VA loans: The best mortgages
What’s more, VA borrowers rarely default.
Here are 5 ways you can benefit from VA loans.
Benefit 1. Qualification requirements are relaxed.
But successful applicants buying a home with VA financing had an average credit score of 709 during September, according to Ellie Mae, a California-based mortgage technology firm whose software is used by many lenders.
You also can carry a lot of debt. Borrowers can spend up to 41% of their pretax income on debts, including student loans, credit card bills and auto loans (possibly more if you’re otherwise a low-risk borrower). Conventional loans have limits ranging from 36% to 45%, depending on your down payment and credit score.
VA guidelines will even consider borrowers who discharged a bankruptcy just two years prior to their application or who entered Chapter 13 bankruptcy just a year prior, as long as they can show a record of on-time payments over the last 12 months.
What is a VA certificate of eligibility?
If you want to purchase a home using a VA loan, you must prove that you have the military service to qualify for this benefit. That proof of qualification is called a certificate of eligibility. You’ll also need a certificate to refinance from a conventional to a VA loan. Find out how to get your certificate.
Possible sources of tax-free income include military allowances like the basic allowance for housing and cost-of-living allowance, child support payments, workers’ compensation benefits, disability retirement payments and certain types of public assistance payments.
If, for example, you receive a $1,000 monthly housing allowance from the military, you’re in the 25% federal tax bracket and your state has no income tax, that $1,000 can be counted as $1,333 in pretax monthly income.
Benefit 2. The government protects borrowers from taking on too much debt.
“Residual income,” as this is called, subtracts key expenses from your net income to make sure you can still afford to support your family after you buy a home. Outside of the monthly mortgage payment, these expenses include homeowners association fees, special assessments, home maintenance costs, utilities, debt payments, child support and alimony.
Benefit 3. You don’t need money for a down payment.
The VA mortgage is one of only two major loan programs that still allow borrowers to finance 100% of a home’s purchase price (the other is the Department of Agriculture’s Rural Development mortgage). Even Federal Housing Administration loans require a 3.5% down payment.
However, there is a one-time VA funding fee. For most military borrowers — those taking out their first loan with no down payment — the fee is 2.15% of the loan. The funding fee is 0.25% higher for members of the reserves or National Guard.
Surviving spouses and disabled service members typically don’t have to pay the VA funding fee.