Written by Isaac F. Davis

Qualifying for a VA loan is easier than you think. A qualified VA borrower with ample income and credit can purchase a primary residence with no money down using the VA Home Loan Guaranty Program.

VA-approved lenders use qualifying guidelines provided by the U.S. Department of Veterans Affairs.  Lenders will determine whether a VA-eligible borrower has the ability to pay back a VA Loan using debt-to-income ratios, residual income calculations and FICO scores. Lenders can have additional qualifying requirements.

The debt-to-income figure is simply a comparison of a borrower’s debt and his or her income.  In order the guarantee a veteran’s loan, the VA recommends that a borrower’s debt-to-income ratio is less than 41%.  A lender will consider the following debts in determining debt-to-income ratio:

-car payments

-minimum credit card payments

-student loan payments

-alimony, child support

-new monthly mortgage payment

-any other major debts

Residual income is simply the money a borrower has left over each month after paying all of the above debts plus taxes and housing expenses like utilities, insurance, etc. It is possible for lenders to make a VA loan, even if a borrower’s debt-to-income ratio is higher than 41%, as long as there is sufficient residual income.  The following table shows what the VA considers to be “sufficient” by region and size of family:  

Family Size	Northeast	Midwest	South	West
1	$390	$382	$382	$425
2	$654	$641	$641	$731
3	$788	$772	$772	$859
4	$888	$868	$868	$967
5	$921	$902	$902	$1,004
Over 5	Add $75 for each additional member up to a family of seven

 

In addition to debt-to-income ratio and residual income, VA-approved lenders need to know a borrower’s credit rating or FICO score when underwriting a VA loan. The VA actually does not set a minimum FICO score requirement for the VA home loan program.   Therefore, each VA-approved lender may have different FICO score requirements.  If a potential VA borrower’s FICO score is below what the lender requirement, he or she may need to repair credit before being considered for a VA loan.

Repairing credit rating can take a little time, but is well worth it when it comes to getting a VA mortgage. Credit counselors can help and might recommend the following things to improve credit scores:

-Paying off credit cards

-Getting all major debts like car payments and mortgages in good standing

-Not opening new credit accounts until after closing on a VA Loan

In some cases, a VA-eligible borrower has not established credit.  Lack of credit doesn’t always mean a VA loan is unattainable.  It is possible for VA-eligible borrowers to show a lender their ability and willingness to pay without established credit.  Steady and sufficient income, on-time rent payments, consistently paid utility accounts, and positive balances in checking and savings accounts can all prove a person’s willingness and ability to pay for a VA Loan.

To inquire about your credit score and find out more about the VA Home Loan Program’s qualifying requirements, contact a VA Loan professional.