VA Loan Center of Texas, a Division of Mortgage Express,
Powered by Mortgages USA, NMLS # 301114 – VA Approved Lender
VA Loan Center of Texas
VA Loan Center of Texas
VA Loan Center of Texas

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VA Guidelines

VA Home Loan Guidelines

The Department of Veteran Affairs does not offer direct financing to veterans, but they do however, provide a lender handbook with all their rules and guidelines for VA approved lenders to follow in order for them to guarantee and insure 25% of the loan. If these guidelines are not met, the VA is not required to insure the loan which would then fall back on the lender that originated it. VA loans involve a veteran’s benefit. Therefore, lenders are encouraged to make VA loans to all qualified veterans who apply.

Credit Requirements

According to the VA Lender Handbook, there is not a specific credit score for the VA to guarantee a mortgage loan. However, the lender you decide to work with will typically have a minimum credit score requirement in order to qualify. VA Loan Center of TX has a minimum credit score requirement of 620, but we also look at other things on the credit report before we can make a final decision.

VA Lenders are required to pull a new credit report upon application to review the following for approval:

  • All current, open, and active trade-lines
  • Length of credit history
  • Types of credit accounts (mortgage payments, auto loans, credit cards, student loans, child support payments, and any other personal debt that may or may not be on the credit report if it is a recurring monthly payment).

The credit report must have scores for all three bureaus. Negative credit items will be reviewed and possibly addressed depending on the severity of the account. Typically, for minor credit issues, the veteran can write a letter stating what caused the discrepancy and how they intend to prevent it from happening again in the future.

If the veteran has experienced any of the following, they will be required to wait at least 2 years before they can be approved for a VA loan:

  • Foreclosure
  • Auto repossessions
  • Chapter 7 Bankruptcy (the 2 year seasoning period starts on the date of discharge)
  • Chapter 13 bankruptcy (the 2 year seasoning period starts on date filed if the bankruptcy has been discharged)

**Veterans will be required to have perfect credit history after the above mentioned “major” discrepancies occurred to be considered for VA mortgage financing.

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Income Requirements

VA Lenders must be able to review the veteran’s application and determine if they have present and anticipated income that bear a proper relation to the contemplated terms of repayment. Basically, lenders must be able to identify and verify the veteran’s income available to meet:

  • The mortgage payment
  • Other debts and obligations
  • Family living expenses
  • Other shelter expenses

It’s also imperative to evaluate whether verified income is:

  • Stable and reliable
  • Sufficient in amount
  • Anticipated to continue during the foreseeable future

Only verified income can be considered in total effective income.

**Note: In a community property state, such as Texas, information concerning a spouse may be requested and considered in the same manner as for the veteran, even if the spouse will not be contractually obligated on the loan.

Full-time and salaried veterans will need to provide 30 days paystubs and two years of W2s. VA lenders are required to verify employment history is stable. This usually requires the veteran to have at least 12 months at their current job. If not, the veteran will need to show prior employment in the same line of work or training or education related to their current position. Full-time employment is usually considered to be at least 36 hours or more per week.

Self-employed veterans will need to provide two years of tax returns, and a year-over-year increase in income is preferred. Part-time employment may be considered as long as the veteran has been at the same job for a minimum of 2 years.

Other types of income such as VA disability, social security income, and retirement can be considered stable and can be used for qualifying purposes.

**The GI Bill is used for educational purposes only and is not considered stable income.

Debt to Income Ratio

When trying to figure out if the veteran is capable of making their monthly mortgage payments several factors are involved, as mentioned above. This information is used to calculate the veteran’s debt to income ratio (DTI). DTI is defined as the percentage of income that goes toward paying all recurring debt payments, including the potential mortgage payment, and all other debts such as credit card payments, car loan payments, student loans, child support, alimony, and legal judgments.

The target DTI for VA loans is maxed out at 41%, but there are exceptions to the rule if the veteran can meet other compensating factors. Compensating factors that can give a veteran more flexibility include, but are not limited to, the following:

  • High credit scores
  • Large amount of money in reserves/assets
  • Excellent previous mortgage payment history
  • Time at current employer
  • A down payment (even though one is not required this can be considered for an exception)
  • Residual income

How to calculate debt ratio

Take all recurring debt including the proposed mortgage payment and divide that amount by the veteran’s gross monthly income (before taxes). Make sure to use monthly payments of recurring debt when calculating the debt ratio.

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VA Loan Closing Costs

As we have previously discussed, the VA loan does not require a down payment. However, there will be 3rd party fees and prepaid items that are required to be paid on the day of closing. These fees can include the following:

  • Lender Fees
  • Title fees
  • Property taxes
  • Home owner’s insurance
  • VA Funding Fee (if applicable)

Lender Fees – these fees are charged at closing by the VA lender you decide to work with. There is a 1% cap on fees the lender can charge a veteran. However, the lender can either charge the veteran a 1% origination or they can charge up to 1% of standard lender fees, such as but not limited to, underwriting fee, processing fee, attorney fees, and documentation preparation fees.

Title Fees – these fees are charged by the title company that is designated to handle the closing of the loan. These fees can vary from each title company, but they also fall under the 1% cap that can be charged to the veteran if the lender does not charge a 1% origination fee. Some of these fees are, but not limited to, escrow fees, settlement fees, and closing fees.

