The 2023 Guide to the VA Loan

We will never be able to fully repay our veterans and active duty personnel, however, VA loans are a step in that direction. VA home loan benefits are available to most veterans, active service members, National Guard members, and reservists.  

According to Money.com, the VA guaranteed more than 745,000 loans totaling $256 billion in 2022. The VA loan program is distinctive because typically no down payment is required. Additionally, VA does not require private mortgage insurance (PMI), which is a normal requirement for homebuyers putting down less than 20%.

There are also a few basic military service requirements that they must meet.

Service Requirements for a VA Loan

To find an in-depth explanation of the eligibility requirements for VA home loan programs, check out the U.S. Department of Veterans Affairs. You can find an abbreviated version below.  

To qualify for a VA loan, you must have:

• Active-Duty Servicemembers: Served a minimum of 90 days (wartime) or served 181 days (peacetime) consecutively.
• Veterans: minimum active-duty service requirements depend on when you served and discharged under conditions other than dishonorable. 
• National Guard or Reservists: Served more than six years, or 90 days under Title 32 or Title 10 with at least 30 of those days being consecutive.

There are also VA loan programs for surviving spouses of a service member who died in the line of duty or from a service-related disability.

Keep in mind that the VA is technically not a mortgage lender, as private lenders originate the loan while the VA guarantees a portion of it. For the lender to give you a VA-guaranteed loan you must provide proof that you meet the eligibility requirements. The Certificate of Eligibility, or COE, serves as that proof. Your COE will have the entitlement amount on it so the lender knows exactly how much the VA will provide if you were to default. Detailed information on how to obtain a COE for a loan can be found on the VA website.

VA Loan Income Requirements

The application process for a VA home loan works similarly to a conventional home loan. Although the VA home loan program doesn’t have income maximums, your mortgage lender will review your personal income to determine what monthly payment you can afford.

Generally, lenders require 24 months of consecutive employment, preferably within the same company or industry.

Supporting documentation that you will need to provide includes:

• Tax returns and W-2s from the past two years
• Most recent LES or paycheck stubs
• Recent statements for checking accounts, savings accounts, retirement accounts, and other investments
• Driver’s license

Those that are self-employed must provide two years of business tax returns and a current Profit and Loss statement.

The VA Loan and Credit Scores

Unlike a conventional loan or FHA loan, which requires credit scores of 620 and 580, the VA doesn’t set a minimum credit score requirement. However, individual lenders have their own minimum credit requirements, and most typically require a credit score of at least 620. Newrez VA loan products are available with no down payment for veterans with credit scores of 580 or greater.

Those who have filed for bankruptcy or have a previous foreclosure will have to wait two years after a Chapter 7 discharge to qualify for a VA loan. Likewise, the waiting period following a foreclosure is also two years.

DTI for VA Loans

Debt-to-income ratio (DTI) is the percent of your gross monthly income that goes toward monthly debt payments. It is calculated to help determine your maximum loan amount.

Your existing debts (credit card payments, car loans, student loans, etc.), plus your new mortgage payment, shouldn’t be beyond a viable percentage of your monthly pre-tax income.

Residual income might also be factored in when calculating DTI. This is the income left over after paying major expenses that include the mortgage payment, installment loans, estimated utility costs, support payments, and revolving accounts. Lenders use income records and information on your credit report to gauge your residual income. 

Debt-to-income ratio is normally not an impediment to receiving a VA loan from Newrez where Veterans with DTI ratios of up to 60% are eligible for these loans. 

VA Loan Limits

According to the U.S. Department of Veterans Affairs website, “eligible Veterans, service members, and survivors with full entitlement no longer have limits on loans over $144,000. This means you won’t have to pay a down payment, and we guarantee to your lender that if you default on a loan that’s over $144,000, we’ll pay them up to 25% of the loan amount.”

The VA typically allows veterans to borrow an amount of money equal to four times the available entitlement for loans with no down payment. Basic entitlement from the VA is $36,000 at present. Total entitlement encompasses both basic and Tier2 entitlement amounts. The exact amount of money the VA will assume liability for depends on whether the veteran has their full entitlement available or if they are held to the home’s regional loan limits (due to the different prices of homes in different parts of the country.) 

Moreover, the maximum borrowing amount is still limited by how much you can afford with no down payment, and this is again determined by the lender based on the individual borrower’s income, DTI, credit, and available entitlement.

Closing Costs for a VA Loan

Although there is typically no down payment required, you’re still responsible for upfront closing costs. A detailed breakdown of these costs can be found on the VA website. Closing costs include lender fees and third-party mortgage-related expenses such as:

• Loan origination fee
• Title fees
• Appraisal fees
• Discount points
• Credit report fee
• Prepayment of property taxes and homeowner’s insurance
• Recording fees

If you're a veteran considering the purchase of a home, it’s prudent to determine your eligibility status. Once you have your Certificate of Eligibility, you can explore the options available and determine the most effective path for helping your dream of homeownership come true. We thank you for your service!