You think you may be eligible for a VA loan — most members of the active duty military, Veterans, reservists, and National Guard members as well as some surviving spouses are — but now you have to qualify. It can feel overwhelming, but it doesn’t have to.
The VA started providing home loan benefits to Veterans in 1944 with the goal of helping servicemembers re-enter civilian life and “catch up” with those who did not serve in World War II. Since then, millions of Veterans have bought homes with the help of the federal government.
Veterans are eligible to apply for a VA loan if they’ve served: two years in the Active Duty military; six years in the National Guard or Reserves; 90 consecutive days of active service during wartime; or 181 days of active service during peacetime. Other eligibility requirements may apply depending on each individual’s experience.
Surviving spouses of a Veteran or servicemember, prisoner of war (POW), or person missing in action (MIA) may also be eligible for the VA home loan benefit. Generally, surviving spouses must not have remarried and circumstances surrounding the spouse’s passing must meet eligibility requirements.
Jarod Stevens of Tyler, Texas, has purchased two homes with VA loans over the years. Stevens spent 11 years in the Marine Corps where he retired as a sergeant. With his first VA loan, he bought a home in New Orleans. After selling that home, he used another VA loan to purchase his current home in Tyler.
“It was very easy to qualify for both loans,” said Stevens. “The process was seamless. The VA has done a phenomenal job streamlining the qualification process.”
Prequalifying for a VA loan can be a helpful first step. During the prequalification process, you work with a loan officer at an approved lender to get an idea of how much you can borrow and at what rate should you be approved. With information on your debt, income, and assets, a lender can give you a good idea of how large of a loan you can afford. This can help you focus your home search on properties you can realistically consider.
When it comes time to qualify for a loan, the VA asks lenders to make sure borrowers can pay for the loan based on a set of standard guidelines. Here’s what you should expect:
1. To prove your income
Applicants should be prepared to document sufficient recent pay to show they can afford the loan. Ideally, you’d be able to show you’ve been at the same job (or, in some cases, same profession) for the last two years. While there’s no specific income the VA wants to see, they will want to know your income is steady and that it can cover your monthly costs, including a new mortgage payment.
2. Make sure you have enough “residual income”
The VA wants to see a certain amount of income left over each month after you pay your major expenses, including a mortgage. This is called “residual income” and the requirements related to it can vary by family size and region. It’s designed to cover expenses like food, gas, clothes, and other family needs. Enforcing a residual income requirement helps ensure you have a cushion if an emergency pops up.
3. Find your debt-to-income (DTI) ratio
This ratio is factored by dividing all of your monthly debt payments by your gross monthly income. The VA wants to see borrowers with a DTI ratio of around 41 percent or less. DTI is easy to calculate. Say, for example, your rent is $2,000 a month. You pay $200 a month for an auto loan and $700 a month for student loans. Your monthly debt payments are $2,900. If your gross monthly income (all the money you make before taxes) is $7,000, then your DTI is 41 percent ($2,900/$7,000 x 100). The VA does give leeway for borrowers with DTI higher than 41 percent if they have certain compensating factors, like sufficient residual income.
4. Your credit
The VA and its lenders want to know you’re a safe credit risk. A borrower’s credit history depends on factors like the amounts of money you’ve borrowed in the past and how timely you’ve been with your payments. VA lenders are typically looking for scores of at least 620, although this requirement changes from lender to lender. When you apply for a VA loan, your lender will likely pull your credit scores from the top three credit agencies.
5. Get your Certificate of Eligibility (COE)
To qualify for a VA loan, you’ll need the paperwork to prove that the length and type of your service make you eligible. It’s called a Certificate of Eligibility (COE). You can get this COE yourself or ask your lender to help you. If you do it yourself, you can apply online through the VA’s eBenefits portal or send in a completed VA Form 26-1880 through the mail. Surviving spouses use a different form. If you fill out the form via the mail expect it to take 4 to 6 weeks, digitally it's instant.
6. Finish your paperwork
When you apply to qualify for your VA loan, you’ll need to gather key paperwork for your lender, including your W-2s, tax returns, and recent bank statements for starters. The home may need to be appraised, and your lender will have to review your paperwork.
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.
