The VA mortgage remains a great option for eligible Vets to purchase a home with no money down. Below we will discuss the latest VA loan guidelines for 2023 and the changes new buyers should be aware of. VA interest rates have continued to remain some of the most competitive rates available.
The VA loans offer several benefits to military home buyers and their families. The biggest advantage is the benefit of 100% financing with no monthly mortgage insurance costs. In addition, the program allows for the home seller to pay the buyer’s allowable closing costs.
The result is buyers can get a mortgage with very little to NO money down. Generally speaking, it is easier for borrowers to qualify for a VA loan compared to other loan programs like FHA, USDA or Conventional. VA allows for lower credit standards and more flexibility overall. According to the Department of Veterans Affairs, the “VA guarantees a portion of the loan, and this backing allows the lenders and banks to provide you with more favorable terms.”
Not all applicants that apply for a VA will be approved. Like any other home loans, the program has certain qualification requirements and standards associated with it. This article takes an updated look at all VA loan requirements.
Standard VA Eligibility Requirements: Department of Veterans Affairs
You can think of VA mortgage qualification as a two-step process. You must meet two sets of requirements, in order to qualify for such a loan. First, we have the basic eligibility requirements set forth by the U.S. Department of Veterans Affairs (VA). The department manages the program and establishes the minimum requirements for VA loans.
Generally speaking, you are eligible for the program if you meet any of the following criteria listed below: If you are a home buyer with questions, please call us 7 days a week at the phone number above, or just submit the Quick Contact Form on this page.
- You are a veteran who served 181 days during peacetime (active duty).
- You are currently on active duty and have served at least 90 continuous days.
- You were discharged from the military due to hardship.
- You are a veteran who served 90 days during wartime (active duty).
- You served at least 6 years in the National Guard or Reserves.
- You are the un-remarried spouse of a veteran who died while in service or from a “service-connected disability.”
Service members who have received a dishonorable discharge are generally not eligible for the program. As you can see, the eligibility requirements for VA loans are fairly broad in range. They are meant to include most service members who have served in the military for a certain length of time. Just remember the two-step system mentioned earlier.
These are the minimum requirements established by the government. But the government does not actually originate VA loans. Instead, they are processed by private lenders, banks and mortgage brokers, the government simply “guarantees” a portion of the amount being borrowed. In addition to meeting the basic eligibility guidelines above, you must also meet whatever VA loan requirements are imposed by the lender. Please read the VA lender requirements below.
VA Lender Qualifying Requirements 2023
The Department of Veterans Affairs establishes clear and specific guidelines when it comes to length and type of service. But the information they offer about other VA loan requirements is somewhat vague.
For instance, the Department says “you must have suitable credit, sufficient income, and a valid Certificate of Eligibility (COE) to be eligible for a VA-guaranteed home loan.” But they offer no specific definition of suitable credit or sufficient income. This leaves borrowers scratching their heads and asking a lot of questions: What credit score is needed to be approved for a VA loan? How much can I get approved for based on my income? What about my other debts, how are they calculated? This is where the two-step system comes into play. Here’s what you need to know.
It’s possible to be turned down for a VA loan, even though you meet the government’s minimum guidelines for program eligibility. Meeting the Department’s requirements is not enough. You must also meet the lender’s requirements, specifically when it comes to credit scores, job history and debt-to-income ratios. These are the most important factors when it comes to qualifying for a VA loan today.
VA Credit scores: As mentioned earlier, the Department of Veterans Affairs does not have any specific requirements for credit scores. But you can be certain the lender does, and this can vary from one lender to the next. Most banks and lenders are looking for a credit score of 600 to be approved. However, this does not guarantee loan approval as there are waiting periods for applicants with recent financial hardships like foreclosures, bankruptcy, etc. The minimum credit requirements also depend on the down payment amount. If a borrower finances 100% the credit requirement would be higher than a borrower that has a 5% or 10% down payment. On the flip side, some borrowers with low debt, etc could be approved with slightly less credit scores.
VA Employment History: Like most home loans today, VA will require a steady two-year employment history with no large breaks in employment. Switching employers is often ok, as long as there was no significant gap from one job to the next. Borrowers that receive strictly disability or social security income are exempt from this rule. However, they must provide adequate documentation providing “continuance” of such income.
VA Debt-To-Income ratios: The VA debt-to-income ratio, or DTI, is another important VA loan requirement. This is a comparison between the amount of money you earn (gross monthly income) and the amount that goes toward your fixed monthly expenses (recurring debts). Generally speaking, your total DTI ratio, including the house payment, should not exceed 43%.
This requirement is imposed by the lender, not by the VA. So it varies from one mortgage company to the next. Exceptions are often made for borrowers with excellent credit, significant savings in the bank, etc. Lenders and brokers call these “strong compensating factors of the loan” Income may come from a variety of sources including but not limited to: base military pay, non-military employment, commissions, self-employed income (min 2-year history) retirement income, spouse’s income, and alimony.
