Q&A

Q:

I am an honorably discharged veteran of the Iraq War and recently came home and wanted to buy a home. When I separated from the U.S. Army, they told me that I was eligible to buy a home for zero down. Now I have applied and they are telling me that my credit won't qualify even though I'm a veteran. How do I fix this?

A:

I too am a veteran and I remember when I was processing for separation, they said the exact same thing to me. Unfortunately, they don't explain that the veteran is eligible to apply for a home loan with zero down. The veteran still must qualify via income to debt ratios and credit history.

The Veterans Administration (VA) does provide 100% purchase and refinance financing for qualifying veterans. However, the lender is required to verify an acceptable credit history. This can be from normal sources such as credit cards, car loans, etc., but can also be built through a rental payment history as well as alternative credit ratings such as utilities, car insurance, etc. VA also requires that the veteran has had no excessive late payments, collections, etc., during the past 12 months.

In addition to this, the veteran must have a debt-to-income ratio that fits VA's guidelines. Typically this limit comes out to approximately 41%. This means that all of the veteran's monthly consumer debt, including any child support and the new house payment must amount to 41% or less of the veteran's gross monthly income. VA also requires that the veteran has specified amounts of "residual income". This is money that is basically left over after all of the monthly bills and an estimate for housing maintenance are paid. Please contact your local VA approved lender to determine whether your situation meets requirements.

Last, the lender must verify that the veteran is actually eligible. Basically a veteran that served in an armed conflict for at least 90 days will be eligible. Other than that, the veteran would be eligible if they had served 24 months in almost situations or 180 days at many other time periods.

VA loans are a huge benefit to the veteran. Nowhere else can a person qualify for 100% financing for either the purchase or the refinance (including cash-out) of real estate. However, they are a bit complicated. If you believe that you qualify for a VA loan, contact your local lender before you start looking for your new home. There are many pieces to the VA puzzle that can, with the help of an experience loan officer, be put in place ahead of time.