The Fourth of July, apple pie, and owning your home all easily typify what many consider Americana. When it comes to homeownership, those lucky enough to have VA Loan eligibility enjoy a chance at the ultimate American dream of homeownership with zero money down, low closing costs, and user-friendly qualifying terms compared to conventional loans. If you’re an eligible Veteran or active-duty military member, you should have no trouble accessing your VA Home Loan to buy that new house.
Let’s go over VA Loan eligibility requirements
Not every person who has served in the Armed Forces qualifies for a VA Loan. They must meet at least one of the following criteria:
- Served 181 days of active service during peacetime.
- Served ninety consecutive days of active service during wartime.
- Served more than six years with the National Guard or Reserves or ninety days under Title 32, with at least thirty of those days being consecutive.
- You are the spouse of a servicemember who lost their life in the line of duty or as the result of a service-connected disability. You generally cannot have remarried, although there are exceptions.
Note that it doesn’t matter whether you served as a regular soldier, Guard or reservist. A critical part of eligibility will be in your discharge type.
Typically, the Veterans Administration accepts three discharge types when evaluating VA Home Loan benefit eligibility: Honorable, under honorable conditions, and general.
Note that Veterans with dishonorable discharges are ineligible to participate in the VA Loan Guaranty program.
I’m eligible, but my VA Loan application was denied
Although it’s rare for lenders to deny VA Loan applications, it does happen on occasion. Here are some reasons why this might occur:
- Application errors. Those are the most common reasons why your VA Home Loan application would get stamped as denied. They’re also the easiest to correct. Before submitting your application, go over it carefully and review each statement and check the math. Feel free to contact our experienced lending team at Aligned Mortgage to help you navigate the application process, which can sometimes feel overwhelming if you’re doing it on your own.
- Income is too low. VA Loan requirements may be more lenient than those for conventional loans, but the benefit still requires that you have the income to afford the property you’re trying to finance. Lenders use a combination of your current monthly household income and your qualifying debt to arrive at a debt-to-income ratio. The more financial obligations you carry, the more a lender might see you as a credit risk. Because lenders have their own sets of standards, and they, not the VA, are issuing VA Loans, they can impose specific requirements for each applicant. So, if your income is too low for one lender, check with another. At Aligned Mortgage, we want you to be able to afford your home, and our loan experts will do everything they can to make that happen.
- Property doesn’t meet VA standards. The Veterans Administration wants you to have, at a minimum, a home in livable condition, and that includes functioning plumbing and electrical systems. In other words, the property must pass inspection, or you won’t be able to purchase it. And don’t forget, you have to use the property as your primary residence. If you’re trying to buy an investment property with a VA Loan, the application will be denied.
I’m eligible for a VA Loan, but I have a poor credit rating
Generally, VA lenders require that borrowers have a minimum FICO score of 620 for the most competitive terms, but there’s often some wiggle room. It might bump up your loan costs because your lower score is raising the risk for your lender.
Here are a few ideas on how you can still get a VA Home Loan with less than perfect credit:
Get a cosigner
A cosigner helps you qualify for a VA Loan when your finances don’t meet the lender’s requirements. The cosigner assumes equal responsibility for payment of the loan but, unlike a co-borrower, receives no benefit from the loan proceeds. The cosigner is not added to the title. With a VA Loan, the cosigner must live in the home with you. You can’t ask a parent or friend living elsewhere to help you qualify. The VA doesn’t allow non-occupant parties to cosign. Also, it’s important to note that when you’re buying a house with a VA Loan, your cosigner must also qualify for a VA Loan. The lender will consider the cosigner’s financial situation when deciding on the loan approval.
Put a down payment
It’s possible to have access to cash and still have shaky credit, so if that’s your position, you could offer to make a down payment to offset the risk to the lender. If you can go as high as putting down 20 percent of the purchase price, then your lender might find that it makes financial sense to approve your loan. You’ll probably still incur some higher fees.
Put off house hunting until you shore up your credit
If you’re close to a 620 FICO score, that sweet spot where lenders usually gladly approve a VA Home Loan, then it might be wise to spend a little time propping up your credit. You could do it quicker and easier than you might think. Here are a few suggestions:
- Work toward paying down some credit card debt. But, wait, there’s more. Although the most significant factor in your credit score is paying on time, the second is your credit utilization. This is the portion of the credit limits you use at any given time. Ideally, use less than 30 percent of your limit on any card, and lower is even better. You want as low a balance as possible when the card issuer reports your use to the credit bureaus. Remember, that’s how your score is calculated. To easily keep your balance low, pay it down before the end of the billing cycle. If it’s easier for you, make several payments during the month, which is simple if you bank online.
- Request higher credit limits. This is a basic equation. When your credit limit goes up and your balance remains the same, your overall credit utilization lowers immediately, which can improve your credit.
- Dispute credit report errors. Through no fault of your own, an error or two on one of your credit reports could drag down your score. You’re entitled to a free report each year from the three major credit bureaus — Experian, TransUnion, and Equifax — which you can request from AnnualCreditReport.com. Go over them carefully, and correcting any mistakes you find can quickly improve your credit. Look for late payments that you know you paid on time. Check to make sure that no one else’s credit activity is mixed in with yours or that there’s no negative information that has expired. If you spot any issues, dispute them immediately.