There comes a time when you have no choice but to be PO’d; that time is now. Let’s discuss why you might not get a VA loan.
To qualify for a VA loan, you must meet the eligibility criteria:
- You contributed 90 consecutive days of active service during a war.
- You contributed 181 consecutive days of active service during peacetime.
- You served in the National Guard or the reserves for six years.
- Your spouse died in the line of duty.
If you don’t meet the edibility requirements and are unable to produce a Certificate of Eligibility (COE), your application will be denied.
Credit Score on the Low Side
VA does not require a minimum credit score; it wants you to get a loan. But a lender has the right to deny you if your score is too low, according to its guidelines. The good news is that you can get approved for a VA loan with a lower credit score than is required for a conventional loan. Just know that if your score is below a 620, you may be in for some bad news.
Debt-to-Income Ratio on the High Side
Debt-to-income ratio (DTI) is the ratio of your monthly debt obligations to gross monthly income. So basically, you have to have a reasonable amount of money (referred to as “residual income”) left over after you pay off your debts each month.
To VA, that reasonable amount is 41 percent of your income; that’s the max total debt VA will allow to approve a mortgage loan. In addition to the DTI percentage, there are residual income requirements based on cost of living in your area and number of people in your family.
Forty-one percent is not a hard and fast rule; depending on your family situation, your liquid assets, credit and residual income, you may get away with a DTI higher than 41 percent. VA wants to make sure you are not in over your head.
Bankruptcy or Foreclosure in Your Past
If you hit a rough patch and had to go into foreclosure or do a short sale on a previous home, you may get denied for a new home loan. The good news is that while for non-military home buyers, the waiting period after a foreclosure, short sale or bankruptcy is typically seven years (based on conventional loan guidelines), for you it’s just two.
During this two-year time period, you may also fall below a lender’s acceptable credit score to get a VA loan. Credit score really takes a hit after foreclosures and bankruptcy, so you may find yourself below that 620 mark.
You're Shopping for a Vaca Home
VA loans are only approved for owner-occupied residences, so if you are looking to buy a vacation home or just make a real estate investment, you will have to consider a different loan.
Chris Birk of Veterans United Home Loans contributed to this post.