Individuals seeking Veteran Affairs Loans must ensure they meet requirements set forth by the Department of VA as well as lender requirements. This is because VA does not offer home loans by itself and only serves an intermediary role between lenders and borrowers. This guide explores all essential VA Loan requirements to get you started.
Eligibility for a VA Loan
To begin with, applicants must pass eligibility requirements. VA requires individuals to have been in active service during wartime for at least 90 consecutive days for them to quality for the home loan. Persons who have actively served in excess of 180 days during war time are also eligible. The other alternative for eligibility is to have served in the Reserves or the National Guard for more than 6 years. Spouses of individuals who died in service or due to service-related disability are eligible to apply for VA loans.
VA Certificate of Eligibility (“COE”) is the document that proves the length of one’s service and is an important document when applying for VA loans. Eligible applicants can obtain the COE online through VA’s website or through an approved dealer. Alternatively, applicants can fill the VA 26-1880 form and email it to VA for approval.
Minimum income is also stipulated under VA Loan requirements. Although there is no specific amount stated, the department expects applicants to have a stable income that would enable them to repay the loan. Applicants should also have a residual income that can cover for daily expenses.
Although VA does not monitor credit score for its applicants, lenders set a minimum score below which loans cannot be approved. Different lenders set different scores but 620 is a typical threshold. Individual spending and borrowing trends can also disqualify an otherwise eligible applicant from accessing VA loans. Lenders often compute these trends under debt-to-income ratios and set a threshold for qualification.
VA further conducts appraisals to ascertain the conditions of the property once an applicant fully qualifies for a home loan. In the appraisal, the value of the property is estimated and then compared with the value of other homes. The Department of Veterans Affairs has set minimum requirements that must be met before purchase is approved. This oversight step helps applicants get safe and quality homes. The minimum requirements also guide home shoppers to readily identify potential risks of their prospective homes.
Primary and Full-Entitlement
Applicants may qualify for primary or full entitlement depending on their loan history. With primary entitlement, applicants qualify for a $144,000 guarantee from VA. In case the beneficiary defaults payment, VA pays a quarter of the advanced amount meaning $36,000. Eligible applicants who have never had a VA loan before qualify for both primary and full-loan entitlement. Under full-loan entitlement, applicants qualify for a $424,100 loan, matching the cap for conventional mortgages. The VA would have to repay $106,025 to the lender for a fully-entitled borrower who defaults on the loan.
Applicants should resist the urge of taking full loan amounts if they are financing a less expensive house. Leaving the secondary eligibility is a wise decision as it can be used to finance another home. This also reduces the burden of having to repay a huge loan.