Qualifying for a VA home loan is a lot different than eligibility. You can be eligible for a VA loan and not qualify for one.
Eligibility means that the VA will guarantee a loan for you IF you qualify for it. But you must prove that you can afford the payment and have a good history of financial responsibility to reduce the risk of a total loss.
Fortunately, the VA qualifying guidelines are flexible and easy to reach.
The VA doesn’t have minimum credit score requirements, but typically you need at least a 620 to get funded. A 620-credit score isn’t hard to reach, so it opens up the possibilities for more veterans to secure financing to buy a home.
The VA doesn’t have maximum debt-to-income ratios you must meet either, but you must prove you make more than enough money to cover your debts and handle your regular cost of living.
Ideally, your DTI should be less than 43%. This means that your total debts take up less than 43% of your income before taxes. The debts we look at are those debts reporting on your credit report, such as:
- Minimum credit card payments
- Personal loan payments
- Student loan payments
- Mortgage payments
We don’t include things like grocery bills, utility bills, cable, or internet bills. Only the payments that report on your credit card are considered.
Disposable Income Requirements
The VA puts a lot of emphasis on a veteran’s disposable income. This is the money left over after you pay your bills each month.
The VA has minimum disposable income requirements for each area of the country and for each family size. For example, if you have a family of 2, you’ll have lower disposable income requirements than a family of 5.
The VA believes if you meet the disposable income requirements, you’ll be less likely to default on your loan because you won’t have to sacrifice to make ends meet. The VA has one of the lowest default rates out of any mortgage program available today.
If you’re using employment income and not disability or retirement income to qualify, you must prove your employment history. We look for a 2-year stable employment history. This usually means that you’re at the same job for two years, but if you changed jobs in that time, you may still get approved.
We look for stability. We want to know that you’re in an industry that you have a history in and can succeed working in. If you changed jobs in the last 2 years but you stayed in the same industry, it counts toward your stable history.
If you changed industries, you may still qualify, but you may have to provide proof of education or training that makes you a good candidate for the new job if it’s been less than 2 years.
Foreclosure and Bankruptcy Waiting Periods
If you’ve ever tried to get a conventional loan after a bankruptcy or foreclosure, you know how long you have to wait. It can be up to 7 years!
VA loans don’t require nearly as long of a waiting period. You need to wait just 2 years before you can get another loan.
Now just because the waiting period is so short doesn’t mean you automatically qualify. You must still prove you can afford the loan. The best thing to do during that 2-year waiting period is improve your qualifying factors including the following.
Work on your Credit Score
Your credit score likely took a hit if you filed for bankruptcy or had a foreclosure. During the waiting period see what you can do to improve it.
Try applying for a secured credit card or even an unsecured credit card with a low credit limit. Use the card responsibly on the things you pay for each month and pay the balance off in full each month.
Make sure you make all payments on time and don’t overextend your credit. If you use credit cards, only have a maximum of 30% of the credit line outstanding at one time and pay the balance off as quickly as you can.
Show Responsible use of your Funds
We’ll need to see that you picked up the pieces and can be financially successful now. If you can show that you have money saved (reserves) and that you don’t overextend yourself