Obtaining a mortgage can seem overwhelming, if not difficult. If you are a veteran, you have the good fortune of the VA loan. If you are eligible for this program, you don’t need a down payment. This is one of the few programs that allow 100% financing.
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But, how hard is it to qualify for the VA loan?
Low Credit Score Requirements
The VA is one of the few entities that doesn’t have a minimum credit score requirement. They allow VA lenders to make their own judgment regarding credit scores.
Most lenders will require at least a 620 credit score, but you may find a few that allow lower scores. This makes the VA loan somewhat easier to qualify for than others. If you compare it to the FHA loan, though, it may seem a little stricter. The FHA allows credit scores as low as 580. Again, the lender has the final say, though, which may mean that lenders want a score closer to the 620 average that VA lenders prefer.
No Debt Ratio Requirements
If there’s one stumbling block many borrowers have, it’s often the debt ratio. They find themselves in over their head in debt, whether it’s because of student loans or credit cards. When it comes time to apply for a mortgage, they find that their DTI (debt to income ratio) is too high.
The VA loan doesn’t have debt ratio requirements. This is the only program with this flexibility. While they do ‘suggest’ to VA lenders that they don’t allow a total debt ratio higher than 43%, that’s as far as they go with it.
In fact, the VA doesn’t have any specifications regarding the housing ratio. Let’s compare this to other loans:
- FHA loans – 31% housing ratio maximum
- Conventional loans – 28% housing ratio maximum
- USDA loans – 29% housing ratio maximum
The VA loan is the only program without a maximum set.
That being said, VA lenders often abide by the 43% rule. They may not watch your housing ratio closely, but they will make sure that your total debt ratio doesn’t exceed 43%. This means that the less debt you have going into the mortgage, the more money you can borrow to buy a home.
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The Disposable Income Requirement
Here’s one factor that the VA pays close attention to while other loan programs don’t even mention it. Your disposable income is the money you have left after you pay your bills. The VA likes to know that you have a certain amount of money set aside each month to cover the daily cost of living. The more dependents you have, the more money you will need. The exact amount you need also depends on the cost of living in your area. Some areas are higher cost than others.
Employment and Income Requirements
Just like any other loan program, the VA loan requires you to have stable income and employment. Just what that means is often up for interpretation.
Like conventional loans, most loan programs require you to be at the same job for 2 years before they will use it for qualifying purposes. They also like to see rising income, or at the very least stable income. Some VA approved lenders may allow you to qualify for a VA loan without 2 years of income, if you have good reason for changing jobs. For example, if you changed jobs but stayed in the same industry, you could tell the lender that you changed jobs to gain a better opportunity.
Typically, as long as you show some type of stability, you’ll be in good shape. If you hop from job to job or have decreasing income over the past 2 years, it could be more difficult to obtain a loan. This standard is pretty much the same between any loan program though.
The VA loan can be considered ‘easier to qualify for’ than other loans because of the lack of rules the VA provides. They do carry one of the lowest default rates out of any program, so what they are doing must work. Because lenders can add their own requirements, you may come across some lenders that are ‘finickier’ than others. Luckily, you can shop around and find a lender that is less strict.