Members of the US Armed Forces, both active duty and retired, may qualify for VA home loan benefits. The VA does not actually issue the loan, rather it insures a portion of the loan against default. This enables veterans to qualify for a home loan that they may otherwise be unable to get. Many lenders offer zero down VA mortgage loans that make it easy for a veteran to become a home owner.
Here are some of the basic requirements to qualify for a VA home loan:
Credit Requirements
Payment History
The VA will pay particular attention to the borrowers credit history over the past twelve months. They are looking for payments that are made on time with no recent judgements or collections. The VA is okay with borrowers having past financial difficulties, but require that a good payment history be established over the most recent twelve months.
No Credit History
Borrowers with no traditional credit history can use items like rent and utility payments to establish a record of making on time payments.
Bankruptcy
If a borrower has gone through a Chapter 7 Bankruptcy two years needs to have passed, good payment history established for 12 months, and a job with income history.
Borrowers in a Chapter 13 Bankruptcy may qualify if they have been making their payments as agreed for one year and the court trustee gives approval to proceed.
Judgements and Collections
All judgements need to be paid prior to the loan closing. The underwriter will decide which collections need to be paid. However, the borrower cannot have any Federal debt in collections.
Foreclosures
With the housing bubble and rise in foreclosures many families have lost their homes. In order to obtain a VA loan, two years needs to have passed since the foreclosure.
Credit Couseling
A veteran may qualify for a VA home loan if they have been making on time payments, with the credit counseling approved plan, for 12 months or more.
Income Requirements
41% Debt to Income Ratio
The VA wants to make sure that veterans can financially afford their housing payment and other living expenses. For that reason the VA calculates a borrowers debt to income ratio (DTI). They add up your expenses including: mortgage payment, taxes, installment debt like car loans, revolving/credit card debt, and other bills. They divide that amount by your gross monthly income (the amount you make before taxes are taken out).
For example:
Mortgage Payment $1,500
Car Loan $ 500
Student Loan $ 120
Credit Card Payment $ 200
Total Monthly Debts $2,320
Monthly Gross Income $6,500
The underwriter will divide your total monthly debts ($2,320) by your monthly gross income ($6,500) to arrive at your debt to income ratio. In this example the DTI is 36%, well under the 41% requirement.
Obtaining a VA Home Loan
If you are ready to purchase or refinance your home and want to use your VA loan benefit contact a VA approved lender. An experienced mortgage banker can walk you through the process of qualifying for a VA home loan. Interest rates are low and the VA offers zero down home loans. Call your mortgage lender today and accomplish your dream of home ownership!
