If you’re one of those lucky Tennessee home buyers that is eligible for the VA home loan program, congratulations. Vets have access to one of the best mortgage options today, offering 100% financing with no mortgage insurance. If you’re eligible and want to know more about the VA loan program, here are some of the general guidelines approved VA lenders use when evaluating your loan application.
Credit– While the VA internally does not require a specific minimum credit score, many VA lenders and banks require a minimum credit score of 580. Lenders request both a credit report and credit scores from all three main credit repositories, this includes Equifax, Experian and TransUnion. Of these three scores, the lender will throw out the highest and lowest and use the middle score as the qualifying number. If there are two borrowers listed on the loan application, the lowest average credit score from both will be used as the main qualifying score.
Income– Approved VA lenders will verify income by reviewing your most recent paycheck stubs covering 30-60 days in addition to your W2 forms. Self-employed borrowers will be required to provide a year-to-date profit and loss statement in addition to the two most recently filed federal income tax returns. Self-employment income must be consistent from one year to the next with no significant drop-off.
Assets– Although there is no down payment required with a VA home loan there are closing costs associated with a VA home loan. The VA charges a Funding Fee which is expressed as a percentage of the loan amount based upon the terms of the VA loan as well as considering if the veteran has used the VA loan before. For first-time buyers the VA funding fee is 2.3% of the amount borrowed with the loan.
The funding fee increases to 3.6% for borrowers who have previously used the VA loan program, but can be reduced by putting at least 5% down at closing. There will be additional fees for the lender and third-party services, but these costs can be paid by the home seller. Sufficient assets to close will be verified with recent bank statements or a Verification of Deposit form submitted to the veteran’s bank.
Employment– VA home loans ask there be at least two years of employment be verified. The most common form of verification is the most recent two years of W2 forms. The lender may also contact the employer directly to verify income, employment status and length of employment. For those that are self-employed, VA guidelines require at least two years of self-employment along with the most recent two years of federal income tax returns. Newly discharged service members can provide a statement of service verifying at least two years of service.
Closing Costs– The veteran is limited to the types of closing costs that are paid. Typically these charges are lender fees such as an underwriting charge, a processing fee or an attorney fee. Closing costs that are considered allowable include fees for an appraisal, credit report, title insurance origination fees, recording charges and a survey or abstract where required. Closing costs can be paid for by the veteran, the seller or the lender using a lender credit.
Whether you’re buying a home in Nashville, Memphis or Knoxville, it’s important to speak with a loan officer experienced with the VA program. While the VA loan is very much like other loan programs they are processed a bit differently so it’s important to work with someone that has experience processing and approving VA loan applications. If you have a sizable down payment then perhaps you should consider other options like a conventional mortgage. But if you want a loan that does not require a down payment yet still offers competitive rates you need look no further than the VA home loan program.
Keep in mind VA offers some fantastic streamlined refinance options for those Vets that already have a VA loan and want to look into reducing their interest rate. Limited documentation and no appraisal make the program easy. VA also offers cash-out refinance options up to 100% loan to value.
Coast2Coast Lending is proud to offer VA purchase, rate-term and cash-out refinance options to eligible Veterans in TN. Contact us today by calling the number above, or just submit the Quick Request Form on this page.