When you apply for a VA loan, you must meet certain requirements. These requirements include owning a safe, structurally sound, and clean primary residence. A mortgage lender will assess your finances and order a VA appraisal to determine whether or not your home meets these requirements. Once the appraisal has been approved, closing on the loan can begin.
Certificate of Eligibility (COE)
A COE is a document that shows the lender whether you are eligible for a VA loan. You can apply online or via mail. When applying online, lenders can process the COE more quickly. Once you have completed the application, you will need to wait for the COE to be approved. If your application is denied, you can appeal the decision. If you have already used part of your VA entitlement, you may be able to restore your entitlement by filling out an application for entitlement restoration.
A COE can take up to four to six weeks to obtain if you submit a paper application. However, an online application can take as little as a few minutes. Lenders review the COE based on five basic sections. This information helps determine if you qualify for a VA loan and whether or not you’ll have to pay a funding fee.
To get a COE, you can visit the VA’s website. You can also submit a request for a COE through a mortgage lender. Make sure you use a lender who is VA-approved so that the lender can access the VA database.
Loan Amount
A veteran may use a VA loan to purchase a home. The loan amount can be up to $480,000 if the veteran has the minimum amount of entitlement. Generally, the loan amount is limited to $417,000, but in some counties, the maximum is higher. If a veteran wants to purchase a larger home, the maximum loan amount may be up to $647,200.
The VA loan amount is determined by several factors, including the borrower’s income and debt-to-income ratio. Another important criterion is credit rating, which greatly impacts the mortgage rate. Generally, the lowest rates are given to borrowers with high credit ratings. These rates help increase the buying power of the home buyer.
If the applicant is self-employed, he or she must provide two years of business tax returns and a year-to-date Profit and Loss statement. The maximum loan amount for self-employed veterans depends on the debt-to-income ratio (DTI), which is the percent of gross monthly income that goes toward payments. The VA generally recommends a maximum debt-to-income ratio of 41 percent or less. In addition, current debts cannot exceed 41% of the applicant’s monthly pre-tax income.
Credit Score Requirements
The VA home loan has less stringent requirements for those with poor credit than other mortgages. With low down payment requirements and low debt to income ratios, even borrowers with less than perfect credit may be approved. The process is simple, and it can be completed in as little as six steps.
While the credit score required for a VA loan varies by lender and down payment amount, a good benchmark is 580. If your score is lower than this, you’ll need to work to improve your score. Also, keep in mind that VA loans are only available for primary residences, not rentals.
Before credit scores became a popular tool for lenders, VA lenders evaluated credit reports manually. They look at tradelines, monthly payments, late payments, and other information. They also look for any collection items, charge-offs, judgments, or other derogatory information. If you have any of these things, you should avoid getting a VA loan.
Funding Fee
The VA funding fee is a one-time payment at the closing of your loan. It is designed to make a VA home loan more affordable for U.S. taxpayers. With the VA loan program, you can buy a house with no down payment, and you can even avoid monthly mortgage insurance.
The funding fee for a VA loan varies depending on your circumstances. If you are a Veteran with service-related disabilities, you may not be required to pay the fee. You can also avoid the fee if you are a surviving spouse of a deceased veteran. A surviving spouse may qualify for a loan without paying the fee, but this may be rare.
The VA funding fee is a one-time non-refundable fee. It can range from 0.5 to 3.6 percent of the loan amount. If you have at least 10% down payment, you will only have to pay a funding fee of 1.4%. If you are using VA benefits for the first time, however, you will be required to pay a funding fee of 2.3% of the loan amount.