VA Loans and Qualifications
VA loans are truly an amazing loan product but they are not available for everyone. There are certain strict criteria you must meet in order to even be eligible. Every VA loan applicant must first obtain a Certificate of Eligibility through the Department of Veteran’s Affairs. You can obtain a Certificate of Eligibility (COE) or by mail through Veterans Affairs.
VA Loan Certificate Eligibility
- You served at least 90 consecutive days during wartime
- You served at least 6 years or more in the National Guard or Reserves
- You served at least 181 days during peacetime
- You are the surviving spouse of a military member that died in the line of duty or due to a military-related disability
- Reservists or Member of the National Guard
VA Loan Benefits
Here is a list of the benefits of VA Loans taken from the Veterans Affairs website:
- Zero down payment
- Competitive and sometimes negotiable interest rate
- No mortgage insurance required
- Eligible for VA Streamline Refinance if you ever decide to refinance your mortgage
- Higher Debt-to-Income ratios accepted
- Low closing costs
- Easier to qualify than traditional mortgage loans
- An assumable mortgage
- Right to prepay your mortgage without any penalty
- For homes inspected by VA during construction, a warranty from the home builder and assistance from VA to obtain cooperation of builder
- VA assistance is available for veteran borrowers in default due to a temporary financial difficulty
- Closing costs are comparable and sometimes even lower than other financing types
- Closing costs are allowed to be paid by the seller
Credit Requirements for VA loans
To be considered, you must have a credit score of 620 of higher and cannot have any late house payments for the the last year. If a buyer has a prior foreclosure or bankruptcy, they must wait an acceptable amount of time before they can be considered for VA loans. Here are the credit requirements a lender will look at when trying to get the VA mortgage approved:
- No outstanding federal liens or judgments
- No late mortgage payments for at least one year
- If applicant has had a foreclosure, they must wait at least two years before they’d be eligible for a VA loan
- If the buyer has had a bankruptcy in the past, the guidelines will vary depending on the type of bankruptcy. See your lender for a more detailed explanation.
If you have a lower credit score you may still be able to qualify if you meet certain conditions.
- Must have no or very little debt in collections
- Steady income
- No more than one late payment within the last 12 months
If you credit scores have declined due to an unusual set of circumstances but have resumed making on-time payments, you may be eligible if you can provide a reasonable explanation for the decline in your credit scores. Ultimately though it is up to your lender to decide whether or not to approve the loan for you.
VA Funding Fee
Due to the fact that the VA does not require any mortgage insurance, they must charge a VA funding fee in order to fund the program. This funding fee allows the VA loans to remain self-sufficient.
The current VA loans funding fee is 2.15% of the total loan amount and it is typically rolled into your loan so you do not have to pay it upfront and come out of pocket for it.