VA Home Loan Requirements: What You Need to Qualify

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VA Home Loan Requirements: What You Need to Qualify.

The U.S. Department of Veterans Affairs (VA) effectively has a no-limits policy on home loans for eligible borrowers. That means qualifying veterans and service members have access to zero-down mortgages, even for expensive homes.

The terms are generous — but that doesn’t mean you get a free pass, soldier. Lenders can set certain financial qualifications borrowers must meet, to indicate their creditworthiness.  And the VA itself sets some stipulations as well.

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In this article, we will show you the VA home loan requirements and an overview of the various VA home loan qualifications and how they vary by lender.

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How do VA Home Loans work?

VA loans are a valuable benefit for service members, veterans and eligible surviving spouses. They often provide more favourable terms on primary mortgages and refinances than conventional loans and even other government loans, including:

  • No down payment requirement
  • No mortgage insurance requirement
  • More flexible credit underwriting standards
  • Lower interest rates

VA home loans actually come from the private sector: They are issued by banks and other VA-approved mortgage lenders, with the Department of Veterans Affairs guaranteeing a portion of the loan. That federal backing gives lenders some extra security, allowing them in turn to provide better terms.

But because it is the loan originator, the lender — while mindful of the VA’s guidelines and recommendations — does get to impose some of its own qualification criteria for borrowers — primarily financial ones, relating to their debt-to-income ratio and credit score. These factors are often used to determine the interest rate on the applicant’s loan.

These criteria may still be more lenient than the terms for other mortgages the lender offers. Qualified borrowers might be able to secure an affordable mortgage even with less-than-stellar credit.

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Moving further, let’s now look at the VA Home Loan Requirements.

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VA home loan requirements.

Get a VA Certificate of Eligibility
Get a VA Certificate of Eligibility

These are the main requirements for getting a VA-backed purchase loan:

  • You must be entitled to and obtain a Certificate of Eligibility (COE) based on your military service record:
    • Veterans who meet minimum service requirements
    • Active-duty service members who have served a minimum period
    • Some members of the Reserve and National Guard
    • Eligible surviving spouses
  • You must live in the home you’re buying (no investment properties)
  • You must meet the lender’s underwriting requirements, including those for credit and income

As of 2020, VA loans no longer impose loan limits for qualified borrowers. That means first-time VA loan borrowers have no cap on the size of their VA loans. While they might still be subject to an appraisal or home inspection, these requirements are designed to ensure the home is properly valued, not that it’s worth a set dollar amount.

There is also a VA loan funding fee that most borrowers have to pay. It ranges from 0.5 per cent on some refinances to 3.6 per cent for some home purchases. The exact fee varies depending on the value and type of your loan, how much you put down and whether it’s your first VA loan. Veterans with service-related disabilities and some surviving spouses don’t have to pay a funding fee. Purple Heart recipients on active duty are also exempt from the fee.

VA home loan qualifications

The VA doesn’t heavily regulate the loans it backs or set borrower qualifications. However, the lender issuing the VA loan gets to apply its own underwriting criteria. As a result, factors like an applicant’s credit score, income and outstanding debt all generally come into play.

Minimum credit score for VA home loans

As we mentioned, the VA itself doesn’t impose a minimum credit score requirement for its loans. Instead, it requires lenders to look at the borrower’s overall risk profile. However, lenders can and do set their own underwriting requirements, and many want to see a credit score of 620 or higher.

Debt-to-income (DTI) ratio for VA loans

While the VA doesn’t set any income requirements or debt thresholds, it does care about how those two factors interplay. Generally speaking, the VA requires borrowers to have a debt-to-income ratio of 41 per cent or less. That means the sum of all your monthly obligations should be less than 41 per cent of your monthly incoming funds. There are some workarounds (e.g. if you have tax-free income that skews the ratio), but this is a ratio you should closely monitor. Getting your DTI below 41 percent should be a priority if you want to meet VA home loan qualifications.

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VA loan down payment requirements

As long as the amount you’re paying for the home isn’t more than the appraised value (more on that next), you’re not required to put any money down with a VA loan.

VA loan property requirements

Again, the VA doesn’t impose home inspection requirements (but you should get one yourself to ensure you know the condition of the property you’re buying). That said, your lender might require a home inspection.

The VA does mandate an appraisal of the property (and most lenders do too). That appraisal is the VA’s way of making sure the sales price for your soon-to-be home doesn’t exceed its value, often by comparing it to similar, recently sold properties nearby. An appraisal also checks that the house meets the VA’s minimum property requirements.

VA loan FAQs

See frequently asked questions regarding VA Home Loan Requirements;

What documents do I need for a VA loan?

VA Home Loan Requirements

Getting a VA loan requires a certificate of eligibility (COE). You can get your (or an eligible spouse’s) COE through the VA eBenefits website or by mail, or your lender might be able to get it for you. You’ll also need documentation that proves the borrower has met minimum service requirements.

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Veterans need a DD Form 214 describing their character of service and reason for separation. Active-duty service members need a current statement of service signed by a unit commander, personnel officer or other authority. Check out the VA eBenefits website for specific documentation requirements pertaining to your situation.

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Can a spouse apply for a VA loan?

VA Home Loan Requirements

Yes, surviving spouses might be eligible for a VA loan. Here are some eligibility cases for spouses, according to the VA: a surviving spouse (who has not remarried) of a veteran who died in service or from a service-related disability; a spouse of a prisoner of war or service member missing in action; a surviving spouse of a veteran, who is receiving compensation for a non-service-related death; a surviving spouse who remarried at age 57 or later, on or after Dec. 16, 2003; and in some cases, a surviving spouse of a totally disabled veteran whose death was not related to the disability.

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