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Qualifications for VA Loans

By Jim Antonilli
Filed under: Home Loans         Words in this Post: 473



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Whereas the FHA programs insure loans, the Department of Veteran Affairs (VA) offers a guaranteed loan program. Under a VA-guaranteed loan, the VA guarantees repayment of the top portion of the loan to the lender in the event the borrower defaults. Unlike the FHA, the VA does not set maximum loan amounts.

In mid-1986, the VA announced new qualification standards for loan applications after October 1, 1986. The new standards require borrowers to be creditworthy and qualify under both a net family support standard and a gross monthly income ratio.

VA Loan Analysis Form 26-6393 is used to organize information on estimated home payments, long-term debts (six months or longer), family dependents, and to evaluate the reliability of monthly income. Net take-home pay is determined by taking the gross monthly income minus federal taxes, state taxes, social security tax, and other pension plans or deductions. This net income then is reduced by the amount of the estimated home payments and long-term debts to determine a residual balance available for family support. This residual balance must meet regional standards established by the VA. A family of four must have a monthly residual balance of $986 in the Northeast, $964 in the Midwest, $964 in the South, and $1,113 in the West.

The next step in the qualification is to compare the total of home payments, special assessments, homeowners’ association dues, and debts that either will extend for six months or more or will have payments of more than $100 per month to the gross monthly income. This ratio is limited to 41 percent. The VA loan analysis form is used to organize information on income and long-term debts to determine if the 41 percent ratio will be met.

Qualifying a veteran for a VA loan is not difficult; however, it requires consulting several tables to determine various taxes, maintenance costs, residual requirements, and child care expenses. Military pay tables for active duty veterans also are helpful. VA qualification can be time consuming. Even though all practitioners should understand this qualification process, using a computer program to perform the qualification is highly recommended. Many inexpensive, easy-to-use programs incorporating these tables are available.

Anyone can assume a VA loan. The person assuming the loan does not have to be a veteran. She can either be an owner-occupant or an investor and can provide release of liability in both situations. Only an owner-occupant can substitute entitlement. All VA loans after March 1, 1988, require qualification and release of liability.

The Department of Veteran Affairs guarantees 100 percent of the VA appraisal of the property set forth in the VA certificate of reasonable value (CRV) or 100 percent of the sales price, whichever is less. VA Loans are available for purchase as well as construction of Single Family or One-to-Four Unit Dwellings ( in which the vetran must occupy one of the four dwellings).

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Author: Jim Antonilli

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