If you're a veteran and you're looking at homes for sale, you have a useful tool in the VA home loan program. Unfortunately, some homebuyers avoid the VA program out of concern that the process will be too difficult or involved. Furthermore, not all real estate agents are familiar with the ins and outs of VA mortgages. But the truth is that while VA home loans do have some specific requirements, qualifying for a VA home loan is easier than you might think. After all, the goal of the program is to enable as many veterans as possible to become homeowners. Take a look at some tips that can help you secure a VA home loan and buy the right home for your family.
Know Your Credit Score
Knowing whether your credit score will qualify you for a VA loan is the first step. It's important to understand that the VA itself does not issue loans; the credit score requirements are set by the lenders, and as a result, they vary from one lender to the next. However, VA home loans are backed by the federal government, allowing the lenders to extend more leeway to veterans seeking a VA mortgage than they might extend to other would-be homebuyers.
Currently, most lenders that handle VA home loans are looking for a credit score of around 620, the minimum score required by the VA. Compare that to a conventional mortgage, where a score of 740 is low enough to trigger additional fees and hoops to jump through. Check your credit score before you begin your home search. If it falls below 620, don't give up – you can take some time to pay off some debt and clear up any delinquencies, which will boost your score. Then try again.
Understand Residual Income Requirements
Another great feature of a VA loan is the fact that they require no down payment. VA loans stand out among other programs that finance homes with zero money down because they have a low default rate. This is often credited to the residual income requirement. Essentially, the VA requires that you prove that your income, after paying the mortgage and any other creditors, is sufficient to cover other expenses. This is not something that most lenders look at, but it's a good way to ensure that you can handle not just the cost of the mortgage, but the full cost of home ownership.
Residual income is based on your location in the country and your family size. So, in New York, a family of three will need to show a residual income of $909, and in Michigan, the same family of three would only need to show a residual income of $889. If your residual income significantly exceeds the required amount, it can cancel out a high debt load that would otherwise be disqualifying.
Choose the Right House
The next factor that you have to consider is the VA's minimum property requirements. This is where a good real estate agent who has experience with VA loans and knows the local market well can really come in handy. The VA requires that the loans it backs are used on homes that meet certain minimum requirements of safety, sanitation, and livability.
For example, the home you choose needs to offer at least 75% residential space. Also, it will need to be independent of the neighbor's property and have a bathroom, a safe water source, and a roof that's free of leaks. It should also be free of mold, rot, or fungus, among other requirements. In other words, you will need to steer clear of fixer-uppers.
When you contact a real estate agent in the area that you're hoping to buy in, make sure that they have experience working with buyers seeking a VA home loan. This will help ensure that you find the right lender and the right home.