In today’s mortgage marketplace there are two primary categories of mortgage loans. Those two categories are conventional and government. A conventional mortgage is one where the lender assumes the risk while a government loan contains an inherent loan guarantee to the lender. Should a lender issue a government loan and the loan goes into default the lender receives compensation for some or all of the loss, depending upon the loan program. A government loan doesn’t mean the government issued the loan but does issue a guarantee to the lender who owns the loan. There are three government-backed loans are the VA, FHA and USDA programs. Perhaps the ideal choice among the three is the VA program.
The VA loan requires zero money down but unlike the other two government-backed loans there is no monthly mortgage insurance payments, keeping monthly payments lower. Interest rates on VA loans are also extremely competitive. What are the approval requirements for a VA loan? What if someone wants to buy and finance a home with a VA loan in Sarasota, Florida, can a VA loan be used?
When applying for a VA home loan the lender determines VA loan eligibility by requesting a copy of the applicant’s Certificate of Eligibility directly from the VA. This certificate will provide verification the applicant is indeed VA eligible. Those that are eligible for the VA loan include veterans, active duty personnel with at least 181 days of service, veterans and active reserves for the National Guard and Armed Forces Reserves and unremarried surviving spouses of those who have died in service or as a result of a service-related injury.
As it relates to credit, it’s important to note the VA does not require a minimum credit score for a VA loan approval. Instead, lenders are charged with making the determination the veteran has demonstrated a responsible credit history. Most lenders do have a minimum credit score requirement of 620 while some lenders can ask for a higher score. The lender will request credit scores from all three credit repositories, Equifax, Experian and TransUnion. The three scores will be close to one another and the lender will use the middle score.
There are no restrictions regarding where the property can be located and there are no income limitations placed upon the borrowers on the loan application. However, there is a maximum loan amount the VA will guarantee. That loan limit is $424,100. As it relates to the loan guarantee, this guarantee is financed by what the VA refers to as the Funding Fee. This fee can vary based upon different parameters but for a first time buyer the fee is 2.15% of the loan amount. This amount does not have to be paid for out of pocket and is rolled into the loan amount. Should the loan ever go into default, the lender is compensated to 25% of the loss. However, VA loans are some of the highest performing loans even when compared to FHA and conventional loans.
VA lenders are also required to determine affordability. This is accomplished comparing total monthly credit obligations, including the new mortgage payment, with the gross monthly income of all who appear on the loan application. This ratio should be somewhere near 41-43% of gross monthly income.
Lenders will verify monthly income by reviewing the most recent paycheck stubs covering a 30 day period along with the two most recent W2 forms. For the self-employed borrower, the lender will request two years of federal income tax returns plus a year-to-date profit and loss statement on the business.
When you compare monthly payments, limited cash to close and reduced closing costs, if you’re eligible for a VA loan there really is no better choice. Speak with a loan officer experienced in the VA program for more information by calling 904-810-2293 or visit www.Coast2CoastLending.com
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