Originally part of the Servicemen’s Readjustment Act of 1944, commonly referred to as the G.I. Bill, the VA home loan benefit was introduced along with a host of programs designed to assist service members returning from World War II.
This special program is hands-down the best mortgage program in the marketplace for those who qualify. The VA home loan requires zero money down from the borrower, common sense credit guidelines and reduced closing costs as well.
And while a VA loan has no down payment requirement, the interest rates are as competitive as any and there is no monthly mortgage insurance payments compared to other reduced down payment mortgage programs. VA loans come with a government-backed guarantee on all VA mortgage programs and have the highest performance rate of any mortgage product in the industry.
No down payment, reduced closing costs and easier qualifying is why more than 20 million have taken advantage of this very special home loan.
Eligibility is determined by a review of your Certificate of Eligibility, obtained directly from the Department of Veteran’s Affairs. This certificate is obtained by completing the DOD form 26-1880 and can be mailed directly to the VA, received in person by visiting the nearest regional VA center, making an online request or have your VA lender get it for you. VA approved lenders have access to ACE, the Automated Certificate of Eligibility portal, which can retrieve your certificate of eligibility in a matter of seconds.
Generally, those eligible for the VA home loan are:
While VA loans don’t require a down payment and easier qualifying compared to conventional loan programs, there are still basic requirements that lenders must follow. The lender must adhere to the VA issued loan guidelines in order for the loan to be eligible for the VA loan guarantee.
VA borrowers must exhibit a responsible credit history, documented by a credit report. The credit report will show the credit history of the borrower as well as provide at least two credit scores. The credit score is a three digit number assigned to the level of credit risk associated with the borrower. The higher the credit score, the better the credit. The VA doesn’t establish a minimum credit score requirement but most VA lenders ask for a 620 credit score or better.
If the borrower doesn’t have a credit score or hasn’t established a credit history, some VA lenders allow for a “manual” credit approval. A manual approval means verifying at least three non-traditional forms of credit with a minimum two year history in addition to verification of a timely rent history. Non-traditional credit can be a cell phone bill, utility or cable bill. Note, not all VA lenders offer the manual approval option.
VA lenders must certify the borrower’s ability to repay monthly debt. This is performed by calculating debt-to-income ratios, represented as a percentage of a borrower’s gross monthly income. VA loan requirements ask for a debt ratio to be no greater than 41 percent of gross household income. Although the ratio is not a strict limit, some VA lenders adhere to this number and will only allow a slightly higher ratio of say 42 to 44 if the borrower has an excellent credit history or significant cash reserves.
VA loans are intended for purchasing a primary residence only and cannot be used for investment property.