Buying a home using your hard-earned VA loan benefits can be one of the most rewarding financial experiences of your life.
These government-backed mortgages have more flexible and forgiving requirements than other loan types. Significant benefits like $0 down payment and no mortgage insurance open the doors of homeownership to scores of veterans and service members who might otherwise be left out.
VA loan use has soared over the last decade, with VA purchase loans increasing in Fiscal Year 2019 for the eighth year in a row. Still, not everyone who is eligible for a VA loan will ultimately secure one. There are a host of reasons why, from credit scores and steady income to the property and your plans for it.
Understanding some basics about the VA loan process and what lenders are looking for can make a tremendous difference for prospective homebuyers.
Here’s a look at eight essential tips to help you get the most from this historic home loan benefit.
Start Without a COE
Don’t let the lack of paperwork be a barrier to entry. You don’t need your Certificate of Eligibility in hand to start the VA home loan process. Lenders will often get this for you during the preapproval process.
If you feel better having it at the outset, you can try the VA’s eBenefits portal online or contact your nearest VA Regional Loan Center for more information.
Know Your Credit Report
Your credit history will be front and center when it comes to applying for a home loan. You don’t need anything near perfect credit for a VA loan. But a higher score can help you snag a better rate, and major problems could keep you from moving forward at all.
While you won’t see your actual score, get free copies of your credit report from Annual Credit Report.com before you apply for a mortgage. Scour it for errors, bad accounts, and other mistakes. About a quarter of all credit reports contain errors serious enough to result in a denial of credit.
Know the Acceptable Uses
The VA wants veterans using this program to purchase or refinance primary residences. That can be a single-family residence, new construction, a modular home, a manufactured home, a condominium, or even a multiunit property (as long as you live in one of the units).
This isn’t a program for buying vacation homes, investment properties, working farms, or other income-producing properties. But it is possible to convert your primary residence into a rental property after you’ve lived in it for a time.
Understand Occupancy Requirements
To help underscore the VA’s focus on primary residences, VA loans also come with occupancy requirements. You’re expected to be living in the home as your primary residence within 60 days of closing.
Obviously, that can be a tall order for deployed service members or military contractors working overseas. There are exceptions to the occupancy requirement, the most common being a spouse’s ability to fulfill it on your behalf.
But this guideline can be a hurdle for single service members and others. Mention any potential occupancy issues to your loan officer as soon as possible.
Reliable Income is Key
Lenders want to see stable, reliable income that’s likely to continue. You’ll need to have an acceptable ratio of debt to income and meet the VA’s requirements for residual income, which is basically how much you have left over each month after paying major expenses.
The VA generally wants your debt-to-income (DTI) ratio at or below 41 percent, but it’s possible to go higher and still obtain a mortgage. Residual income guidelines vary by geography and family size.
Two years on the same job is the gold standard, but it’s tough to talk broadly about employment scenarios. One lender may view your employment situation differently than another. The only way to know where you stand is to talk with them. Understand going in that continuity is key.
Loan Preapproval is a Must
Getting preapproved for a mortgage is important for several reasons. One, it gives you a clear sense of your purchasing power. There’s little sense in touring homes and wasting time on properties you can’t actually afford.
Preapproval also shows sellers and real estate agents you’re a serious buyer. Some listing agents may counsel clients to reject offers that come in without a copy of the buyer’s preapproval letter.
Get a VA-savvy Real Estate Agent
VA loans aren’t an everyday transaction for a lot of loan officers and mortgage brokers. This is a specialized loan program with unique rules and guidelines. The VA has its own set of property requirements that homes need to meet.
A real estate agent who truly knows this program can save you from potential headaches and hassles. For example, a VA-savvy agent can steer you away from properties that could pose significant problems for the VA appraisal process.
This is one of the biggest investments of your life. Find a real estate agent who understands this loan program and the unique needs of military homebuyers.
Keep Your Credit Clean
Be careful with your credit and finances once you’ve applied for a mortgage. Lenders will take a hard look at your bank statements and other documents during the preapproval and underwriting stages. Moving a bunch of money in or out of your accounts can raise red flags.
Don’t take on new credit during the loan process. Applying for it could affect your credit score and suddenly knock you out of qualifying range. Save the furniture-buying binge for after your loan has closed and funded.
These eight tips can go a long way to help you secure the VA home loan you deserve.
Ready to Get Started?
If you're ready to get started, or just want to get more information on the process, the first step is to get multiple rate quotes with no obligation. You can then discuss qualifications, debt to income ratios, and any other concerns you have about the process with the lenders.
Chris Birk is executive editor of Veterans United Home Loans and author of The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits. Nearly 330,000 people follow his VA Loans community on Facebook.