The process of getting approved for a VA loan can seem daunting to some, and there are copious amounts of information available on VA loan approval. While the great majority of information is intended to help potential borrowers understand the VA loan approval process, it can get quite confusing hearing so many different people explain the process and requirements in different ways, especially when they leave certain things out or emphasize other aspects. In an effort to help you understand what will be expected of you in order to be approved for a VA loan, here is a list of the four basic points to make sure you’re solid on. These four points can be found in the VA lender’s handbook and constitute the guidelines lenders are encouraged to follow when considering a loan application, so you’re getting inside information here.
The first point is VA entitlement. For a borrower to get approved for a VA loan, the first hurdle to jump is making sure that you are eligible for the VA loan program. If you’re not eligible in the first place, you can bet that you won’t be approved for a VA loan. To be eligible you must have satisfied the service requirements and have enough of your entitlement available to cover the home you are trying to purchase. The word ‘entitlement’ refers to the dollar amount that the VA will guarantee on behalf of the lender at any given time. Generally, full entitlement is $417,000, but it can be more in higher-cost areas in the country. Entitlement and eligibility can be reused. To make sure you are eligible for the VA loan program, you will need to apply for a Certificate of Eligibility (COE). Instructions can be found online, or you can work with a lender to have them assist you in submitting the application. Most lenders are more than happy to assist with this.
The second point is Property Eligibility. Just like a borrower has to be eligible for the VA loan program
, a property does as well. The VA will only guarantee homes that can serve as the borrower’s residence and meet all of the needs of the veteran and his or her family. These include single-family homes, condo projects that are on the VA-approved list, townhouses and multi-family homes up to four units. Manufactured homes can also be guaranteed if they are fixed to a permanent foundation, but it may be harder to find a lender willing to approve a loan for modular homes. There are other types of properties that may or may not be approved depending on the circumstance, but suffice it to say it must be a suitable residence, and will also be subject to the VA appraisal, which will determine the fair value of the home as well as its suitability for the veteran purchasing the home.
The third point is closely related to property eligibility, and that is Owner Occupancy. The VA has a very strict residency requirement, which mandates that the borrower must certify that they intend to occupy the property being purchased as their primary residence. This, of course, only applies to homes being purchased with a veteran’s VA loan benefits. Typically, a VA borrower must occupy the home within 60 days of purchase, though active service members currently deployed can receive an extension of up to 12 months to occupy the home. Previously, only the spouse of the VA-eligible borrower could satisfy the occupancy requirement in the stead of the the borrower, but new changes make it possible for dependent children to satisfy it in some cases. Regardless, primary occupancy must be established in some way.
The last point is the one that most borrowers focus on: Income and Credit. In order to be approved for a VA loan, the borrower and any co-signers need to have sufficient income and credit. This approval varies from lender to lender and is much like the conventional loan approval process. The VA does not set a minimum credit score, but does have a maximum debt-to-income ratio that borrowers cannot exceed. This maximum is 41% and enough residual income to cover living expenses typical of the area in which they live. Credit score requirements are left to the individual lender, as are the requirements for income and employment verification, to a degree.