Veterans and service members have an excellent opportunity to purchase a home under a wonderful program, which guarantees 100% financing to buy a home. In the technical sense this means no money down. However, this doesn't automatically mean you will qualify and not required to put any money down. Buyers still must meet the lending requirements to secure a loan, as well as the seller demands.
1. CREDIT SCORES
The minimal credit score required by most lenders is 620. Your lender will review a copy of your credit to determine your credit worthiness. This requires a copy of your credit and credit score from Trans Union, Equifax and Experian. The middle score is normally selected. A common mistake made by borrowers is that only one good score is okay. Most lenders will never do this. For example, if your FICO scores are 619, 660, and 590, the banks will use the middle score of 619, which would not qualify the borrower for a loan. Therefore, it is important to request a copy of your scores from all 3 bureaus and resolve any issues that can negatively affect your score.
2. DEBT vs INCOME RATIO
Lenders want assurances your debt and spending habits are under control and fit their model of debt to income ration. This normally falls in the range 33/38 or 33% to 38%. Your mortgage payment should not exceed 33% of your income and and your payment plus other debts reported on credit should not exceed 38&. Lenders will allow some flexibility with these numbers, but other compensating factors such as savings, higher credit scores, is required before granting a waiver.
Being a military member will not automatically encourage sellers to show you their property. But a pre-approval will. A pre-approval will help to convince sellers you are a legitimate buyer who has already engaged a lender to approve your home purchase.
An approve VA Loan covers the homebuyer for 100% of the purchase price. This does not include closing cost fees or earnest money required by the seller. Expect closing cost fees to be around 4% of the purchase. For example, the estimated closing cost fees for $400,000 loan, would be $16,000. This fee can be included in the loan if the seller agrees to allow a Sellers Concession. VA Loans will allow a buyer to have up to 6% of the purchase price included in the loan to pay off closing cost fees.
Most sellers will not allow a property to be purchased today with no money down. A VA eligible buyer should have savings to cover any mandatory downpayment requirements. The good news is that a buyer can recoup most of these upfront fees on the closing day.