What is needed to get a VA loan in California?
Fannie Mae recently released their “What do consumers know about the Mortgage Qualification Criteria?” Study. The study revealed that Americans are misinformed about what is required to qualify for a mortgage when purchasing a home. For California Veterans, understanding what is really needed to qualify for a VA loan is very important.
According to the study:
59% of Americans either don’t know (54%) or are misinformed (5%) about what FICO score is necessary
86% of Americans either don’t know (59%) or are misinformed (25%) about what an appropriate Back End Debt-to-Income (DTI) ratios is
76% of Americans either don’t know (40%) or are misinformed (36%) about the minimum down payment required
To help clear things up for the California Veterans who are wondering what the true answers to these questions are, let’s take a look at the findings from Ellie Mae’s latest Origination Insight Report , which focuses on recently closed loans.
FICO Score for California VA Loans
According to the report, the average FICO score for a closed VA loan as recently as November 2015 was 704. While this shows that in general Veterans have very good FICO scores, it’s important to know that some VA lenders will allow a FICO score to be as low as 580. If a Veteran is ready to buy but is concerned his FICO score may be too low, talk to a California VA Lender who can check your FICO score. Even if your score is lower than 580 the VA Loan Officer should be able to provide on guidance on improving the FICO score.
VA is also fairly lenient when it comes to prior bankruptcy’s and foreclosures, requiring only a two year wait.
What Debt to Income Ratio is Needed for a California VA Loan?
It is understandable that 86% of consumers would not know the required Debt to Income ratio for a loan. Each type of loan program has different guidelines and requirements. For a VA loan, the “guideline” Debt to Income ratio is 41%. According to the Ellie Mae report, 40% was the average Debt to Income ratio. But the reality is that VA doesn’t really have a “max” Debt to Income Ratio. VA uses a Residual Income calculation, which is the more important “approved or not approved” calculation. In California, where home prices tent to be higher than most of the country, it is not uncommon for a DTI on a VA loan to be over 50%, and in some case higher than 60%. If the California VA lender is able to get an Automated Underwriting System approval (through either Fannie Mae or Freddie Mac) then the lender can fund the VA loan. Some lenders do have “overlay” requirements and may not allow the DTI to be higher than their internally prescribed number, which is why it’s important to check with multiple lenders if you have been turned.
The Debt to Income ratio for a VA loan is calculated by dividing your total payments (mortgage payment, including the property taxes, homeowners insurance, homeowners association payments, etc, plus any car payments, minimum credit card payment, installment loan payments, alimony, child support, student loans, etc) by your gross monthly income. Self employed Veterans should talk to a lender for help in calculating the income to be used for qualifying. It is not always as straight forward as people would like.
Down Payment for a California VA Loan?
Hopefully most California Veterans know that they are able to get a VA loan with no down payment. But they do need to stay within the county VA loan limit if they intend to purchase a home with $0 down. Because there are situations where a down payment is needed. For example, if a California Veteran wishes to purchase a home that is priced higher than the VA loan limit for that county then they will need a down payment equal to 25% of the difference between the county loan limit and the purchase price. This is called a Jumbo VA Loan. For example, if a California Veteran is going to purchase a home in Los Angeles County with a VA loan for $736,150, which happens to be an even $100,000 above the Los Angeles county 100% VA loan limit then they will need a down payment of $25,000. The VA loan will be $711,150. In this case a down payment of only 3.4% was needed.
The bottom line is that whether you are hoping to buy your first home or are planning to buy your dream home, understanding how qualifying works will make the home buying process much easier. Talking to a California VA lender before you are ready to make an offer can save time and frustration.
Authored by Tim Storm, an Orange County VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short-term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.