VA loans were created to help current and former military service members (and certain eligible family members) obtain good-quality housing. Insured by the United States Department of Veteran Affairs, VA loans are one of the perks of honorable military service, giving vets and active personnel a pretty decent shot at the American dream of owning a home of their own after a certain amount of service during war or peacetime.
VA loans can be used to buy houses, condos, newly-built homes, manufactured homes, duplexes, or other types of properties, or to refinance an existing mortgage, make repairs or renovations to a home, or make a property more energy efficient. Mortgages insured by the US Department of Veterans Affairs have a zero down payment requirement, competitive interest rates, no prepayment penalties, and no required mortgage insurance!
2019 VA Loan Guidelines
In order to be approved for the impressive VA loan, there are some things applicants should keep in mind, as well as some eligibility criteria that must first be met.
VA Loan Certificate of Eligibility
As we just mentioned, if you want to get a VA loan, you need to meet some important eligibility criteria. For starters, the VA loan program is strictly for active or veteran members of the United States Armed Forces. Before a borrower can apply for a VA loan, they must be able to prove their eligibility.
Eligibility is typically proven through a Certificate of Eligibility or a “COE”. These are typically acquired by VA approved lenders through dedicated online software. Borrowers can also request their COE from the VA benefits portal. If a COE cannot be provided for some reason, then the borrower must provide the lender with a DD-214 form. Note that having a Certificate of Eligibility does not automatically qualify you for a VA mortgage, but it is required in order to get one.
2019 VA Loan Term Length Criteria
While being able to prove eligibility with a COE is crucial, there is an additional stipulation along with being an eligible member of the armed forces. VA mortgages are only made available to honorably discharged veterans and active service personnel who have met any of the following term of service requirements:
Served at least 181 days of active duty during peacetime
Served at least 90 days of active duty during wartime
Served at least 6 years in the National Guard or Reserves
Once these conditions are met, the eligibility for the VA loan benefit never expires.
2019 VA Loan Credit History Criteria
The VA mortgage program may only be for a specific group of people, but even they must meet some standard loan eligibility requirements. VA loan applicants must still have a decent credit history in order to be approved for the loan. That being said, there is no official minimum credit score as far as the Department of Veteran’s Affairs is concerned, there are only the requirements put in place by the private lenders who are approved to originate VA loans.
Generally, in order to be approved for VA financing, a borrower must have a credit score no lower than 620. Beyond that, borrowers must not have been delinquent on any of their debt obligations for at least the most recent 12 months in order to be considered a satisfactory credit risk. Plus, borrowers must wait a minimum of two years after filing for chapter 7 bankruptcy before applying for a VA loan and have at least 12 months of on-time payments and a bankruptcy court approval after filing for chapter 13 bankruptcy.
In addition, potential borrowers must have a clean Credit Alert Verification Reporting System, or “CAIVRS report. CAIVRS is a database of borrowers who have previously defaulted on government-related debt obligations. Applicants must not have a record in the CAIVRS database and must have their taxes paid.
Debt-to-Income Ratio for VA Loans
Most lenders will not only scrutinize your credit history, but also the current state of your debt obligations. In order for lenders to determine whether or not a borrower can afford a loan or not, they must check that borrower’s debt-to-income ratio (DTI). The debt to income ratio is a representation expressed as a percentage of a borrower’s total monthly debt obligations compared to their gross monthly income.
For VA financing, lenders typically look for a DTI of no more than 41%. This means that the borrower’s current monthly debts make up no more than 41% of their gross monthly income. Anything over 41% and lenders have to apply additional formulas to determine the feasibility of loaning the borrower money.
2019 Residual Income Criteria for VA Loans
When a VA borrower’s debt-to-income ratio is above the lender’s requirements, it does not necessarily mean that the borrower must be denied a VA loan. For these situations, lenders will turn to a borrower’s residual income in order to get a better understanding of the borrower’s cost of living. Residual income as it applies here is the money left over each month after all debt obligations are paid, and standard monthly expenses have been taken care of.
In order to calculate residual income, lenders will combine the estimated monthly payment, the total monthly utility payments, and even the taxes that are removed each month to calculate a total that best represents a borrower’s monthly expenditures. That sum is then subtracted from the borrower’s monthly income, and what is left is the residual income -- the income that is left over. They then compare that figure to the region-based VA residual income requirements (based on a family of four), which are:
Northeast Region: $1,025
Midwest Region: $1,003
South Region: $1,003
West Region: $1,157
If the borrower’s residual income is higher than the required residual income for that region, then they may still be approved for VA financing.
The VA Funding Fee
While not nearly as severe as the typical down payment on a home loan, VA loans do have an upfront fee that must be paid. The VA funding fee is a standard requirement of VA financing charged to VA loan applicants in an attempt to ensure the sustainability of the program for future generations. As an example of what the funding fee looks like, first-time applicants are required to pay 2.15% of the principal amount as their VA funding fee. Many lenders allow the 2.15 percent fee to be rolled into the principal balance and paid as part of the monthly mortgage payments.
