Basic VA Loan Requirements: Three Things You Need to Qualify

Published:
March 28, 2024
Last updated:
March 28, 2024
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VA home loans offer a number of important benefits to military members and veterans who have served their country. Chief among those benefits is the ability to buy a house with no down payment whatsoever.

But like all government-backed mortgages, VA loans have specific requirements and rules for borrowers. This guide explains three of the most important requirements for VA loans—credit history, debt levels, and repayment ability.

Note: This article does not cover all VA loan requirements or stipulations. But it does provide a basic overview of what it takes to qualify for a VA-guaranteed mortgage loan.

What Is a VA Loan Exactly?

A VA loan is simply a mortgage loan that is backed by the U.S. Department of Veterans Affairs. This government department provides mortgage lenders with a guarantee that reduces their risk, allowing them to offer more flexible qualification criteria for borrowers.

In short: Using a VA loan to buy a home makes it a lot easier for military members and veterans to get into the housing market. This program allows eligible borrowers to buy a house with no money down and no mortgage insurance, among other benefits.

To qualify for a VA loan, borrowers must meet the minimum eligibility requirements, including length of service. This program is open to the following groups:

  • Active-duty military members who have served for at least 90 days continuously, without a break in service.
  • National Guard or Reserve members who have served for at least six years, or for at least 90 days of active duty.
  • Certain surviving spouses of military members, as defined by the VA.

This explains who is qualified for a VA loan. But what are the requirements for a VA loan?

Here are the primary requirements for a VA-backed mortgage loan.

1. Satisfactory credit score and history

You don’t need flawless credit to qualify for a VA loan. In fact, the credit-related requirements for VA loans are generally more flexible than those that apply for conventional (non-government) mortgage loans.

But the Department of Veterans Affairs does encourage mortgage lenders to review a borrower’s credit history and how they have repaid debts in the past.

According to VA Pamphlet 26-7, the official handbook for lenders:

“The borrower’s past repayment practices on obligations is the best indicator of his or her willingness to repay future obligations. Emphasis should be on the borrower’s overall payment patterns rather than isolated occurrences of unsatisfactory repayment.”

As you can see from this quote, a few credit “dings” in the past will not necessarily prevent you from qualifying. Your overall pattern of borrowing and repayment is what matters most, when it comes to VA loan requirements.

The best way to maintain a positive credit history and a good credit score is to pay all of your bills on time. This specifically applies to recurring debts such as car loans, student loans, credit cards, etc.

Other ways to keep your credit score high are to keep your credit card balances low, not applying for too many loans in a short time period, and making more than the minimum payment amount required on your credit card.

2. Documented ability to repay the loan

The official VA loan requirements also encourage lenders to review and document the borrower’s ability to repay the loan. And this is in everyone’s best interest, including the borrower. No one wants to take on a debt that’s too large for them.

To assess the borrower’s repayment ability, mortgage lenders will primarily look at two things. They want to make sure that the borrower has stable and sufficient income, along with some residual income left over every month.

The Department of Veterans Affairs defines residual income as: “the amount of net income remaining (after deduction of debts and obligations and monthly shelter expenses) to cover family living expenses such as food, health care, clothing, and gasoline.”

In other words, residual income is the money you have left over each month after paying all of your debts, including the mortgage payment.

Residual income requirements for VA loans vary based on location and the size of the family. Depending on these variables, residual income requirements might range from around $400 to around $1,000 per month.

As for measuring stable income, VA mortgage lenders do this by analyzing a borrower’s pay stubs, W-2s, and/or tax returns, typically for the past two years.

But it’s the overall picture that matters most when it comes to VA loan income requirements. A small gap in employment or income is not necessarily a dealbreaker. So don’t be discouraged if you’ve had some income fluctuation in the past.

3. An acceptable level of debt

Last but not least, we come to the debt-to-income ratio. This is another important requirement for VA home loans and an extension of the income analysis mentioned above.

The Department of Veterans Affairs directs mortgage lenders to evaluate a borrower’s debt-to-income ratio, or DTI.

The debt-to-income ratio compares how much you owe each month (mortgage, car payments, etc.) to the total money you earn before taxes. As a percentage, the DTI shows how much of your monthly income goes toward paying off debts.

So, what’s the VA loan requirement for debt ratios?

Generally speaking, borrowers are required to have a DTI ratio no higher than 41%. This means that a borrower’s total recurring debts should use up no more than 41% of their gross monthly income.

But there are some broad exceptions to this requirement. Borrowers with certain compensating factors, for example, could still meet the minimum VA loan requirements even with a debt ratio above 41%.

When it comes to qualifying borrowers, DTI ratios are secondary to the income-related factors mentioned above. The VA loan handbook explains that debt-to-income “should not automatically trigger approval or rejection of a loan. Instead, [the lender should] consider the ratio in conjunction with all other credit factors.”

Here are just a few of the compensating factors that could offset a higher debt ratio:

  • Excellent credit history
  • Long-term stable employment
  • Significant liquid assets
  • Sizable down payment (even when a down payment is not required)
  • Previous success as a homeowner
  • High residual income that exceeds the minimum requirements

These are not the only requirements for a VA loan. Borrowers need to submit a number of documents as well, including the all-important Certificate of Eligibility or COE. But if you can check all three of the boxes listed above, you might be well qualified for a VA loan.

Need financing to buy a home? If you meet the criteria for a VA loan to buy a home, you can reap the benefits that this unique mortgage program has to offer. Reach out to the team at Sammamish Mortgage to get pre-approved for a mortgage and start the loan application process today!

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