Credit Scores
The VA has no credit score limits. The lender sets the credit score requirements. Those limits are variable but a minimum of 620 to 660 are common. The lender sees more risk in lower credit scores and may charge higher interest rates for higher-risk loans.
Veterans and surviving spouses should ask the lender to get the veteran’s credit score early in the process because there may be other things in a veteran’s credit record that cause the loan to be denied. The score the veteran personally gets may be different than what a lender gets.
Types of properties veterans can buy with a VA loan
Veterans can purchase single-family homes, multi-unit homes up to four units, a double-wide manufactured home, and condominiums (if approved by the VA) using a VA home loan.
Rental Income
If a veteran does not have landlord experience, the veteran cannot use rental income to help qualify for a VA loan. If the veteran makes enough income, he or she will not need rental income to justify the VA home loan.
There is an exception to the landlord experience requirement. If the buyer signs a 12-month contract with a property management company, then the veteran can use rental income to help qualify but the lender has to debit the cost of the contract, and then the lender can use 75% of the rental income to help the veteran qualify.
Condominiums
The VA will only approve a VA guaranteed loan for a condo if the condo is not (1) under litigation, (2) the condominium has the first right of refusal provision (meaning the Condo Association Board can deny or approve the sale), or (3) there is a deed restriction for renting. The VA will approve the loan if the veteran signs an affidavit that says the Veteran or surviving spouse acknowledges and understand the deed restriction for rental and agree to that restriction.
Cannot get a VA Loan for commercial property or multi-family units of 5 or more
The VA will not approve a loan for a commercial property, investment property, or multi-unit properties of 5 or more units. The VA will also not approve a VA home loan for any property outside of the 50 states and the District of Columbia or the 14 U.S. territories.
Occupancy and renovation requirements
The VA requires that the property being purchased must be occupied by the owner within 60 days of closing. The VA also requires that the veteran not do renovations to the property for nine months after purchase.
Can a veteran have more than one VA home loan at a time?
Yes, the loan amount available and the number of homes the veteran purchases are directly tied to the amount of the veteran’s VA entitlement and the county to which the veteran is moving to. A veteran buying his first home has no VA borrowing limit but the lender has to comply with the county’s loan limit to qualify for the maximum VA 100% financing limit.
If a veteran decides to move to a new home (a second home) and keep the first VA loan financed property (as an investment property), the lender has to use the County Loan Limits in the county that the veteran is buying a second home in to determine the maximum amount of loan remaining available.
In general, the VA loan limit up north (and other high-cost areas) is higher, than in the south. The lender has to conform to the limit of the amount that can be financed to the county limits where the second property is located. The bottom line is a veteran can buy 1, 2, 3, or more properties if he or she has enough loan entitlement for all the properties.
Refinancing a VA Loan
The VA will allow a veteran to refinance up to 90% of the value of the veteran’s home. Conventional loan refinancing is limited to 80%. Refinancing can help veterans to consolidate debt, take cash out for home improvements, and do other things.
However, if the veteran is not a VA determined 10% service-connected disabled veteran, the veteran will have to pay a 3.6% funding fee when they refinance. That 3.6% on a $400,000 refinancing is $14,400. That means a non-disabled veteran will only have access to about 86% of the equity in his or her home.
Warning to non-serviced connected disabled veterans
Veterans who are not service-connected disabled and looking to buy a home should make certain that they file a claim for a service-connected disability or at least file an intent to file for service-connected disability BEFORE they close on the purchase or refinancing of a home. If the veteran’s disability is not awarded by the VA before the closing but is approved after the closing, the veteran can file a VA Funding Fee reimbursement request and get a refund.
Warning to Active-Duty Military Members
If a military member is on active duty and in the process of getting out and they close on their home BEFORE they are officially out of the military, their VA Claim date will be the date of their discharge. Therefore, the veteran will NOT get a refund of their VA funding fee.
