The VA loan program has opened the doors of homeownership to millions of military members, veterans and their families since 1944.
Millions more are eligible for this historic home loan benefit. But being eligible for a VA loan and ultimately securing one can be two different things.
Veterans and service members will need to meet credit, income and other requirements set forth by both the VA and by the lenders that actually make these loans.
There’s a range of steps veterans can take to put themselves in great position to maximize their VA loan benefits.
Let’s take a closer look at some of the key characteristics of successful VA homebuyers.
Know Your Credit
Spend time with your credit score and your credit report before you even start the mortgage process. Otherwise, your homebuying journey can stall before it really starts.
VA borrowers will need to meet a lender’s minimum credit score requirement. That benchmark is typically lower than what you’ll need for both conventional and FHA loans, but it can still be tough to hit.
You can get free copies of your credit reports from Annual Credit Report.com. Check them for mistakes, bad accounts or other errors, any of which could be hurting your credit score.
Work hard to pay down credit card balances and tackle high-interest debt. The stronger your credit, the better position you’ll be in – not just to get prequalified and preapproved for a VA loan, but also to land great rates and terms.
Healthy DTI Ratio
No matter the type of mortgage, lenders will take a hard look at your monthly income and monthly debts and calculate your debt-to-income ratio.
The VA generally wants your DTI ratio at or below 41 percent, but it’s possible in some cases to exceed that threshold and obtain financing. But, in those cases, the veteran is typically going to need to meet additional requirements.
Why make the road any tougher? Try to get a handle on your monthly DTI ratio at the outset. See if you can pay down or outright eliminate some of those major recurring expenses before adding a mortgage to the mix.
Employment & Income
Successful VA homebuyers have an employment and income picture that gives lenders confidence.
Lenders obviously want to make sure you can afford the mortgage payment, along with other monthly necessities. They’re also looking for evidence that your income is stable, reliable and likely to continue.
Self-employment, part-time employment and commission-based jobs can all present hurdles. But veterans with these kinds of jobs do secure VA loans.
The bottom line is that employment scenarios can be incredibly subjective. Lender X may view your situation differently than Lender Y.
It’s important to talk with a loan specialist in detail about your particular situation. Understand going in that the more stable and reliable your situation, the better.
Cash on Hand
The single biggest benefit of VA loans is the ability to purchase a home with no money down. About 80 percent of VA buyers take advantage of this significant financial opportunity.
Buyers can also ask a seller to cover all of their loan-related closing costs and contribute up to 4 percent of the loan to cover additional expenses. Some VA homebuyers won’t ultimately spend any money out of pocket to close on their loan.
But successful VA borrowers will have some cash on hand to begin the process. You’ll typically put down a good faith deposit – known as earnest money – with your offer on a home.
You’ll also need to cover the cost of the appraisal, and you’ll absolutely want to pay for a home inspection. Appraisal costs can vary by region.
VA buyers can look to recoup most of these costs at closing. Talk with your loan specialist about what kind of money you might need up front and what you can likely get back.
Getting preapproved for a VA loan is a critical step, and one that successful VA homebuyers know all too well.
This is a more involved step than prequalification. There’s more paperwork, documentation and verification regarding your income, employment and assets.
The end result is a preapproval letter, which will give you a clear sense of your purchasing power. It will also show sellers and real estate agents you’re a serious homebuying candidate.
Some real estate agents won’t accept purchase offers without a preapproval letter. Talk with a Veterans United loan specialist about getting preapproved for a VA loan.
VA loans are specialized mortgage products that require specialized knowledge. These aren’t an everyday transaction for a lot of lenders and real estate agents.
Successful VA homebuyers often connect with agents who understand the power and potential of this program. Agents who truly know the VA loan program can make a big difference for their buyers.
VA-savvy agents can help borrowers avoid properties that might prove problematic for the VA appraisal. They also help veterans craft contracts that maximize the VA loan program’s financial benefits.
A Veterans United loan specialist will look to connect you with a real estate agent through Veterans United Realty, a member of the Veterans United family of companies, with a national network of more than 5,000 agents who know VA loans and work routinely with military homebuyers.
Take the Next Step
If you're ready to move forward, or just want more information about VA loans, the first step is to get no-obligation rate quotes.
Veterans United Home Loans, NMLS # 1907, 1400 Veterans United Drive, Columbia, MO 65203, nmlsconsumeraccess.org Equal Housing Opportunity, not endorsed by the VA or any gov’t entity.
Chris Birk is the Director of Education for Veterans United Home Loans and the author of The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits. More than 250,000 people follow his VA Loans Insider community on Facebook.