As a veteran, you have the ability to secure 100% financing through the VA. However, the VA does not provide the funds. The lender you get the mortgage from provides the financing. However, you can’t go to just any lender. Only certain lenders offer VA loan programs.
Finding VA Approved Lenders
Finding VA approved lenders isn’t as hard as it seems. The internet offers a wealth of information. This can save you the time you would otherwise spend calling individual lenders. Do a quick search online for those in your area that offer the program. However, don’t restrict yourself to your immediate area. There are mortgage companies all over the country that offer the program. As long as they are licensed in your state, you can use them.
Choosing the Right VA Lender
Once you find a few VA lenders, you must decide which one is right for you. It’s not enough to find one that offers the program, as there are many. However, the requirements of each lender may differ. The VA sets specific standards for their loan programs, but that doesn’t mean each lender doesn’t have stricter requirements.
Each lender can add what they call ‘lender overlays.’ These are additional restrictions on top of the VA’s requirements. We’ll discuss what the VA requires below.
The VA Loan Programs and Their Requirements
The VA offers several different loan programs. The most common is the purchase loan. This is the loan you use to buy your home. You can secure 100% financing with this program. In other words, you don’t have to put any money down in order to be approved.
You can also use the VA program to refinance an existing loan (both VA and non-VA loans); take cash out of your home; or even make home improvements with it. All of the VA loan programs have similar guidelines as follows:
- Minimum credit score of 620
- Maximum debt ratio of 43% (total debt ratio)
- Stable employment
- Stable income
- VA loan entitlement
In short, you must prove you can afford the loan and that you are financially responsible. You do this with your credit score of at least 620 and your income that covers the potential mortgage payment alongside your existing debts. You must also have employment that has been steady for the last few years and income that consistently increased or remained the same (didn’t decrease).
The VA guidelines are very relaxed, as you can see. Not too many other lenders would provide a loan with such relaxed guidelines. However, many banks have additional requirements on top of it. For example, rather than allowing a credit score as low as 620, they may require a 680. Other lenders may not allow a debt ratio as high as 43% or may require a 2-year job history at the same job in order to offer a loan.
Each lender has different requirements. If one lender turns you down or has requirements you can’t meet, check with another VA lender. They all have the option to add the requirements they see fit. It depends on each lender’s ability to handle risk.
Speaking of risk, lenders don’t take a lot of it when they write VA loans. While the VA doesn’t fund the loans, they do guarantee them. This means that they back lenders up in the face of default. If a veteran defaults on their loan, the VA pays the lender back a portion of the money they lost. It’s not a 100% guarantee, but it’s better than walking away with nothing.
This is why the VA is able to have such relaxed guidelines. Lenders are able to give veterans that served our country 100% financing with very little requirements. Of course, the risk is your own, though. If you borrow the money, you ah veto be able to pay it back. If you can’t, you stand to lose your home and have a foreclosure on your credit report. This could leave you without the chance to purchase another home for many years. It could also make it difficult to get any other type of financing.
While not all lenders offer the VA loan programs, there are many that do. Because of this, we recommend that you shop around. Look for lenders that offer the lowest closing costs and interest rates. Look at the big picture – what is the loan going to cost you over its entire term? Even an interest rate that is 0.5% higher can cost you thousands of dollars more in the end.