed financing with a lender before you start making offers.
Find out how the financing looks before you fall in love with the house.
Ready to get started? Apply for a home loan online.
The VA home loan program was created to provide a valuable home financing benefit to those who have served our country.
If you're eligible, it's worth understanding what that benefit can do for you.
And you don't need to become an expert on VA guidelines before asking questions.
At Lincoln Lending, we can help you determine your VA home loan eligibility, obtain your Certificate of Eligibility when applicable, review your financial situation and explain the VA loan process in plain English.
Whether you're ready to buy a home now or just starting to plan, we'll help you understand where you stand and what your next step should be.
Think you may qualify for a VA home loan? Contact Lincoln Lending and talk with one of our Home Loan Coaches about your VA home loan benefit.