Qualifying for a VA loan is simple because they have some of the most relaxed underwriting guidelines. The key to qualifying is to have VA benefits, prove you have a solid history of paying your bills on time, and have stable income to cover the mortgage payments.
Qualifying Requirements for VA Loans
VA loans have relaxed qualifying guidelines, allowing veterans to secure 100% financing with simple rules. While each lender has different requirements, here’s what the VA requires at a minimum.
Minimum Credit Scores
The VA doesn’t require a certain credit score for VA loans. Most lenders, however, require a 620 or higher score. This is much lower than conventional loans require and make it easy for veterans to secure financing.
VA loans also don’t require perfect credit. You can have a blemished credit history, but as long as you prove you can afford the loan and have fixed any issues, you may have a good chance of securing VA financing.
Maximum Debt-to-Income Ratios
Debt-to-income ratios are another area that the VA doesn’t focus on. They prefer to focus on your disposable income (more on that below). But, some lenders do focus on your DTI to ensure you aren’t overspending.
Your DTI measures your current debts plus the new mortgage to your monthly income. The more debt you have, the harder it is to afford the new loan. The average lender allows DTIs of up to 43%.
Disposable Income Requirements
As we said earlier, the VA focuses on your disposable income. This is the money you have left after you pay your bills. The VA has guidelines regarding how much money you need based on your family size and where you live. If you meet the disposable income requirements, your DTI may not matter.
VA loans are only for owner-occupied properties. So first, you must prove you plan to live in the home full-time. The VA also cares about a property’s condition. They have Minimum Property Requirements a home must pass to qualify for VA financing.
Fortunately, the requirements aren’t anything out of the ordinary. The VA just needs reassurance that the home is safe, sound, and sanitary, and of course, it’s worth enough to support the price you promised to pay.
The appraiser can determine if the home is worth at least the sales price and the type of condition it’s in.
Like all loans, the VA requires that you are employed and have a consistent income. Preferably, you should have two years of stable income with the same employer. However, if you changed jobs recently, you may still get approved. It’s best to stay within the same industry you were in previously to have a solid employment history.
Documents to Qualify for a VA Loan
To get approved for a VA loan, you must provide lenders with documentation to prove your income, assets, and liabilities. Of course, every situation is different, but on average, here’s what lenders require.
Approval to Pull your Credit
First, lenders need your approval to pull your credit report. Once you approve it, they’ll check your credit score and history to determine if you qualify for a loan. Because the VA doesn’t focus on credit scores, lenders will focus on your history of repaying your debts on time to determine if you qualify.
Proof of Income
To prove your income, you must provide a lender with paystubs covering the last 30 days and W-2s for the last two years. Your income should be stable, and if you’re self-employed, you’ll also provide tax returns for the last two years to prove how much you made.
Proof of Assets
Even though VA loans don’t require a down payment, you must still prove you have the assets to cover closing costs. You must provide the lender with bank statements from the last two months to prove your assets. On those statements, ensure there aren’t any large withdrawals or deposits, as they can raise red flags.
VA loans are among the easiest loans to qualify for, but like any loan, lenders want to ensure you can afford the loan. So prove to lenders you have decent credit, enough income, and assets to cover your closing costs.
You don’t need money for a down payment or to prove you have perfect credit. With your VA loan benefit, lenders have the VA’s guarantee if you default, allowing you to buy a home much faster than with any other loan program.