As a veteran, you know there are VA home loan benefits. Do you automatically get one because you served in the military?
Unfortunately, the answer is ‘no.’ There’s nothing automatic about the VA loan process. You have to be eligible for the program and then you have to qualify for the loan you request. You can assume that you’ll get the loan just because you served in the military.
First, we are going to look at how you become eligible.
VA Loan Eligibility
The VA rewards the veterans of our country by guaranteeing a loan in their name. If you default on your loan, the VA will pay the lender back 25% of the money they lost. This is larger than most down payments that buyers make, so it’s a good deal for VA lenders. But, they don’t do this for just any veteran. The VA only allows the following veterans to have access to the VA loan:
- Veterans that served 90 consecutive days during wartime
- Veterans that served 181 consecutive days during peacetime
- Members of the National Guard that served 6 years
- Members of the Reserves that served 6 years
In addition, each veteran that served adequate time, must have an honorable discharge. Some may be able to get by with a general discharge, but no one can get a loan with a dishonorable discharge. In other words, you have to have fulfilled your service in order to be eligible.
Qualifying for the VA Loan
Now, just because you are eligible for a VA loan, doesn’t necessarily mean that you qualify for it. You have to prove to the lender that you can afford the loan beyond a reasonable doubt. You do this with the following:
- Minimum 620 credit score (for most lenders, some require a higher score)
- Maximum 43% debt ratio
- Adequate disposable income according to the VA guidelines based on your family size and location
- No recent collections
- No defaulted federal loans
If you can’t meet these guidelines, it won’t matter if you are eligible for the loan, a VA lender won’t approve the request. You have to show that your risk of default is low and that you can keep up with your VA loan payments.
The VA guarantees the loans, but that doesn’t mean they want to pay lenders. The VA uses the funds earned from each new VA loan written. When you close on a VA loan, you pay a VA funding fee. Those funds sit in a reserve account until the VA needs to pay a lender back for a defaulted loan.
Even if you meet the above guidelines, though, it’s up to the lender if they want to fund the VA loan. The VA doesn’t underwrite or approve the loans. They leave it up to the VA lender. As long as the loan meets the minimum guidelines from above, the VA lender is free to approve the loan. However, some lenders add ‘overlays’ to make it a little harder to get a VA loan. This way they can help minimize the risk of default.