Veterans, active-duty military personnel, and eligible spouses can purchase their first home with no down payment through VA loans. Here’s a comprehensive guide to assist VA first-time homebuyers, addressing key aspects such as eligibility, pre-approval, VA appraisals, and special scenarios like VA disability compensation and self-employed, retired veterans.
VA Loan Eligibility and Certificate of Eligibility (COE)
Determining eligibility for a VA loan begins with obtaining a VA Home Loan Certificate of Eligibility (COE). You can apply directly or through a VA-approved lender who can assist in obtaining the COE on your behalf. Required documentation typically includes proof of military service, such as discharge or separation papers (DD214), or documentation for current service members.
Eligibility for a VA loan is determined by specific criteria:
- Active-duty service members who have served continuously for 90 days.
- Veterans who meet length-of-service requirements, typically 90 days during wartime or 181 days during peacetime.
- Individuals who have completed 90 days of active-duty service or six creditable years in the Selected Reserve or National Guard.
- Surviving spouses of veterans who died while in service, from a service-connected disability — or who are missing in action or prisoners of war — who have not remarried are eligible. Those who remarried after age 57 or after December 16, 2003, also qualify.
- Some individuals, such as those discharged for a service-connected disability, may still qualify even if they do not meet the length-of-service requirements. It is advisable to consult with the VA for specific details regarding eligibility.
Applying for a VA Loan with Poor Credit
We spoke to Dana Hendrix from DSLD Mortgage, a specialist VA loan provider, about how to apply for a VA loan with bad credit. He told us:
“Although the U.S. Department of Veterans Affairs (VA) does not establish a minimum credit score requirement for VA loan qualification, VA lenders typically require a minimum credit score of 620. However, lenders may take into account various compensating factors to mitigate the impact of a low credit score.”
Factors that can help to counteract a poor credit score include:
- History of punctual rental payments
- Stable employment record
- Low debt-to-income ratio (DTI)
- A down payment.
The VA requires a debt-to-income ratio (DTI) of no more than 41%. However, if you have a higher DTI ratio, you may still be approved if your residual income exceeds approximately 20%. Residual income refers to the funds remaining after covering basic living expenses, such as food and clothing, as well as paying debts, housing, and other obligations.
VA Loans for Veterans Receiving Disability Compensation
Disability compensation does not disqualify individuals from obtaining VA loans, and in many cases, it may even provide additional benefits such as waived funding fees. When applying for a VA loan, borrowers receiving disability compensation should be prepared to provide documentation of their compensation income, such as award letters from the VA or bank statements showing direct deposits. Lenders may also request proof of continued eligibility for disability compensation.
VA Loans for Retired and Self-Employed Veterans
For retired veterans applying for VA loans, there are no specific income requirements imposed by the U.S. Department of Veterans Affairs (VA). Lenders may consider various sources of income, including retirement benefits, pension income, Social Security benefits, investment income, and any other sources of regular income.
Retired veterans need to provide accurate documentation of their income sources and financial stability when applying for a VA loan to increase their chances of approval. To verify income and financial stability, lenders may request additional documentation from self-employed veterans, such as tax returns, profit and loss statements, and business bank account statements.
How VA Appraisals Work
Before finalizing a home purchase, the property must undergo a VA appraisal conducted by a VA-approved appraiser. The appraisal aims to assess the property’s value and ensure it meets the VA’s Minimum Property Requirements (MPRs).
During the appraisal, common areas of focus include the property’s structural integrity, safety features, and compliance with local building codes. If the property meets the VA’s MPRs and appraises for the agreed-upon purchase price or higher, the loan process can proceed as planned. However, if the property fails to meet MPRs, the buyer and seller may need to negotiate repairs or adjustments before the loan can be approved.
Three Steps to Find a Home that Meets VA Loan Requirements
When searching for a home with a VA loan, it’s essential to consider properties that meet VA loan requirements. Here are some tips for finding the right home:
- Work with a real estate agent experienced in VA home purchases. They can help identify properties eligible for VA financing and guide buyers through the process.
- Use online resources and real estate listings to search for homes that meet VA loan requirements, such as single-family homes, condominiums, and townhouses in VA-approved communities.
- Attend open houses and schedule property viewings to assess each home’s suitability firsthand. Pay attention to details like property condition, layout, and neighborhood amenities.
VA Loans for First-Time Home Buyers: The Closing Process
Overall, the entire process, from completing the appraisal to receiving keys, can take anywhere from 30 to 60 days. In some cases, it may be possible to expedite the process if all parties involved can work quickly and efficiently.
In a typical scenario, the process is:
- Appraisal: Once the home appraisal is completed, the appraiser submits the report to the lender for review. This usually takes a few days.
- Lender Review: The lender reviews the appraisal report to ensure the property’s value meets the requirements for financing. This process can take several days to a week.
- Loan Approval: If the appraisal meets the lender’s requirements and all other conditions for loan approval are satisfied, the lender issues final loan approval. This typically occurs within a week or two after the appraisal.
- Closing Date Set: Once final loan approval is obtained, the closing date is scheduled, typically for 30 to 45 days after the purchase agreement is signed, although it can be faster when there are no issues.
- Closing: At the closing, the buyer and seller sign all necessary documents to transfer ownership of the property. The buyer provides any remaining funds needed for the down payment and closing costs. The closing process usually takes a few hours.
- Receiving Keys: After the closing documents are signed and funds are disbursed, the buyer typically receives the keys to the property on the same day as the closing.
A Heartfelt Message
Whether you are currently serving on the front lines, have served in the past, or stand steadfastly alongside your loved ones, your contributions have made an indelible mark on our nation’s history and our collective future. Please know that your sacrifices do not go unnoticed or unappreciated. Thank you for your service, your courage, and your unwavering commitment to protecting our freedoms and way of life.
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