VA financing is one of the most powerful mortgage benefits available to eligible veterans, active-duty service members, reservists, National Guard members, and certain surviving spouses. Backed by the U.S. Department of Veterans Affairs, VA loans offer flexible guidelines, no down payment requirements in most cases to $1,500,000 financed in Riverside County, and no monthly mortgage insurance.
While VA financing is often easier to qualify for than many traditional loan programs, borrowers still must satisfy three fundamental pillars of mortgage approval: Credit, Income, and Assets. The combination of these three dictate or impact borrower’s ability-to-repay.
Who Can Qualify for a VA Loan?
Generally, VA loan eligibility is available to:
- Active-duty military personnel
- Veterans
- National Guard members
- Reservists — who have earned 600+ reservist points
- Certain surviving spouses
Eligibility is typically confirmed through a Certificate of Eligibility (COE), which verifies the borrower’s entitlement to VA benefits. Typically, we assist in ordering and obtaining the COE thru the VA Portals, as an accommodation to each consumer.
Once eligibility is established, the lender evaluates the three pillars of qualification.
Pillar One: Credit
Contrary to popular belief, the VA does not establish a minimum credit score requirement. However, most lenders implement their own minimum credit standards. The lowest I have personally seen is 580, although lenders have come and gone offering down to 500. Call me to see if we have anything sub-580 before you just give up.
The goal of credit review is to determine how a borrower has managed financial obligations over time. Lenders review:
- Credit score
- Payment history
- Collection accounts
- Bankruptcies
- Foreclosures
- Overall credit management
VA financing is often more forgiving than conventional financing when it comes to past credit challenges. The focus is typically on whether the borrower has re-established responsible credit habits following any financial hardship. Most of the above is now reviewed and decisioned by Automated Approval Systems like Desktop Underwriter — DU or Loan Prospector — LP. So yes, a computer software or AI is making the initial credit decision and later confirmed by a live VA SAR or VA Underwriter.
Pillar Two: Income
The second pillar is income, which helps demonstrate the borrower’s ability to repay the mortgage.
Lenders commonly review:
- Pay stubs
- W-2s
- Tax returns
- Employment history
- Retirement income
- Military income
- Self-employment income
- Residual or left-over income after new house payment, credit report debt, income taxes, and utilities
Like FHA financing, VA generally prefers a two-year employment history. Borrowers do not necessarily need to be with the same employer, but stability and consistency are important.
For self-employed borrowers, two years of tax returns are typically required.
Active duty must prove they have one year or more remaining on ETS and if they have less than one year remaining, we need to obtain a written acknowledgement from Commanding Officer that active duty member is eligible for re-enlistment and borrower needs to sign a letter it is their intent to re-enlist.
In addition to traditional debt-to-income calculations, VA underwriting evaluates an important concept known as Residual Income. Residual income measures the amount of money remaining after major monthly obligations are paid. This unique VA requirement helps ensure borrowers maintain sufficient funds for daily living expenses after closing.
Pillar Three: Assets
One of the biggest advantages of VA financing is its flexibility regarding assets.
Unlike FHA and conventional financing, VA loans generally do not require a down payment, allowing eligible borrowers to finance up to 100% of the home’s purchase price within program limits and lender guidelines.
However, borrowers should still be prepared for:
- Closing costs
- Prepaid property taxes
- Homeowners insurance
- Initial escrow account setup
The good news is that many of these costs can often be paid by the seller, lender credits, or allowable interested-party contributions. In cases where there is no money down and the seller is paying all closing costs + prepaids, this is commonly known as a VA No-No. VA no down and no closing costs.
VA also permits gift funds from family members when properly documented.
Lenders typically review the most recent bank statements to verify available funds and document the source of any significant deposits. As with all mortgage programs, federal anti-money laundering regulations require lenders to verify that funds used in the transaction come from legitimate and documented sources.
Unlike some mortgage programs, VA financing generally does not require reserve funds for a standard owner-occupied purchase transaction.
Final Thoughts
VA financing continues to be the BEST and the most valuable homeownership benefit available to those who have served our country IMO. While qualification guidelines are flexible, every loan is built upon the same three pillars: Credit, Income, and Assets.
Understanding these pillars can help Temecula Valley veterans and military families prepare for a smoother mortgage approval process and move one step closer to homeownership. And just as important, aligning yourself with a lender that is versed in VA Mortgages.
