Veterans, active-duty service members, some reservists and National Guard members, and surviving spouses of active-duty personnel killed in action can get help from the Department of Veterans Affairs (VA) to buy a house. The VA provides mortgage insurance to protect creditors if a home buyer defaults, making lenders willing to forgo the down payment for a qualified candidate. The VA does have limits on how much of a loan it will promise.
Size
Each qualified candidate receives an”entitlement” of $36,000 from the VA, the agency says, representing just how much of the loan that the VA guarantees. VA-approved creditors will write you a no-down payment loan for as many as four times the size of their entitlement, which amounts to $144,000.
Geography
In certain areas of the nation, $144,000 won’t buy much of anything. The VA grants greater entitlements for counties where real estate values are higher. In San Francisco, by way of instance, the VA’s 2010 limitation is $962,500. If you meet all other qualifications, the VA will insure 25 percent of that sum, which means you’re still able to get the house with no down payment.
Value
The VA won’t back a mortgage for more than a house is worth. If you’d like a 350,000 VA-backed loan, as an instance, the lender will order an appraisal from the VA.. If the house comes in at $325,000, then you are going to need to put down $25,000 of your money to secure a VA loan. Alternatively, you can amass evidence that the appraisal was low, by way of instance, by demonstrating similar houses are selling for more money.
Debts
Even with VA support, you are going to need to prove to your lender that you can afford the monthly payments on your loan. One crucial test is the ratio of all your debts — mortgage payments, yearly insurance and taxes on the house, plus credit cards, student loans or alimony — to your pretax monthly income. With traditional lenders, 36 percent is the preferred figure, but you can go as large as 41 percent using a VA loan.
Factors
To qualify for a VA loan, you’ll need to show your income is stable, just as you would with a regular loan. That means supplying tax types, W-2s and pay stubs to prove a couple of years of continuous income, in addition to contact info for your present employer. You’ll also need decent credit.