Having a solid understanding of the VA loan qualifications makes it easier to understand your eligibility.
VA loans are government-backed mortgages offered to qualifying Veterans as a (small) token of appreciation for their service. Qualifying service members and their families can take advantage of the benefits VA loans offer, such as low-interest rates, no down payment requirements, and no private mortgage insurance (PMI).
The Department of Veterans Affairs defines VA loan service requirements by the length of time in service as well as serving during war or peacetime. According to the VA, Veterans are eligible if they have served at least 90 days of consecutive service during wartime or at least 181 days of consecutive service during peacetime.
Veterans who have served at least six years in the National Guard or Reserves and surviving spouses of Veterans may also be eligible for VA financing.
You should meet the minimum active-duty service requirement if you have served for at least 90 consecutive days.
The service requirements for Veterans depends on when you served. You can find more information about your specific period of service and other VA loan service requirements one the VA’s official eligibility website.
In addition to meeting the service requirements noted above, you’ll also need an acceptable discharge status to be eligible for a VA loan.
Suppose you don’t meet these requirements but were discharged due to hardship, early out, reduction in force, the convenience of the government, certain medical conditions, or a service-related disability. In that case, you may still be eligible if you’ve served at least 90 days.
However, if your discharge was Other Than Honorable (OTH) or Bad Conduct (BCD), you’ll need to apply for a discharge upgrade and go through the VA Character of Discharge review process with the Department of Veterans Affairs.
To prove you meet VA loan requirements, you must apply for a Certificate of Eligibility — or COE. This document verifies your service and eligibility for the VA loan program.
All VA loans will require your COE. You can retrieve it yourself from the eBenefits portal or your mortgage lender can request it for you. VA-approved lenders can request COE’s on a buyer’s behalf with access to the Department of Veterans Affairs’ Web LGY Hub portal.
There are no strict employment requirements to qualify for VA loans. VA lenders typically look at the past two years of income to ensure consistency and that you can meet your payments. However, if you have less than two years of job history, other qualifying factors include past employment, training, and education. Bank statements, income, tax returns, 1099 forms, and W-2 statements are all common forms of income verification.
If you are an active-duty service member, your lender will require a Leave and Earnings Statement (LES) form.
Having gaps in employment does not automatically disqualify you from a VA loan. However, depending on the size of the job gap, your lender may require you to have a more established work history before proceeding with your application. Again, the premise of evaluating borrower income is to confirm your financial ability to pay off your loan. If you have a significant gap in your work history, your lender may require a letter of explanation for underwriting.
Verification of employment is a step in the underwriting process that verifies that your employment situation hasn’t changed between the time of application to where you are now. The verification can be either verbal or written. An example of verbal verification would be a phone call between your lender and your employer.
If you have any changes in employment during the underwriting process, reach out to your lender as soon as possible to avoid lengthy delays.
While VA loan requirements are more relaxed than those for conventional and FHA mortgages, borrowers still need to meet several financial requirements to gain VA loan approval.
Most lenders require a minimum credit score of 620. However, there are no hard-and-fast credit score requirements for a VA loan. These are set at the lender level, varying depending on your choice of mortgage company.
Even if you don’t meet current standards, it’s worth it to contact a lender to see what programs they have for Veterans and their recommendations for the next steps you should take. The good news is if your credit score is below your lender’s requirement, there are steps you can take steps to raise it.
Generally, you need a DTI — or debt-to-income ratio — of 41% or less. This means that your monthly debts, including your new VA mortgage payment, account for no more than 41% of your monthly income.
Lenders use two DTI calculations to determine buyer eligibility: front-end and back-end.
|Front-end DTI Ratio||Back-end DTI Ratio|
|➢ How much gross income goes toward housing costs
➢ Includes mortgage payment, taxes, mortgage insurance
|➢ How much gross income goes toward all other debts
➢ Includes auto loan payments, credit card payments, student loans, etc.
Here’s a tool that can help you estimate your loan preapproval amount based on your income and expenses.
Lenders may ask for documents relating to your “residual income.” Residual income is the amount leftover for living expenses after all monthly obligations are paid. It’s another way VA lenders show your ability to afford your monthly mortgage payments while also hedging their risk.
Now that you better understand VA loan eligibility requirements, you can explore affordable housing options within your budget. Take the first steps toward your dream home and use this VA payment calculator to find your monthly payment.