Updated: Dec 23, 2020
Best VA home loan lenders is generally available for both former and current members of the military including reservists, active-duty and veterans. In some situations, the spouses of military members are eligible for VA loans even when the spouse has been killed in action, is missing or disabled. The qualifications required vary depending on the length of time in the military, the type of service and the number of years in service. Unless the military service ended with a dishonorable discharge, the individual is most likely eligible.
Credit Score Requirements
The minimum credit requirements to qualify for a VA home loan are set by each individual lender. Whether the individual is applying for a VA loan for military relocation, family housing, PCS'ing or any other reason, the lender will initiate a screening process. During this process, the applicant must meet the minimum credit score set by the lender to be considered for a loan. Each lender has a slightly different minimum credit score requirement.
The borrowers preferred by issuers of VA loans look for credit scores considered to be good or better. According to the official FICO score, the range is between 300 and 850. A minimum score of 670 is classified as good. A minimum score of 740 is very good and anything over 800 is considered exceptional. If the VA loan application is denied because the credit score did not meet the minimum requirements, the lender is required to provide the individual with an explanation in writing.
The lender must also offer a means of obtaining a credit report for free. The applicant should use this information to start improving their score. Once the score has improved, the individual may qualify for a VA loan by re-applying.
In addition to meeting the requirements for a minimum credit score, the applicant must also meet the borrowing requirements. Three general requirements have been established by the VA for all applicants. These are:
• The applicant is required to have a stable income source
• Adequate credit is required
• A COE or Certificate of Eligibility from the VA is required
The only criteria the VA determines is COE. Everything else is determined by the financial institution issuing the VA loan. You can get VA COE online, VA loans can be approved for numerous reasons including home improvements, purchasing or building a home, PCS'ing and military relocation. Although lenders are required to follow the lending guidelines of the VA, they have the right to determine their own terms and criteria for lending. The income requirements and credit scores are often different depending on the credit union or bank including the interest rates for the loan.
There is no minimum income level set by the VA as a requirement for a home loan. The credit union or bank potentially approving the loan will most likely require an income sufficient for the amount of the monthly payments. The specific amount is dependent on the amount of the loan required by the applicant.
Certificate of Eligibility
Once the applicant has been approved based on their credit score and finances, a COE is necessary as proof of military service requirements have been met. A COE can be obtained by submitting an application including documentation of military service. The requirements are different and dependent on the type of service but often include a statement of service if the applicant is a reservist or current member of the military or discharge papers for veterans. The application can be submitted online or numerous VA lenders will apply on behalf of the applicant as a part of their service.
Benefits of VA Loans
VA loans offer a wide range of VA home care benefits such as saving the individual money and helping them purchase a home quicker than with a typical mortgage. The additional benefits are described below.
Better Interest Rates:
The APR or annual percentage rate for a VA loan is generally a minimum of one percentage point lower in comparison to a typical mortgage loan. For a 30-year loan, the individual can save thousands of dollars. The savings increase based on the amount of the loan.
No Requirement for PMI or Private Mortgage Insurance:
When a home is purchased with a minimum down payment of less than 20 percent of the home's purchase price through a traditional mortgage, PMI is usually required. This insurance is protection for the lender if the individual does not repay the loan. PMI is not required for VA loans because the loan amount is guaranteed by the VA.
Low or No Down Payment
Depending on the loan amount, VA loans can sometimes be obtained with no down payment or a small percentage. All eligible borrowers are granted a basic entitlement by the VA of $36,000. This amount is essentially the down payment for the home. Loans are issued by the majority of lenders for four times this amount or $144,000 with no requirement for a down payment. If the applicant wants to borrow a larger amount, a 20 percent down payment is often required for the portion exceeding this amount. This means the down payment is a lot less than for a standard mortgage.
Transferring VA Loans
Once the individual has received VA financing, the remainder of the loan is transferable to another qualified service member, veteran or spouse to eliminate the need to sell the home. All borrowing requirements required by the lender and the VA must be met by the transferee. This includes all original lending terms such as the repayment schedule and interest rate. Once the loan has been successfully transferred, the individual can apply for another VA loan.
Multiple VA Loans
Once the individual has paid a VA loan in full and the property has been sold, an application can be placed for another VA loan provided the borrowing requirements and income are still met. VA loan rates, If the individual still owns the home purchased with the initial loan, a special dispensation may be available one time only for a second VA loan provided the first loan is paid in full.
Applying for a VA Loan
Checking with more than one financial institution is recommended before applying for a loan through a VA lender. Compare the rates from local credit unions and banks offering VA loans, check online for rates available through national lenders and ask local lenders for recommendations. Once a loan application is submitted, a hard credit injury will appear on the applicant's credit report resulting in a temporary decrease in the credit score.
If multiple applications are submitted within a period of two or three weeks, the major credit bureaus including VantageScore and FICO consider separate inquiries as one event. This means no additional decrease in the applicant's credit score will result. There are several advantages to applying to more than one VA lender. If the credit score is at a lower range for a good score, the applicant will be denied by some financial institutions but approved by others.
Even if some applications are denied, the lending terms for the remaining financial intuitions will be better for some than for others. There are also fees set by lenders the applicant is required to pay when the loan is closed or given the option to roll the fees into the loan. All loan agreements should be studied thoroughly to ensure the applicant receives the best possible deal. The VA regional office has staff available to help and answer questions. Once approved, the applicant must contact the VA to receive a COE or the loan process will not be finalized.