If you qualify for a VA mortgage, you can receive 100% financing for your home up to $453,100 in most areas. But how do you qualify for the loan?
The VA mortgage program is for veterans of the military. The VA provides 100% financing to help the veterans of our country secure a safe and sanitary home to live. The VA helps lenders provide these loans by providing them with a guaranty. This guaranty lets the lenders know that the VA will pay the lender back 25% of the funds they lose if you default on the loan.
So does that mean that just anyone can qualify?
Unfortunately, it doesn’t. Only certain veterans will qualify. In fact, you first have to determine if you are eligible, then you determine if you qualify.
Eligibility for the VA Loan
Veterans must first prove eligibility for the program. It starts with an honorable discharge. If you had anything but an honorable discharge from the military, you probably won’t be eligible for the program. While there are exceptions to the rule, this is the norm.
If you did have an honorable discharge, you must make sure you also meet the time served requirements. They are as follows:
- 90 days during wartime in the regular military
- 181 days during peacetime in the regular military
- 6 years in the National Guard or Reserves
If you meet both of the above guidelines, you may be eligible for the VA loan. Next, you have to qualify for it.
Qualifying for a VA Loan
Once you prove eligibility for the VA loan, it’s time to qualify for it. Just because you may be eligible to receive up to $453,100 in a loan, doesn’t mean you qualify for it. In other words, you have to prove that you can afford the loan. The VA has flexible guidelines, but you still have some rules to meet.
- You should have at least a 620 credit score – The VA doesn’t have strict guidelines regarding your credit score, but most VA lenders enforce at least a 620 credit score. While it’s not a ‘great’ credit score, it’s a score that shows some level of financial responsibility.
- Your debt ratio shouldn’t exceed 43% – The VA doesn’t put a lot of emphasis on the debt ratio, but they have limits. Your total debts, which include your housing debt and your other consumer debts, must not take up more than 43% of your gross monthly income.
- You must have enough disposable income – The lender will need to make sure you have enough money left over each month to cover the daily cost of living. The exact amount you will need will depend on your family size and your location.
- You must prove that you’ll live in the home as your primary residence – VA loans are only for homes that you will live in full-time. You must also agree to occupy the home within 60 days unless the VA grants you an exception
Your lender will determine how much loan you qualify to receive based on these guidelines. This means that even if the maximum loan amount in your county is $453,100, you may only receive approval for a $200,000 loan, if that’s what you can afford.
The amount of Your Entitlement
The final piece of the puzzle is your entitlement. Each veteran receives full entitlement at first. This means entitlement that equals $453,100.
Once you use some of that entitlement, it’s gone until you sell the home and pay off the mortgage in full. For example, if you have a $200,000 VA loan, you have $253,100 entitlement left unused. You may use that entitlement in the future if you need. But you can’t reuse the $200,000 that’s tied up in your home until you sell it and pay off the loan, unless you get the VA to grant you an exception. The amount of your entitlement will also play a role in how much VA loan you can receive.
There are many pieces to the puzzle that you must fit together in order to get a VA loan. The amount you can receive depends on what you can afford. The VA lender must make sure beyond a reasonable doubt that you can pay the loan.