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VA Loan Requirements 2015

What are the VA Loan Requirements for 2015? These requirements guide a veteran borrower’s ability to repay the loan as well as the lender’s ability to lend. Whether buying a home or refinancing an existing home you must know the restrictions that will allow you to make better long-term financial decisions.

The focus here is on VA loans as those and FHA loans are the more popular types of mortgage loans today. Everything in the lending industry is about risk assessment.

The Basics
There are 3 key elements to any mortgage transaction.
  • Credit - Your credit score & history are the driving factor in today's market.
  • Debt to Income (DTI) - This ratio determines how much of a payment you can afford under the lending guidelines.
  • Loan to Value (LTV) - This ratio determines how much you borrow against the value of the property.

VA Loan Requirements 2015

The most common of VA loans is the VA 30-year fixed program and here are the minimum requirements to qualify.

Please Note: If you need more detailed documentation on VA Loan Requirements, you can review the following:
VA Certificate of Eligibility
If you have not already acquired your VA Certificate of Eligibility, please order one now or we can order it for you. This document is required for a VA loan.

Credit Score and Established Trade Lines
Credit Score - Veterans Affairs (VA) insures VA loans and does not require a minimum FICO score. However, lenders have their own requirements that are in addition to those of the VA.

Most lenders today require the minimum mid-score in a tri-merge report to be at 620 or better. The credit report must clearly support an applicant’s ability to meet financial obligations in a timely, responsible manner.

Less than a handful of lenders will accept mid-scores down to 580 but you will need to have other compensating factors such as a larger down payment, a good amount of reserves, low DTI, and the loan will require Direct Underwriting (DU) approval or need to be manually underwritten.

Generally, lenders have been increasing their minimum FICO score mortgage requirement and some are now requiring a 640 mid-score as the cut off.

Most lenders have the following credit score guidelines:
  • 620 up to $417,000 and 640 for IRRRL's
  • 720 for $417,000 to $650,000
  • 740 for over $650,000
Established Trade Lines - VA loan requirements allow for both traditional and alternative credit trade lines. However, most lenders require that you must have at least two lines of credit that you have maintained for at least two years.

Alternative lines of credit are defined as continuing obligations, such as cell-phone / home-phone bills, utility bills, rent history, car insurance, which require a periodic payment in order to establish payment history. To be used to establish a minimum payment history, an alternative credit trade line must have existed for at least 12 months.

VA loan requirements do not consider absence of a credit history as an adverse factor. However, a minimum two year history of the applicant, including residence, income, assets and credit must be developed.

To find out more about your credit, you can download a free credit report at any of the three credit bureaus and we could help you review it.
Late Payments, Collections, Bankruptcies, Liens, Judgments, Foreclosures, and Child Support
Late Payments - VA loan requirements does not allow for more than one debt payments being more than 30 days late if the incidents have occurred within the last 12 months. This includes more than one late payment on a single account. In addition, individual lenders may have restrictions on late payments made in the last 12 months.

No mortgage late payments made in the last 12 months are allowed on purchase and refinance of VA loan. And only a 1x30 mortgage late payment is allowed on a VA streamline (IRRRL).

Collections - VA loan requirements specify that most collection accounts outstanding must be paid, no matter what their age as long as they are currently delinquent and/or due and payable.

Isolated collection accounts do not necessarily have to be paid off as a condition for loan approval. For example: a credit report may show numerous satisfactory accounts and one or two unpaid medical (or other) collections. In such instances, while it would be preferable to have collections paid, it would not necessarily be a requirement for loan approval.

Bankruptcies - Chapter 7 must be discharged for at least 2 years with no late payments since the date of discharge.

Applicants who filed for Chapter 13 and have satisfactorily completed their payments, can be considered as having reestablished satisfactory credit. If the applicant has satisfactorily made at least 12 months of payments and the Trustee or the Bankruptcy Judge approves of the new credit, the lender may give favorable consideration.

Liens - VA loan requirements will not allow for any delinquent federal debt such as student loans or tax liens or other government debt, no matter what their age as long as they are currently delinquent and/or due and payable.

Judgments - VA loan requirements do not allow for judgments caused by nonpayment that is currently outstanding or has been outstanding within the last 12 months.

