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VA Loan Requirements

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Photo credit: © iStock/Pamela Moore

Want a VA loan but not sure if you qualify? We’re here to help. We’ll break down VA loan eligibility and talk about how to get a VA loan. For VA loan limits, head here. To learn more about how to apply for a VA home loan, head here.

VA loan requirements break down into two types. The first kind of VA loan requirement limits who can get the Certificate of Eligibility that’s the first step to a VA loan.

Take the eligibility test to find out who qualifies for a VA loan and learn if you make the cut:

  • Are you an active duty service member who has served for 90 continuous days?
  • Are you a veteran with a record of 90 to 181 days of continuous service (depending on when you served)?
  • Are you a National Guard or Reserve member with a record of six years of service? Did you receive an honorable discharge, continue to serve in the Selected Reserve, transfer honorably to Standby Reserve or transfer to the retired list?
  • Are you the un-remarried surviving spouse of a veteran or service-member who died as a result of military service or of a service-connected disability? Or the un-remarried spouse of a service-member who is missing in action or a prisoner of war? Or a surviving spouse who remarried after turning 57, on or after December 16, 2003?

If you made it through that list and you answered “yes” to one of the questions, you could be the proud owner of a VA loan. The VA loan guidelines allow anyone who meets one of the above descriptions to apply for a VA home loan.

Entitlement—is yours full?

Some people who meet the VA loan requirements don’t have what’s called “full entitlement.” What does that mean? Well, VA loan entitlement breaks down into two kinds. The first is called “basic” or “primary” and the second is called “secondary” or “bonus” entitlement.

Primary entitlement is currently $36,000, meaning that the VA will repay $36,000 of your loan if you default. Since your loan eligibility is four times your entitlement, with only primary entitlement you could finance up to $144,000 of house with full VA guarantee. Not too shabby, but not enough for a house in many areas.

That’s where secondary entitlement comes in. Think of secondary entitlement as a top-up that bridges the gap between what your primary entitlement gets you and what many houses actually cost. Secondary entitlement adds $70,025 of entitlement to your total. Why that number? Because the VA wanted to get veterans up to the $424,100. That is the loan limit for conventional mortgages.

($36,000 of primary entitlement + $70,025 of secondary entitlement) x 4 = $424,100 — your home loan

If you meet the eligibility requirements and you’ve never had a VA loan before, you have both kinds of entitlement, i.e. full entitlement. That means you can finance a house with the maximum VA loan guarantee in your county. If you already have a VA loan, you’ve dipped into your entitlement and it’s no longer “full.”

People who want to finance less expensive houses may not use all their entitlement when they purchase their first home. In that case, they would have some secondary entitlement left over if they needed to buy another home. We’ll get to that.

Check your residual income, or the VA will check it for you.

The VA is pretty laid back about a lot of things. With a VA loan you won’t need a down payment or mortgage insurance, for example. But things get strict when it comes to the residual income you need if you want to satisfy VA loan requirements. Wondering how to qualify for a VA loan? It’s not just a question of your military service. It’s also a question of your overall financial picture. That’s where the residual income requirements come in.

Residual income is the money you have left over when you pay for the necessities and make your debt payments. Every month, once you’ve covered things like housing, gas, groceries, credit card bills and loan payments, how much of your paycheck remains? That’s what the VA will check to see if you can really afford a VA loan.

If it sounds like the VA is being overly cautious, consider that VA loans have some of the lowest default and foreclosure rates around. They do their homework on borrowers and it pays off.

Specific dollar amount requirements for residual income vary by the size of your family and the region you call home. That’s because some places are more expensive than others and require families to have more left over each month after meeting their fixed expenses. The VA makes each year’s residual income requirements for all regions — Northeast, Midwest, South and West — available online.

For debt-to-income ratio, lower is better.

Your debt-to-income ratio (DTI) is a measure of how your monthly debt stacks up to your monthly income.

DTI ratios usually come in twos. The first number, known as the front-end DTI ratio works like this:

(Monthly housing payments/monthly gross income) x 100

The second number, the back-end DTI ratio is a little different:

(Total monthly liabilities/monthly gross income) x 100

The first number will be smaller than the second, since the second takes into account not just housing but also other loans and credit card debt. The maximum ratio you can have and still get a VA loan depends on whether your mortgage underwriting will be done manually (by a human) or through an automated underwriting system (by a computer). 29/41 is a good maximum DTI ratio to shoot for, though some lenders will allow a back-end ratio of up to 43.

And remember, while the VA cares more about your residual income than about your DTI, the bank that gives you your VA loan will have its own DTI requirements.

For credit score, higher is better.

Credit scores don’t count as much with VA loans as they do with conventional loans, but you’ll still need pretty good credit to finance a home purchase with the VA. The VA doesn’t impose credit score minimums, but lenders do. Usually, 620 is the lowest credit score you can have and still bag a VA-backed loan.

Remember these rules for your future home.

Before you break out the champagne and toast your VA loan eligibility, it’s important to make sure the home you want to finance meets VA loan requirements. That’s because the second kind of VA loan requirement limits which properties are eligible for financing through VA loans. It’s not just a question of who is eligible for a VA loan. It’s also a question of which homes are eligible for VA loans.

To get approved for a VA loan, your home will have to pass the VA appraisal process. Why would a home not pass? If the house is too run down, you’ll have a hard time getting the OK from a VA appraiser. The point of a VA appraisal is to make sure that the home a veteran wants to finance meets the VA’s Minimum Property Requirements (MPRs). Sorry, that means no broken windows, no leaky roof, no faulty wiring and no pest infestations. If you have your heart set on a real fixer-upper you’ll need to look elsewhere for financing.

VA’s Regional Loan Centers — and individual states — have their own specific requirements for the houses whose loans they’ll guarantee. For example, you won’t need to prove that your home is termite-free if you live in Alaska.

So you already have a VA loan?

Photo credit: © iStock/MivPiv

If you already have one VA loan that you’re still paying off, you can tap into the power of your secondary entitlement when you want to finance another home purchase. Say you’re still paying off your first VA loan when you get the order to pick up and move to another military base. Do you have to sell your home before you move? Not necessarily. The VA will allow you to keep your first home and rent it out while you move and buy a new home, also with a VA loan — provided you have enough remaining entitlement to get a second VA-backed mortgage.

This double-VA loan scenario isn’t a sure thing, though. Remember the DTI requirements? Those can be hard to meet if you’re making payments on two mortgages each month. Unless you have a rental contract with someone whose payments will cover your first mortgage, you may find that two VA loans is one too many.

Don’t meet VA loan requirements?

Don’t panic. If you don’t meet the requirements for a VA loan, you still have options. Maybe an FHA loan is the right choice for you. Like VA loans, FHA loans have lower down payment requirements and lower interest rates than regular commercial loans. With an FHA loan, you won’t be able to put 0% down like you could with a VA loan, but your down payment requirement will be well below what you would need for a conventional loan. Some banks also offer special perks to military customers for conventional loans.

Check out our interactive tool to find out how much house you can afford, then start your journey to homeownership. You’ve earned it.