If you’ve served in any branch of the armed forces, transitioning back to civilian life can be challenging in many ways. Whether you’ve suffered problems maintaining a consistent credit history, you’re finding it tough to establish regular employment, or you don’t have much by way of savings, your mortgage broker might find it problematic to secure a regular home loan for you.
If you’re actively serving or a military veteran, VA loans have long offered a leg-up onto the property ladder. In a lending backdrop with increasingly stringent requirements, more and more people are suggesting mortgage brokers are struggling to provide VA loans but is this true?
6 Factors That Complicate VA Loans
Over the decade since the sub-prime mortgage crisis rippled outward to impact the mortgage industry as a whole, borrowing continues to get tougher. Back then, credit scores in the low 600s and a lack of money down were no barrier whatsoever to your mortgage broker securing a home loan for you. Those days are history, though, and it’s essential to bear that in mind when calculating how difficult VA loans are to obtain.
We’ll explore six ways you can run into difficulty when your mortgage broker is trying to arrange VA loans.
1) Sub-Optimal Credit Score
While the VA sets no minimum requirement when it comes to your credit score, VA loans are not granted by the Department of Veterans Affairs. Many VA lenders are now starting to become more stringent and generally insist on a minimum score of 620 before you become eligible for VA loans. While this can present itself as a problem if you’re struggling to meet that figure, consider that many more conventional lenders demand scores of 740 while FHA lenders generally ask to see a credit score more than 690.
The strains and demands of military service can make it tough to maintain even a lower credit score like a 620. Don’t assume that past transgressions will rule you out of the game. Speak with your mortgage broker about either improving your score or hunting down a more lenient lender offering VA loans.
A weak credit history can impact your chance with VA loans just like it can with any home loan. You should look on the bright side, though, since the bar is set considerably lower with VA loans.
2) Changes To Your Credit Score Before Closing
Just because your mortgage broker succeeds in placing you with a lender offering VA loans, you’re not home and dry just yet. Be aware that the underwriter will make a subsequent credit check before the loan closes to make sure you haven’t stepped out of line financially in the interim. Any time you apply for credit, this will show on your credit history so hold fire on seeking additional finance and make sure you keep existing payments up to date across the board.
New debts will adversely affect your debt-to-income ratio, so it’s doubly important to be patient and resist the urge to take out further credit. Again, the issue here extends to mortgages as a whole rather than VA loans specifically. It’s just one more area where you need to stay on top of things so follow the advice of your mortgage broker and maximize your chance of finding VA loans.
3) Employment Changing During Loan Process
Consistency in employment is crucial not just leading up to your VA loans search but also after your mortgage broker has tracked down a viable lender. Any change in employment can trigger concern in a lender naturally looking for stability. If you have any career move planned, keep your mortgage broker informed, so a shift in circumstances doesn’t end up putting a spoke in the wheels of VA loans progress.
4) Lack of Residual Income
Any mortgage broker will tell you front and center that you won’t need a down payment for VS loans. One of the reasons for VA loans being considered one of the safest mortgages is the rigid residual income requirements. It’s not enough that your earnings meet lending requirements. You also need to show your mortgage broker you have ample funds left after repayments for all of life’s necessities.
Residual income is based on both geography and family size and if you’re thinking VA loans might be out of reach since you’re sailing close to the wind financially, speak with your mortgage broker. It’s always possible to borrow less or to mitigate some of this shortfall with outside income.
While you might find this requirement frustrating, the principle is sound and ensures VA loans are used for affordable housing.
5) Home Not Move-In-Ready
Another area where some buyers after VA loans falter is when the prospective house fails to meet minimum property requirements (MPRs). You don’t need the house you’re looking at to be in perfect condition to qualify for VA loans, but it certainly needs to be move-in-ready. If you’re lasering in on a fixer-upper, you might need to adjust your expectations.
As with all aspects of the VA loans process, your mortgage broker should advise you whether or not you’ll need anything remedied to meet the MPR. It’s one more example of why it’s vital to work with a mortgage broker who has a wealth of experience with VA loans.
6) You’re Hunting For a Second Home
The intended purpose of VA loans is to ensure that active service members and veterans can enjoy a roof over their head with the minimum of fanfare. If you’re hoping to acquire a second home using VA loans, your mortgage broker might stop you short. While you can’t buy a rental property or a holiday home, you won’t be prevented from renting the place out after you’ve occupied it, so there’s some flexibility as long as you play by the rules.
It’s also possible to run two VA loans at the same time so speak with your mortgage broker to make sure you meet the VA’s primary residence occupancy requirement.
The Bottom Line
The Bank of America states that your income is the leading factor in getting a loan followed in short order by the payment history reflected in your credit score. When you consider this, your personal financial circumstances hold by far the most weight regardless of the type of loan you’re going for. To summarize, VA loans continue to be slightly easier to get than regular mortgages, but we’d argue that they are somewhat more robust to qualify for than they used to be. Contact us today if you’re looking for a mortgage broker fully conversant with all aspects of the VA loans process.