Recent reports have shown that more veterans are using their VA entitlements to purchase a home. A benefit that is not apparent to many eligible veterans, the VA entitlement is a privilege given to America’s modern day heroes to get a federally-insured mortgage. These loans come with tremendous benefits not available to any other mortgage programs in the market today.
However, some misconceptions have prevented many from stretching the full benefit of the program. Some may even have been persuaded to avoid it altogether.
Here’s why you shouldn’t.
- Compared to conventional loan programs, VA loans don’t require any down payment. Typically, you would have to pay 10 to 20 percent of the home’s purchase price in order to get a mortgage. So if the home costs $250,000 on the market, you would have to pay about $10,000 to $50,000 not counting the costs of closing. A VA loan offers 100 percent financing.
- Closing costs can be rolled into the loan.
- Interest rates that are lower than most mortgage programs today.
- No income or asset verification necessary.
With all these favorable qualifications, you can still qualify even if a) you don’t have money saved for a down payment, b) you have bad credit, and c) have unconventional sources of income.Get today’s rates!
So how do you make sure you get the best out of your VA loan?
Clean Your Credit
First, you need to obtain your credit report from one of the credit reporting bureaus, Equifax, TransUnion, or Experian. You are entitled to one report per year so you don’t need to worry about paying for it. You may also go to annualcreditreport.com, the only legit website where you can view your report online for free.
The program itself does not enforce minimum credit qualifications and seek to accommodate as many buyers are possible. The VA does not issue the loans, they only insure a portion of it. Ensuring the creditworthiness of a buyer still rests on the hands of individual lenders.
These lenders use benchmark scores which can vary widely from lender to lender but typically, the required minimum is often at FICO 620.
The most important thing to do after receiving your credit report is to check it for any errors and inconsistencies. If you find any, don’t hesitate to contact your creditor to contest the error. Inform the agencies about it.
If you want to know what the lenders would think about your report without getting to them directly, you can ask help from the National Foundation for Credit Counseling. Approved by the HUD, they can give you professional advice on your report and if there are points for improvement.
If you’re getting a mortgage with a co-signer, they would have to check their reports too.Find a lender today!
Determine your budget
You must have a good idea of how much you will be willing to spend for your home loan payments every month. This requires knowing your debt-to-income ratio. This ratio is the mathematical representation of how much of your monthly income goes to your debt payments. That includes credit card payments, utility bills, car loans, and any other existing credit obligations.
Typically, lenders would allow you to have a DTI ratio as high as 43 percent. Any figure beyond that and you will increase your chances of getting denied a loan.
A good step to take if you find out that your DTI ratio is too high is to consolidate your debts into one loan with a single interest rate. You can also opt to pay off those small loans to free up space for your mortgage payments.
Prepare your paperwork
For ease of closing and to streamline the mortgage acquisition process, you must be prepared to forward the necessary documentations as asked. The common documents requested include:
- Pay stubs from the past month
- Two month of statement records from your IRA, 401k, savings, or any other asset accounts
- W2s from the past two years
- A formal letter of discharge or your DD214
While VA mortgage sport all these lenient qualifications, that does not automatically mean that you SHOULD take advantage of them all.
For example, the 100 percent financing offer might sound good but putting down a small down payment can help you build equity faster and pay off your loan earlier. Additionally, if you are buying in a seller’s market where there is more demand than supply, expect that you’re not the only one with the intent to buy the property. This often results in a bid war where the buyer with the best offer gets the deal.
One way to win bids is to either pay for the home in cash or put down a bigger earnest money. If you’re buying with a VA loan with 100 percent financing, you better pray that your offer gets accepted first before anybody else comes along.Click to See the Latest Mortgage Rates»