Owning a home is one of life’s milestones for many Americans. According to the US Census, 63.7% of Americans own homes. The homeownership rate for Veterans is much higher at 79%. The US Census reports that Veterans are more likely to own homes than civilians due, in part, to the availability of zero-down-payment VA home loans.
Are you a Veteran who’s 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 want to know the minimum credit score required for VA loans. A score in the range of 620 or better is usually needed for 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 under control. Any major events like a bankruptcy or foreclosure must be resolved. Usually this takes time and diligence, but many borrowers can (and have) come back to own a home after such credit-damaging events.
Typically 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 AnnualCreditrReport.com.
TIP: Stagger your reports by getting a free report from a different company every four months.
For more on qualifying for a VA loan, click here.
2) You Bring in More 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 in a lender’s assessment of your ability to pay. VA guidelines suggest a DTI of 41%, but it isn’t cut in stone. Lenders have some leeway to approve a loan if a borrower’s DTI is higher than 41%. Here are just some of the compensating factors the 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) You Have a Steady Source of Income
Income plays a big role in getting approved for a loan. Lenders like to see a borrower in the same job for two years or more. But 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: Any income you want considered for loan approval must be documented.
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 be taken more seriously. The letter can also give you a ballpark price range so you’re not making offers on homes you cannot afford.
TIP: Prequalifying is optional, but many real estate agents ask their clients to take this step.
To see if you can prequalify, click here.
5) You’re Tired of Renting
According to Trulia, buying a home is 37.7% cheaper than renting on a national basis. Many Americans like the freedoms homeownership provides and the fact that their money is going toward something that’s theirs. For some renters, landlord restrictions on pets, decorating and noise are reason enough to want to get out of the rent race and enter the world of homeownership.
TIP: Make a list of your pros and cons for renting and owning.
6) You Dream of Owning a Home
Most people have some vision of homeownership for themselves. If owning a home is something you and your family dream of, then it may be time to look into it.
Ready to Get Started?
If you're ready to get started, or just want to get more information on the process, the first step is to get multiple rate quotes with no obligation. You can then discuss qualifications, debt to income ratios, and any other concerns you have about the process with the lenders.
