Wednesday, April 8, 2015

Zero Down Mortgages Available to Veterans

Road Signs – Zero Down Mortgages Available to Veterans
By Michael Zuren, PhD.

If you are a veteran and do not own a house, now may be the best time to consider homeownership.  Interest rates are extremely low, and home prices in most areas are below 2009 prices.  A veteran can purchase a house with no money down and no monthly private mortgage insurance.  Any veteran that has served in wartime service or during times of peace is eligible for a mortgage insured by the Veterans Administration (VA).  The veteran must also have been honorably discharged, or if they are still active in the Armed Forces, they must meet certain service requirements.  In addition to veterans, VA mortgages are available to spouses of veterans, if they meet certain criteria.

If you're eligible for VA financing, you will need to apply for your certificate of eligibility from the Veterans Administration.  For this form, you will need a copy of your most recent discharge paper (DD214) and to complete VA form 26-1880.  Once you have obtained your certificate of eligibility, you can than apply for a mortgage through any eligible lender.  A lender, who has been approved by the Veterans Administration for automatic processing and the lenders appraisal processing program (LAPP), will be able to completely process your mortgage without waiting for VA's approval of your credit application and the appraisal.

The factors that a lender will look at when underwriting your loan file include the following:

  1. Employment - You will be required to show a minimum of your last two years employment history as well as stable income. Periods of unemployment or income fluctuation over the past two years may disqualify you for a loan.

  1. Satisfactory Credit History - Although, the Veterans Administration has not set a minimum credit score requirement for a VA loan, most lenders will require a middle credit score of at least 640. There are many exceptions to this rule. Compensating factors such as current housing expense, reserves, and down payment may all affect the final credit decision.

  1. Debt to Income Ratio - There is a single debt ratio for VA loan, which is 41% of your gross income.  The debts used to calculate this ratio include: the mortgage payment, auto loans, installment loans, credit cards, student loans, and any other unsecured debt. Utility bills and cell phone bills are not included in this calculation.

  1. Residual Income Calculation - In addition to the debt to income ratio, VA loans are subject to a residual income factor.  This is a calculation used to determine how much money the veteran will have left over after paying their mortgage and all other debts. These debts include state, federal, and Social Security taxes, as well as maintenance and utilities, child care expense, installment loans, revolving debts, and mortgage payment(s).  Residual income is the money that you have left over each month after you pay your debts.  Residual income would typically be used for personal items such as groceries, gas, movies, going out to dinner, etc.  In the Midwest, residual income is based on family size and mortgaged amount.  For example, a family size of two, who apply for a mortgage of 80,000 or above, will need to have residual income of at least $738 per month.  To verify the residual income for your household, you can either contact the Veterans Administration or your mortgage lender.

  1. Satisfactory Appraisal - A VA appraisal will be required on the home that you intend to purchase.  It will need to meet the health and safety standards set by the Veterans Administration, or repairs will need to be completed prior to closing on the house.

All VA loans must be owner-occupied residential properties.  Considering, the current prices of houses in most parts of the country and that interest rates have fallen to their lowest level in years, now may be the perfect time to purchase a home.

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