Foreclosures - VA loan requirements state that an applicant may be eligible if there was no loss of security on a foreclosure or a satisfied judgment that was completed more than 12 months prior to the date of the application. However, if there was loss of security due to a foreclosure, the applicant is ineligible for a VA loan within 36 months after foreclosure.

Child Support - VA loan requirements states that child support that is in arrears must be brought current. If a payment schedule has been established with the Court for the past due amount and a history of satisfactory payments is provided, the applicant will not be required to pay the past due amount in full. Both the payment for the past due child support and the regular court ordered support payment will be included in the applicant’s income to total debt ratio.

If you are paying court ordered child support, it is considered a liability payment (even though it may not show up on your credit report or your pay stubs as wage garnishment) and counts against your debt ratio (DTI). Receiving court ordered child support is considered a source of income.
Down Payment
VA loan requirements for a home purchase do not have a minimum down payment. The VA loan is one of the very few loans that can be financed to 100% with $0 down payment.
Loan-to-Value (LTV)
VA loan requirements allow for LTV & CLTV on purchases and IRRRL's to 100%. The LTV & CLTV on cash-out refinances are allowed up to 90% of appraised value.
Property Types
VA loan requirements only allow for single-family (SFR), townhouses (PUD), duplexes, 3 - 4 unit, and VA approved condos.
Seller Concessions
VA loan requirements allow for seller concessions of up to 4% of the sales price. Seller concessions include but are not limited to the following:
  • payment of the buyer’s VA funding fee
  • prepayment of the buyer’s property taxes and insurance
  • gifts such as a television set or microwave oven
  • payment of extra points to provide permanent interest rate buy-downs
  • provision of escrowed funds to provide temporary interest rate buy-downs
  • payoff of credit balances or judgments on behalf of the buyer
Seller concessions do not include:
  • payment of the buyer’s closing costs, or
  • payment of points as appropriate to the market
VA does not have any financial reserve requirements on single family homes and duplexes with the exception of documenting automated findings.

Six months of mortgage payment reserves (principal, interest, taxes, and insurance - PITI) are required on 3 to 4 unit family homes secured by a VA loan. Three months reserves are required on each additional rental property that is not secured by a VA loan.

However, lenders often have their own reserve requirements based on loan amount:
  • Less than or = $417,000: None Required
  • $417,000 to $650,000: 6 Months PITI
  • Greater than $650,000: 12 Months PITI
Income (W2, 1099/Self-Employed, Part-Time, Active Duty Military, Other Income)
VA loan requirements state that it is not necessary the veteran applicant on the loan have income when the co-applicant/spouse has sufficient income to support the mortgage and other debts.

W2 - VA requires two years of employment with stable income with supporting W2 forms as proof of income.

1099/Self-Employed - VA requires last two years of complete tax returns as proof of income. An applicant that transitioned from a W2 employee to self employed in the last two years is not eligible.

Part-Time - VA loan requirements allow for income from part-time employment as long as it has been for no less than two years.

Active Duty Military - You will need a Leave and Earnings Statement (LES) and a Statement of Service. If the applicant’s separation date is 12 months or less from closing, continuance of income must be documented by one of the following methods:
  • The applicant must have re-enlisted (provide documentation); or
  • The applicant must state he or she intends to re-enlist and provide a statement from the Commanding Officer confirming there is no reason the applicant would not be permitted to re-enlist.
VA only will accept a valid offer of civilian employment for qualification in situations where the applicant will be discharged within 12 months of closing. Salary plus VHA, clothing allowance and rations may be used to qualify.

Other Income - VA allows for other types of income (see list below). To review the VA loan requirements for any of the income types below, please refer to the Veterans Home Mortgage VA Credit Policy starting with Section 403.00 - Types of Income.
  • Alimony / Separate Maintenance
  • Auto Allowance
  • Bonus
  • Capital Gains
  • Child Support
  • Clergy
  • Commission
  • Contractor / Consultant
  • Disability
  • Dividends and Interest
  • Foster Care and Court-Ordered Custody
  • Foreign Income
  • Government Assistance Programs
  • IRA / KEOGH Distributions
  • Military Allowances
  • Mortgage Differential Payments
  • Notes Receivable
  • Overtime
  • Partnership Income
  • Pension / Retirement
  • Projected Income
  • Recently Discharged or Retired Veteran
  • Rental Income
  • Reservist / National Guard
  • Room and Board
  • Seasonal Employment
  • Second Job
  • Shift Differential
  • Social Security - Retirement
  • Social Security - Surviving Spouse and Child or Payments to Family Members
  • Temporary Employment
  • Tips
  • Truck Drivers
  • Trust Income
  • Unemployment Compensation
  • Union Member
  • VA Benefits
  • Workers Compensation
  • Lottery Income
Qualifying DTI Ratios, Contingent Liability, Projected Obligations
For purposes of qualifying an applicant for a mortgage, ratios are calculated to determine what percentage of the applicant’s income will be spent on the proposed monthly housing expense and total of all obligations.

