According to Military.com, the VA wants home buyers to have a debt-to-income ratio which will not be more than 41% and enough residual income in order to pay for the living expenses.
A VA loan is a mortgage loan established by the United States Department of Veterans Affairs for providing home loan benefits to veterans, active servicemen, surviving spouses, and their families. This does not mean that the VA gives out the loans. The loans are provided by private lenders, while the VA guarantees a certain part of the loan. This helps get better cost benefits and terms of repayment. Also, as they do not have mortgage insurance, you are able to save a lot of money every month. Remember that these are not one-time loans; in fact, these loans are reusable and you can avail another, once you pay off the earlier one. The best part about this loan is that if you fail to pay your mortgage, the VA will step in and negotiate with the lender for better terms. Also, pre-payment of dues does not attract any penalty. Hence, because of all these benefits, availing this loan can be very advantageous for you. However, you must know certain things before you plunge into one. For example, there is an occupancy rule which is applicable to the VA loan.
Things You Should Know Before Applying for a VA Loan
✧ Primary home will get preference over your second home.
In all probability, lesser important loans for second home, vacation homes, and beach houses which will not be occupied by you, may not get approval easily. The main purpose is to cater to the housing requirements of the veterans or their family. It does not support giving away loans for additional homes which are more or less a luxury or investment-oriented. Hence, do not forget to mention that you will be occupying the house after a short duration of time. Also, they are usually given for a single home, and a fixed upper home or working farm may not get approved for the loan.
✧ Civilian co-borrower's share of VA loan will not be VA guaranteed.
If you want to apply for a joint loan, you are entitled to do so. However, if you are a veteran and your co-borrower is a civilian, the latter's portion of loan will not be guaranteed by the Department of Veterans Affairs. However, the VA will guarantee the loan if the co-borrower and you were previously or currently recruited in the military. Your spouse or another veteran will be acceptable co-borrowers. Remember that in joint VA loan applications, the civilian co-borrower will have to complete a number of formalities and submissions to the lender. This may include his income, tax documents, credit report, details of any other property owned with the veteran, etc.
✧ Your credit rating will impact your loan.
Although the Department of Veteran Affairs will not exercise a credit score requirement, lenders are on the lookout for a credit score that is 620 or higher. Like the other types of loans, it is important that you have a good credit score for availing the benefits. As the lending institution will go through your credit history, it is important that you ensure it is in good condition. Ensure that you do not open any new credit accounts and pay your bills on time. Veterans who are deployed on work to distant locations have support networks who can help them pay their bills. Hence, do take help of this support and laws. It is advisable that you get a copy of your credit report with all the three agencies and correct any errors in it.
✧ Getting preapproval for your loan will save a lot of time.
It is advisable that even before you start house hunting, apply with the lender for a preapproval. This will help you in three ways: (i) you will understand the limit of the mortgage loan for which you will be qualified, and hence, restrict your house hunt within that range; (ii) it will also help understand about the interest on the loan and whether you will be able to afford the same; (iii) you will also be able to work on enhancing your credit score, if your loan's preapproval is rejected. This will give you a buffer to work on your credit and reapply once it is within the required range. Just imagine, if you apply for a loan directly after hunting a house and get rejected for the same, you will regret it.
✧ Having a Certificate of Eligibility and DD Form 214 is a must.
You require two of the most important veteran documents. You will need to have a Certificate of Eligibility (COE) for proving that you are eligible to avail a VA-backed loan. It will not only qualify you to avail the loan facility, but will also tell your lender that you have met the necessary stringent prerequisites set by the VA and submitted the necessary evidence to prove the same.
✧ The form for this is available at the eBenefits portal on benefits.va.gov.
✧ You also have the option of applying through your lender through the Web LGY system.
✧ Spouses will have to apply through VA Form 26-1817 and send it by email.
✧ Similarly, DD-214 is a document that is handed over to a veteran while leaving military, and helps him to claim the benefits associated with it. Hence, you will require a DD-214 which will act as a proof for your military service. You can apply for this form at the National Personnel Records Center (NPRC).
✧ If you are still in active duty, you will require a statement which needs to be duly signed by your unit commander. You will also have to submit the names and contact details of your employers for the last 2 years.
✧ You can avail loans in spite of bankruptcy.
Many people face bankruptcy these days owing to reasons that are beyond their control. For example, death or sickness of a family member, loss of job or income, divorce, etc., can cause a person to file for bankruptcy. However, if you have filed for bankruptcy and are wondering if you will still qualify for this loan, the answer is a Yes. All you have to do is wait for two years from the discharge date of your bankruptcy to avail the benefits of the VA home loan. If the Department of Veterans Affairs believes your reason of bankruptcy was genuinely out of your control, it will reduce the term of 2 years for you. In the meanwhile, ensure that you rebuild your credit and have a stronger financial position. Remember that even if your VA loan was foreclosed previously, you are entitled for the home loan benefits.
✧ There is an occupancy rule which you will have to follow.
According to this rule, the primary VA loan borrower will have to shift into the house within the reasonable time which is mostly 60 days after the loan is closed or the house is completely built. You should not delay occupying the house by more than 12 months. If a person is deployed to a distant location, his spouse is the only relative who can occupy the home. You can show a record of continuous residence by providing the bills of various services.
Remember that a VA loan comes with a funding fee, which will be approximately 2% of the loan amount. Ensure that you have the right debt-to-income ratio, important documents, and a good credit score in order to gain the maximum benefits.