VA Mortgage Documents: When it comes to VA home loan requirements, documentation is key. The banks and lenders will request a wide variety of documents to verify your income and assets, as well as your current debt situation. They also need to verify and document your ability to repay the loan, in keeping with new lending requirements. Documents needed for VA financing typically include the Certificate of Eligibility (COE), the Uniform Residential Loan Application (URLA), bank statements, tax returns and W-2 forms, the DD Form 214 for veterans who have left the military, and a variety of standard VA documents. If you need assistance finding these documents, we can help. Just call us 7 days a week.
VA Occupancy (Primary Homes): The VA also has specific requirements for occupancy status. Simply put, you must use the home as your primary residence. You cannot use this program to finance the purchase of an investment or vacation (second home) property.
VA Appraisal: Just like any other home loan program, the Department of Veterans Affairs requires all homes being purchased with a VA loan to undergo a property appraisal. This is when a licensed appraiser evaluates the home to determine how much it is worth in the current market. Generally speaking, the house must be worth the amount you have agreed to pay for it, and it cannot exceed the VA loan limit for the county in which it is located. The house “must be adequate collateral for the requested loan,” according to the Department. Please contact us to discuss the VA loan purchase limit in your city.
Certificate of Eligibility (COE)
Borrowers who wish to use a VA loan to buy a house must first obtain a Certificate of Eligibility (COE). This document is issued by the Department of Veterans Affairs. The borrower must then present the COE to the lender when applying for the loan. The COE essentially says that the individual meets the Department’s minimum eligibility requirements.
To obtain a COE, applicants must provide evidence of their eligibility. This can be done in several ways:
- Veterans who have separated from the military can provide a DD Form 214. It must show the character of service and the reason for separation.
- Active-duty military personnel, National Guard members, and reservists can provide a statement of service signed by the personnel office (typically) or the unit commander.
- Discharged members of the National Guard who have never been in active service can provide NGB Form 22 or 23.
- Discharged members of the Selected Reserve who have never been in active service can provide a copy of the latest annual retirement points statement and evidence of honorable service.
This is a basic overview of COE documentation requirements. For more detailed information, visit the home loans section of the Department of Veterans Affairs website
VA Refinance Options for 2023:
The VA program also has some easy refinance options for homeowners that already have a VA loan.
VA IRRRL: The VA streamlined IRRRL refinance helps veterans lower their mortgage rate and payments. When rates are low, vets can refinance into a new loan based on today’s rates, and often reduce their monthly payment quickly and easily. The streamline program, also called the Interest Rate Reduction Refinancing Loan (IRRRL) eliminates many of the obstacles that hold up applicants on other types of refinances. The VA Streamline is much easier because:
- No new appraisal is needed – unlimited loan to value is allowed. Great for borrowers upside down or underwater on their home value.
- No paystubs or W2s are required
- No bank statements are required
- No home inspection is required
- Underwater homes are eligible
- The required funding fee is lower than for VA purchase loans
- Closing costs can be wrapped into the new loan, the result is little or no out-of-pocket expenses
One of the best reasons for using a VA mortgage to refinance an existing loan is the 100% loan-to-value feature. If a home currently has a loan provided by Fannie Mae, Freddie Mac, FHA, USDA or a private lender then the VA will allow veterans to refinance that loan to a VA mortgage and borrow up to 100% of the home’s appraised value in order to complete the loan. This is a great benefit since most other programs limit the borrower to less than the total value of the home.
While the VA does charge a funding fee for each of their loans (for non-exempt borrowers) the funding fee is added on top of the loan amount in order to allow the veteran to refinance without paying anything from their pocket. The 100% VA cash out refi can make very good sense for those U.S. homeowners that do have good equity in their home, and want to consolidate high-interest debt. Sometimes it makes sense to cash out to pay off super high-interest credit cards, car loans, or installment loans. The VA cash-out refinance will require:
- Full appraisal to determine home value
- Full documentation for income and assets – most of the normal borrower documents needed on a standard VA purchase loan
- Up to 100% loan to value allowed, but not required. Cash-out is not available in TX.
VA Loan Limits & Funding Fee 2023:
- 100% financing for qualified buyers up to $715,000.
- Buyers in high-cost locations (certain areas of California, Florida, Virginia, DC, etc) can finance 100% up to $1,073,000.
- High Balance VA Jumbo Loans available to all eligible vets up to $1.5mil. This program will require a down payment, please read more about VA Jumbo Loans here.
- One-time funding fees are required for most VA home loans. The amount of the funding fee can vary based on many factors like down payment, transaction type, etc. Please find the latest VA funding fee chart here.
Applicants that have questions can contact us at the number above, or just submit the Quick Contact Form on this page. Va Mortgage Hub is proud to serve buyers in many states, including Florida, Georgia, and Tennessee.