Owning is just one of those milestones in life that many Americans strive for. According to the US Census, the national homeownership rate is 64%. Not surprisingly, the rate for Veterans is much higher at 78%. Veterans are more likely to own homes than civilians due, in part, to the zero-down-payment home loan benefit earned through service to our country.
Are you ready to own a home? Recognizing six signs can give you confidence to conquer the next step.
1) Your Credit is Under Control
When it comes to credit, most Veterans ask about the minimum credit score required for VA loans. We usually require a score in the mid 600s for loan approval. In addition to score, lenders look at your credit habits. Your credit will be under close examination for loan approval, so be sure to have it in check. Any major events like bankruptcy or foreclosure will have to be resolved. Usually this takes time and diligence, but many borrowers can (and have) come back to own a home after credit-damaging events like these.
Generally, the more you know about your credit, the better you can manage it. Thanks to The Fair Credit Reporting Act (FCRA), you are entitled to a free copy of your credit report every 12 months from each of the big three reporting companies — Equifax, Experian, and TransUnion. The Federal Trade Commission (FTC) urges consumers to get free reports from AnnualCreditReport.com.
TIP: Space your credit reports out by getting a free report from a different company every four months.
Learn more about VA loan qualification
2) You Bring in More Money than You Pay Out
Debt-to-income ratio is a simple comparison of your monthly debt payments to the amount of money you bring in. Your DTI ratio is one qualifying factor your lender takes into consideration when determining your ability to repay your loan. VA guidelines suggest a DTI of 41% or less, but that number isn’t cut in stone. Lenders have some wiggle room to approve a loan if a borrower’s DTI is higher than 41%. Here are just some of the compensating factors your lender can consider:
- Excellent long-term credit history
- Conservative use of consumer credit
- Long-term employment
- Substantial liquid assets
- Cash toward a down payment
- Unaffected living expenses
- Military compensation/benefits
- High residual income
- Tax credits for child-care
TIP: Calculate your DTI: (monthly debt payments) ÷ (monthly pre-tax income) = DTI
3) Your Income is Steady
Income plays a big role in getting approved for a loan. Lenders want to see a borrower in the same job for two years or more. However, work isn’t the only source of income a lender can consider. The VA has guidelines for each, but qualifying income can come from a number of sources:
- Steady Employment
- Rental Property
- Disability Compensation
- Social Security
- Other Documented Forms of Income
TIP: Be prepared to document any income you want to be considered for loan approval.
4) You Can Prequalify
A prequalifying letter can give your offer credibility. A “prequal” letter indicates that you will likely be approved if nothing changes, you’ve been candid with your lender and you can back up your verbal financial claims with documentation.
Prequalifying can give borrowers a leg up in a competitive housing market. When sellers know you’ve thought things through financially, your offer may have more clout. The letter can also give you a ballpark price range for house hunting. You may be in for a rude awakening if you fall in love with a home and later find out it’s out of your league.
TIP: Prequalifying is optional, but many real estate agents ask their clients to take this step.
Start the prequalification process.
5) You’re Tired of Renting
Many Americans prefer the freedoms homeownership allows, not to mention the fact that their money is going toward something that’s theirs. Restrictions landlords put on having pets, decorating and playing loud music may be reason enough for some to want to get out of the rent race and into the world of homeownership.
Prequalifying can give borrowers a leg up in a competitive housing market. When sellers know you’ve thought things through financially, your offer may have more clout. The letter can also give you a ballpark price range for house hunting. You may be in for a rude awakening if you fall in love with a home and later find out it’s out of your league.
TIP: List your pros and cons for renting and owning.
6) You Dream of Owning a Home
Most people have some idea of homeownership for themselves. If owning a home is something you and your family can imagine, then maybe it’s time you looked into it.
NEXT STEP: Connect with our VA loan team.
