While several mortgage programs exist, most options have similar minimum qualifying standards thanks to the Truth in Lending Act (TILA) under the authority of the Consumer Financial Protection Bureau (CFPB). All mortgage lenders, including VA-approved lenders like Veterans First Mortgage, bear the responsibility to verify that a borrower can afford a mortgage per the Ability-to-Repay and the Qualified Mortgage (ATR/QM) Rule.
Under ATR/QM guidelines, your lender must consider the following eight factors when you apply for your loan:
- Your current or reasonably expected income and assets that you will use to repay the loan
- Your employment history and current status
- Your credit history and score
- Your anticipated monthly mortgage payment
- Your payments on other simultaneous loans secured by the same property
- Your current and future property taxes and other mortgage-related expenses
- Your additional debts, including child support and alimony payments
- Your debt-to-income ratio (DTI)
By considering all of these factors, you may better understand how each plays a part in your total financial outlook and your ability to qualify for a VA home loan.
Tip 1: Make Sure You Have the Goods To Repay a Home Loan
When you apply for a VA home loan, your lender will need to verify how much you earn. While your income can come from a variety of sources (including disability payments and seasonal income), it has to be steady and reliable. Also, be prepared to document any income you plan on using for loan qualifying.
ADVICE: Any income, including cash, that you would want to use to qualify for a VA loan must have a paper trail. If you work in a cash-heavy industry, like hospitality, talk to your loan officer. They will be able to tell you how cash income is typically tracked.
Tip 2: Be Employed in the Same Field for at Least Two Years
If your income is from a day (or night) job, the VA prefers to see that you have worked at the same industry for at least two years. Lenders need to verify that you can count on that money for the foreseeable future. If you haven’t been employed by the same industry for two years, you may still be able to get approved. The VA has other requirements for you, including providing an explanation showing why two years of income couldn’t be verified.
Tip 3: Know Your Credit Score
Credit scores are incredibly complex and have a big impact on your life, so it’s a great idea to keep an eye on yours. Consumers are highly encouraged to get a free credit report from the Federal Trade Commission (FTC) and check for inconsistencies. In fact, a study by the FTC indicated that most consumers have at least one piece of disputed information on their credit report. If you see errors or things you need to address, take care of them.
At Veterans First Mortgage, we look for a credit score in the mid 600s, which is considered “fair” according the FICO score.
Tip 4: Prequalify
While prequalifying for a VA loan is not a required step in the process, it can be a very good idea. Prequalifying allows you to get a first look at how much you can afford, what your monthly payment might be, and whether you have any credit issues that the lender thinks could prevent you from getting approved.
Tip 5: Other Obligations
Be honest with yourself about your monthly obligations. Jot down a list of all your recurring expenses like car payments, credit card bills, utilities, and other payments you know you’re going to make on a regular basis.
Tip 6: Consider All Costs Involved in Owning a Home
Owning a home requires paying property taxes, homeowners insurance and, in some cases, hazard or flood insurance, in addition to costs to maintain the home, and possibly a homeowners association (HOA) fee. Consider all the costs involved so that you’re prepared when you apply for a loan.
Tip 7: Take Alimony and Child Support Into Consideration
Reveal alimony, child support, or other income ONLY if you want your lender to consider it when processing your loan application. It may seem very personal to you, but your lender will need your divorce decree if these items factor into your equation.
Tip 8: Know Your DTI
Your DTI is a very important part of loan qualifying. You can calculate your DTI before you apply to get a sense of where you stand. Just take your monthly obligations (including your future mortgage payment) and compare them to your gross monthly income.
Now that you are armed with tips on how to handle these eight factors before you apply for a loan, you are more likely to have fewer surprises and a successful loan application journey. See more details on VA loan qualifying here.