Still, the amount that an applicant is required to pay depends on a few different factors. The VA funding fee is dependent on what the loan will be used for, how much of a down payment is made, the borrower’s military experience, and whether the borrower has used the benefit before. The fee is at its highest for borrowers who have used the VA loan program before, at a maximum of 3.3%, and at its lowest at .5% for a loan assumption or streamline refinance. A breakdown of the VA funding rate is as follows:
0% Down Payment = 2.15% First-time use; 3.3% Subsequent use
5%-10% Down Payment = 1.5% First-time use; 1.5% Subsequent use
>10% Down Payment = 1.25% First-time use; 1.25% Subsequent use
National Guard / Reserves
0% Down Payment = 2.4% First-time use; 3.3% Subsequent use
5%-10% Down Payment = 1.75% First-time use; 1.75% Subsequent use
>10% Down Payment = 1.5% First-time use; 1.5% Subsequent use
2.15% First-time use; 3.3% Subsequent use
National Guard / Reserves
2.4% First-time use; 3.3% Subsequent use
Other Transactions (All military, First-time and Subsequent Use)
Loan Assumption = 0.5%
Streamline Refinance (IRRRL) = 0.5%
Manufactured Home Purchase = 1%
2019 VA Loan Limits
The VA loan program has set funding limitations for borrowers in place to further increase sustainability. For borrowers in areas of lower housing prices, the loan limit is set at $484,350. Borrowers in higher cost areas may be able to finance up to $726,525 while still enjoying the benefit of a 100% loan-to-value ratio (the limit may be higher in some areas such as Hawaii).
Additionally, while VA loans can be utilized for the purchase of multi-unit properties (so long as the borrower occupies one of the units as a primary residence), the loan limit does not increase based on the number of units that a property has. Down payments can be utilized as a means for borrowers to increase their loan limits. In order to accomplish this, a borrower must make a down payment of at least 25% of the difference between the home price and VA loan limit.
2019 Eligibility Guidelines for Non-Military Applicants
Eligibility for the VA loan program is extended to the spouses of military personnel under specific circumstances only. Military spouses of a service member who is presumed alive are eligible for approval for VA financing under the condition that the service member has been declared missing in action (MIA) or a prisoner of war (POW) for a period of at least 90 days. This is limited to a one-time use only.
Military spouses of service members who have passed away from specific causes are eligible as well. For VA financing eligibility, the service member must have died while on active duty, as a completely disabled veteran, or from complications due to damage sustained while on active duty. In addition, the surviving spouse must not have remarried. These surviving spouses are eligible for the same zero down payment, no mortgage insurance required home loan that their late spouses were, with the added benefit of not having to pay the VA funding fee.
In some rare cases where the surviving spouse has remarried, the VA may still take the applicant’s approval for eligibility into consideration, pending consultation from a VA-approved lender. For military spouses who have previously obtained a VA loan with a service member who has subsequently passed away, they continue to be eligible for a VA Interest Rate Reduction Refinance Loan (IRRRL), commonly known as the VA streamline refinance loan. Children of active or veteran service members are not eligible for VA financing.
Requirements for Non-veteran Co-borrowers
In some cases, Eligible applicants may apply for VA financing with a co-borrower who is neither an eligible military service member nor their spouse. The VA allows this, however, the service member must be fully responsible for their half of the monthly mortgage payment, and cannot receive compensation from the co-borrower to cover any shortcomings in this respect. To further complicate matters, the VA will only guarantee the portion of the loan under the responsibility of the eligible service member and will require a 12.5% down payment for the non-guaranteed portion of the loan as well.
Assuming a VA Loan in 2019
Assuming a VA loan can save a home buyer tens of thousands if the market rates have risen. The new home buyer stands to save on not only a lowered interest rate, but all of the interest that the previous homeowner has already paid on the property. Assuming a VA loan can only be done in either one of two ways:
The eligible new home buyer qualifies through VA standards to take over the mortgage payment. This is the most beneficial method for the previous homeowner, as it allows their mortgage to be assumed with full confidence that the new home buyer is responsible for the loan, and the seller is released completely from their mortgage obligation.
The home buyer is a qualified veteran who swaps their VA eligibility for the eligibility of the previous homeowner.
The loan assumption must also be approved by the lender and/or the VA. This process may take several weeks.
VA Loan Assumption Requirements:
The mortgage loan must be current. If it is delinquent, any past due amounts must be paid at or before closing the assumption.
The home buyer must meet VA credit and income qualification standards.
The home buyer must assume all mortgage obligations, including the repayment to the VA should the loan go into default.
A funding fee of 0.5 percent of the existing principal loan balance must be paid by either the original homeowner or the home buyer.
A processing fee (that includes a reasonable estimate for the cost of the credit report) must be paid in advance.