VA loan approval may be easier than many think. Understanding the VA requirements can help borrowers know what to expect during the VA home loan process.
The VA publishes a lender’s handbook as a guideline for companies that originate and fund VA loans. In the handbook are four basic loan approval requirements that VA-approved lenders use when considering loan applications. A veteran who understands the basic approval guidelines is better able to consider whether they are likely to qualify for a VA mortgage. Here are four keys to VA loan approval:
Key #1— VA Entitlement
Borrowers must, first and foremost, be eligible for VA home loans. This means they must have satisfied the service requirements and have enough “entitlement” available to be considered for a VA loan. Entitlement is a word used to refer to the amount the VA will guarantee for a particular veteran borrower. “Full” entitlement is usually enough for a VA home loan of $417,000 (or even more in high-cost counties).
Key #2 — Property Eligibility
The lender's handbook states that VA home loan benefits are to be used mainly for owner-occupied properties. The VA lists single-family homes, VA-approved condos, townhouses and multi-family homes (up to four units per borrower) as properties generally eligible for VA financing. (There may be additional qualifying requirements.) The VA also guarantees the financing of manufactured homes if they are attached to a permanent foundation; but not all lenders offer VA loans for modular homes.
Key #3 — Owner Occupancy
By law, VA borrowers must occupy the homes they finance. VA borrowers must verify that they will occupy their homes within a reasonable time. For most, this means within 60 days after closing. Borrowers who are deployed away from home may receive an extension of up to 12 months. A spouse is the only relative that can satisfy the occupancy requirement in a VA-eligible borrower’s stead. VA Streamline refinance loans require only that the borrower occupied the home in the past.
Key #4 — Income & Credit
VA-eligible borrowers must qualify for the loans they obtain. Veterans (and co-borrowers, if joint) must have steady and ample income and satisfactory credit. Lenders are given some flexibility to decide whether a borrower is a safe credit risk within VA guidelines. VA-approved lenders may set their own credit score minimums. The VA recommends borrowers have no more than 41% debt-to-income ratio and at least enough residual income to cover typical living expenses. VA Streamline refinance loans may not require income and credit re-qualifying.
While other qualification requirements may apply, depending on the loan program and lender, when the four basic loan approval requirements are met, the applicant(s) will usually qualify for their VA loan. Loan amounts can vary based on each VA-eligible borrower’s entitlement and ability to pay.
Contact a VA specialty lender for more information about VA-guaranteed loans.