Warning about home loan refinancing offers
Veterans and service members should be especially on the lookout for refinancing scams! Veterans and surviving spouses should work with a reputable person who is an expert in refinancing and can do an economic analysis on whether or not it is in their best interest to refinance (pay off more expensive debts, increase residual income, etc.).
Consumer Finance Protection Bureau (CFPB) and Veterans Administration (VA) Warning
Veterans and military members should carefully read the Consumer Finance Protection Bureau (CFPB) and Veterans Administration (VA) Warning about home loan refinancing offers at https://bit.ly/3NzmhRk.
This warning is also online at ADVANTAGE BLOG at https://bit.ly/3LJIH0Q.
Bankruptcy
If a veteran defaults on their VA loan, they can expect their loan to go into foreclosure. Fortunately, veterans are subject to much more forgiving credit standards than non-veterans. There is a two-year waiting period before that veteran can use their VA loan benefit again. After two years the veteran can apply for another Certificate of Eligibility (COE).
When veterans apply for a new COE, the VA will send an applicant a Compromised Loss Letter (CLL). The CLL will inform the veteran of their VA Loan ID number, how much they owe the VA, and how much of their VA loan entitlement was lost. The new COE will accompany the VA letter.
The CLL and new COE will trigger the lender to go back and use the county loan limits to determine if the veteran or surviving spouse has enough entitlement to purchase the property. The veteran can elect to pay the VA back for the amount the VA had to pay the lender on the previously defaulted loan or not. If the veteran pays the VA back, they are eligible for 100% financing.
A Chapter 7 Bankruptcy is a full liquidation and a Chapter 13 Bankruptcy is a reorganization of debt. Under Chapter 13 the veteran intends to pay back the debt. Either way, the veteran only has to wait two years to reapply for a VA home loan. Non-veterans who file for bankruptcy under Chapters 7 and 13 and short sales must wait four years to apply for a loan. Non-veterans who go through foreclosure must wait seven years to reapply.
Places to go for help (from the CFPB and VA Warning)
The CFPB and VA are working with other government agencies, to identify, stop, and prevent illegal and misleading advertising related to VA mortgages and refinancing. If you are considering a mortgage or refinancing through a VA loan, VA loan specialists are available from 8 a.m. to 6 p.m. ET, Monday through Friday, to assist you. If you have questions about your current VA loan, contact the VA at 877-827-3702.
If you have a problem with a VA mortgage refinance or other mortgage issues, you can submit a complaint to the CFPB online at https://www.consumerfinance.gov/complaint/ or by calling 855-411-CFPB (2372).
If you would like to stop or reduce the amount of the offers you receive, you can call 888-5-OPTOUT (888-567-8688) or visit https://www.optoutprescreen.com/?rf=t. You can also put your phone number on the federal government’s National Do Not Call Registry to reduce the telemarketing calls to your home. Visit www.donotcall.gov or call 888-382-1222 from the phone number you want to register.
Whether you’re thinking of buying a home, already have a home loan, or are having trouble paying your mortgage, the CFPB has mortgage resources to help you. CFPB Mortgage Resources are found at https://bit.ly/38KF6Cs.
If you currently have a VA loan and are having issues repaying your mortgage, you should call a VA loan technician at 877-827-3702 to explore potential options that can assist you.
For help handling financial challenges at every step of your military career and beyond, visit the CFPB’s Guide Through the Military Lifecycle found at https://bit.ly/3lFbxVG.
Larry Dandridge is a Vietnam War wounded warrior, disabled veteran, ex-Enlisted Infantryman, ex-Warrant Officer Pilot, and retired Lt. Colonel. He is a past Veterans Service Officer, a Patient Adviser at the RHJ VA Hospital, the Fisher House Charleston Good Will Ambassador, and the VP for Veteran Affairs for the local Army Association Chapter. Larry is the author of the award-winning book Blades of Thunder and a contributing free-lance writer with the Island News. Contact him at LDandridge@earthlink.net or 843-276-7164.