Qualifying DTI Ratios - VA loan requirements allow for DTI ratios of 29% / 41%. These ratios may be slightly exceeded with acceptable Automatic Underwriting System (AUS) and underwriter's approval.

VA gives more value to the back ratio of 41%. This means that the total monthly debt payment with the new mortgage payment cannot exceed 41% of total gross monthly income. There are instances where you can exceed this ratio, however, strong compensating factors are required.

Contingent Liability - An applicant who co-signed for another person's debt is liable for that debt. The lender may exclude the loan payments from the monthly obligations and debt ratio of the applicant if there is no reason to believe that the applicant will have to participate in repayment of the loan. The applicant would need to prove that the payments made on the co-signed loan were made on time over the course of the last 12 months and 100% by the other person.

Projected Obligations - VA loan requirements state that any debt repayment (such as student loans) that is supposed to begin within 12 months must be included in the debt ratio.
Monthly MI
VA loans do not require any monthly Mortgage Insurance (MI) payment.
VA Funding Fee
VA loan requirements call for an up-front VA Funding Fee as a percentage of the loan amount on both purchases and refinance transactions. Unless exempt, each veteran must pay the VA Funding Fee to Veterans Affairs at closing. The VA Funding Fee can be financed into the loan.

This fee can range from as little as 0.50% of the loan amount on an a VA streamline to 3.30% for subsequent users of the VA loan benefits. To learn more about what percentage applies to your situation and VA Funding Fee Exemptions, go to VA Funding Fee.
Rental History and Living with Family
Rental History - An applicant’s ability to successfully pay his or her monthly housing expense is traditionally the most critical piece of credit. A lender will require a Verification of Rent (VOR) from a Rental Management Company. Some lenders will accept 12 months of cancelled checks showing rental history if the landlord is a private owner.

No verification of rent is required when a minimum of four credit references is reported for all applicants, each open for at least four years. VA loan requirements allow for 1x30 rental late payment in the past 24 months given that the applicant had a credit mid-score higher than 720.

Living with Family - VA loan requirements allow for rental history if the applicant is living with family and paying rent. However, if the applicant is not paying rent, then he/she is not eligible for a VA loan.
VA loan requirements state that the property occupancy must be a primary residence. No investment property or second home ownership is allowed.

VA loan requirements do not allow for non-occupant co-borrowers.
Loan Limits
Each county and state has specific loan limits. VA loan requirements allow regular VA loans to a limit of $417,000 and Jumbo VA up to $1,094,625. Find out what 2015 VA Loan Limits are relevant to your county and state.

You can also review prior years VA Loan Limits:

2014 VA Loan Limits
2013 VA Loan Limits
2012 VA Loan Limits
2011 VA Loan Limits Update
2011 VA Loan Limits
2010 VA Loan Limits
2009 VA Loan Limits
VA Loans Eligibility
You will need to know your veteran or active duty military VA Status of Eligibility to get a VA loan.
VA Energy Efficient Mortgage
VA loan requirements allow up to $6000 of the loan proceeds to be reimbursed to the veteran for the cost of energy efficient improvements via the Energy Efficient Mortgage program.

Important Links

VA Home Purchase Loans VA Lender Handbook (1.31 Mb)
VA Streamline Refinance Guaranty Calculation Examples
VA Certificate of Eligibility Request Military Records SF-180
VA Loans Eligibility VA Funding Fee
2015 VA Loan Limits Local VA Rates
Veteran Home Loans VA Credit Policy Manual (934 Kb)

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Contact us if you have any questions regarding VA Loan Requirements 2014 or any other mortgage related questions.


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