Special Circumstances for VA Loans

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From self-employment to foreclosures: just because you don’t have the perfect financial history doesn’t mean you can’t get a VA loan.

VA loans are known for their straightforward qualifying standards. Many VA lenders have automated approval certification from the VA to approve loans based on guidelines set by the U.S. Department of Veterans Affairs. But, what if your finances aren't so straightforward? If you’re a Veteran with homeownership on your mind, you should never assume you can’t get a VA loan because you’re self-employed, have a foreclosure in your history, or are paying alimony. These are special circumstances that require a closer look for qualifying, and the VA has guidelines for these, too.

But before jumping into what qualifies as a special circumstance, it is important to understand the benefits of a VA loan and its eligibility standards.

Benefits of a VA Loan

So why should you apply for a VA loan in the first place? Because VA loans are backed by the federal government and the U.S. Department of Veterans Affairs, they have certain advantages that you wouldn’t likely receive from a conventional mortgage.

Some of the VA home loan special features may include:

  • VA lenders can lend up to 100 percent of the value of a home up to loan limits, meaning that no down payment is typically required.
  • Interest rates are competitive, often lower, than those for conventional mortgage programs.
  • VA loans do not require the borrower to pay private mortgage insurance (PMI).
  • Qualifying for a VA loan may be easier for some borrowers as compared to other types of home loans.

Who Can Apply for a VA Loan?

You may be eligible to apply for a VA loan to purchase or refinance a home if you:

  • served in a branch of the military (active duty or discharged for circumstances other than dishonorable),
  • are a qualifying surviving spouse of a deceased service member,
  • a qualifying employee of the government (NOAA and Public Health Service Officers, for example), or
  • a cadet or midshipman attending one of our nation’s military academies.

Once the VA determines that you have VA loan eligibility, you can apply with a VA-approved lender. The VA has guidelines for loan qualifying. Additionally, most lenders have standards that applicants must meet in order to be approved outside of the VA-mandated criteria. Most lenders use your personal financial history to prove that you have the ability to repay the loan. This may include reviewing your income, credit, employment history, and other qualifying factors.

But what about criteria outside of the norm, like being self-employed or having a foreclosure in your past? These are situations that may prevent lenders from using their automated approval process, but don’t lose hope. In some cases, underwriters can manually evaluate an applicant to determine eligibility. Click here to see if you are eligible for a VA loan.

Special Circumstances for VA Loans

If your financial picture includes any of the following special circumstances, your application may need to be manually reviewed by a VA loan underwriter.

  • You are self-employed.
  • You work two or more jobs.
  • You earn overtime pay, tips and/or bonuses (the underwriter will usually want to verify with your employer that this is a steady, long-term source of income).
  • You file expense reports for work-related travel.
  • You have only been at your current job for less than a year, or if your employment history includes periods of instability.
  • You are responsible for making alimony or child support payments.
  • Your credit history is too sparse, or your credit score is lower than 620.
  • Your home has been under foreclosure.
  • You have filed for bankruptcy in the past two years.

What to Consider if You’re Self-Employed

If you earn income from a business in which you have more than 25 percent ownership, you are considered self-employed. And being self-employed doesn’t mean you have to give up on your dream of owning a home.

VA lenders like to see at least two years of steady income when considering a self-employed applicant. There may be times when this requirement is shortened to one year, particularly if you have established yourself in the same field or industry for a long period of time before becoming self-employed. However, you will be required to provide at least the last two years of tax returns, as well as profit and loss statements for your business.

Other Forms of Income

What if you are receiving income from rental properties, child support, alimony or any other sources? According to the VA Lender’s Handbook, you’ll need proof of receipt of these types of income for at least the past 12 months, as well as proof that the money will continue for the first three years of the loan.

What If I Have Bad Credit?

You don’t have to have perfect credit to secure a VA home loan. As long as you have ample and steady income, a credit score of at least 620 (in most cases), and you’ve resolved any collections or judgements, you can likely find a lender who is willing to work with you. Your lender will need to verify that your current and future income is enough to cover your mortgage payment.

If you have not yet established any credit, the lender may look to see if you have a history of timely payments for rent, utilities, car insurance, and other monthly bills. Any history of late or unpaid payments in the past year could impact your ability to qualify.

How Foreclosures, Bankruptcy, and Other Circumstances May Affect a New VA Loan

If you have had a foreclosure within the last two years, it may impact your ability to qualify for a new loan. Certainly, you need to satisfy any judgements.

If you have filed Chapter 7 bankruptcy, most lenders will consider issuing a loan if you have repaired your credit and if it has been at least two years since the bankruptcy was discharged. In cases of a Chapter 13 bankruptcy, it may not be required that the bankruptcy has been discharged, although you will need to show that you are sticking to the agreed-upon repayment schedule. In most cases, the lender may require that the bankruptcy judge reviews and approves of the loan. If you had to file bankruptcy due to certain factors, such as large out-of-pocket medical expenses or a failed business, it might not count as a negative against your credit.

Take the First Step Toward Homeownership

If you're ready to get started, or just want to get more information on the process, the first step is to get multiple rate quotes with no obligation. You can then discuss qualifications, debt to income ratios, and any other concerns you have about the process with the lenders.


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