Veterans Day is around the corner. This is the perfect time to discuss the VA loan. Veterans need to know that their home financing options didn’t end with the collapse of the subprime market. In fact with the VA loan we can do 100% financing with no monthly Mortgage Insurance payment and at market interest rates. Additionally, for a certain group of veterans receiving military disability the VA will even waive the funding fee!
The VA loan is open to anyone who has served in various branches of the US military (including reserves). For veterans the VA loan can be a perfect loan solution.
The basic premise of the VA loan is similar to the FHA loan. At the core this loan is not credit score driven. The VA loan looks at the overall credit worthiness of the borrower in making a decision. In addition to past credit history, the VA looks at income/employment history, the borrowers liquid assets (cash/savings) and the type of property being purchased. I call these factors the four corners of a mortgage.
The First Corner
Credit: While the VA is not a credit score driven system, it does help to have a good credit history and at least a 580 score. In many cases it’s better to have no credit than to have really bad credit. The reason being that, if you have no credit, we can consider the twelve month payment history in your utility bill, cable bill, cell phone bill etc. The VA is very forgiving of late medical bill payments and also deferred student loan payments.
The Second Corner
Income/Employment: Having a good stable employment and income history is very important. This is especially true if you do not have any credit. A two year history is a must. Even if you have changed jobs a few times, as long as you’re in a similar industry and your income is similar to your previous work, then you’ll be in good shape. A pattern or decreasing income with multiple short term jobs will not help your case.
The Third Corner
Assets: VA allows 100% financing with no mortgage insurance. This means you do not need to put a down payment. However, it does help to have a few months of mortgage payments saved up. For example if you are expecting to have a $1200 monthly mortgage payment, then I recommend you have $2400 saved. This only helps you and will never hurt you.
The Fourth Corner
Property type: VA allows manufactured homes, condos and all types of single family residences. While the lender will order an appraisal on the property, the VA assigns the particular appraiser to do the appraisal. The appraisal standard is a bit tighter than normal conventional financing and the VA makes very few exceptions. In my experience, manufactured homes tend to pose the biggest hurdles for the VA appraiser and I always recommend avoiding them if at all possible.
Remember, not all lenders are VA loan approved. If you feel you are a good candidate for a VA loan but the loan officer doesn’t present that to you as a financing option then make sure you ask why it is not on the table. It would be worth your effort to then contact a VA approved lender.