Property Taxes – this is a real estate tax that is charged by the county taxing authority. Each year the county appraisal district (CAD) will come out and appraise the property. The veteran will be required to pay the annual property tax for the home they own based on the county’s appraised value and their taxing rates. This fee is considered a prepaid expense.

Home Owner’s Insurance - this insurance is required by the lender to cover the collateral used to secure the mortgage loan in case damage is caused to the home such as hail or fire. Lenders must make sure their collateral is covered under the VA minimum requirements. Veterans have the right to pick who they want as their insurance carrier, and they will be required to provide that information to the lender prior to closing. This fee is also considered a prepaid expense.

VA Funding Fee – this is a fee charged by the VA to the veteran at the time of closing. Typically, this fee is financed into the loan, but it can be paid by the seller or buyer at closing in a one-time payment.

Lenders must strictly adhere to the limitations on veteran-paid fees and charges when making VA loans. These fees fall under a list of VA non-allowable fees.

VA Non-allowable Fees

If 1% origination is charged by the lender these fees cannot be charged to the veteran.

  • Underwriting fee
  • Processing fee
  • Attorney fees
  • Pest Inspection fee
  • Escrow fees
  • Settlement fee
  • Closing fee
  • Documentation preparation fee
  • Assignment fee
  • Copying fee
  • Email fee
  • Fax fee
  • Photographs
  • Postage fees
  • Amortization schedule
  • Notary fee
  • Commitment fee
  • Trustee fee
  • Truth in lending fee
  • Tax service fee

The above list is not all inclusive. You may find something other than those listed. These fees cannot be charged by the lender, title company, or the investor if a 1% origination fee is charged to the veteran.

If the 1% origination fee is not charged by the lender, the above list of non-allowable fees can be charged to the veteran provided they do not exceed the 1% cap of the loan amount.

**Finally, there are some fees that can never be paid by the veteran regardless of whether the 1% origination fee was charged or not. These fees are:

  • Termite/Pest Inspection
  • Attorney Fee charged as a benefit to the lender
  • Mortgage Broker Fee
  • Realtor commission
  • Prepayment penalties
  • HUD/FHA inspection fees for builders

Other Important Costs Associated With the Loan

Here are a few other costs the veteran should be aware of before they start the loan process:

  • Earnest Money – this is a security deposit made in good faith to demonstrate the veteran is serious and willing to complete the loan transaction. Once the loan is ready for closing, this deposit will be applied to the veteran’s allowed closing costs or refunded to the veteran.
  • Owner’s Title Insurance - this expense is mandated by the state of Texas and is based on the sales price of the home. It is a form of indemnity insurance which insures against financial loss from liens and other defects in title to real property.
  • Appraisal Fee – this fee is made to the lender as a security deposit, so they can order the VA appraisal directly from the Department of Veteran Affairs. The VA will assign one of their appraisers on a rotating list based on availability. The appraiser should be familiar with the area the subject property is located. The lender does not have the ability to pick and choose the appraiser that will perform the appraisal.
  • Survey – this is required to determine the property lines of the house, land, and anything else tied to the subject property. It can be paid by the buyer or seller. If there is an existing survey we might be able to use it, but we will need the title company to issue a T-47 form.

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VA Funding Fee

Generally, all veterans using the VA Home Loan Guaranty benefit must pay a Funding Fee. This reduces the loan’s cost to tax payers considering that a VA loan does not require a down payment and has no monthly mortgage insurance. The funding fee is based on the following:

  • Type of Loan (Purchase or Refinance)
  • Military category (active duty, reservist, or disabled veteran)
  • First time or subsequent loan user
  • If a down payment is made

You do not have to pay a fee if you are:

  • Veteran receiving VA compensation for a service-connected disability
  • Surviving spouse of a veteran who died in service or from a service-connected disability

The funding fee for second time users who do not make a down payment is slightly higher. Also, National Guard and Reserve Veterans pay a slightly higher funding fee percentage. To determine the exact percentage, please review the latest funding fee chart.

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Property Guidelines

The VA Lender is responsible for exercising due diligence in determining appraisal eligibility. If not, the VA can deny or reduce payment on a future claim based on the ineligibility of the property.

Eligible Properties

  • Existing construction – a home that has been previously occupied and gone through all onsite and offsite improvements for one year or more. VA loans can be made for single family, multi-family, condos/townhomes, manufactured homes, co-ops and new constructions homes. Foreclosures and short sales properties are eligible for VA financing but will need to meet all VA required repairs, if needed.
  • New construction – Newly completed properties by a VA approved builder. In most cases, the builder would need to own the land the subject property is being built on. Otherwise, the loan could be considered a construction loan. We do not offer construction loan financing, but we can refinance the final loan after the transaction has been completed.

**Our investors do not offer VA financing on mobile homes at this time, but the VA does consider them eligible properties.

VA Appraisal

VA approved lenders are required to order the appraisal through the VA website. www.va.gov Appraisers are assigned by a rotational order, and we do not have the ability to request a specific appraiser. Typically, it takes about 5-7 business days for the VA appraisal to be completed after it has been ordered.

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Certificate of Eligibility (COE)

A Veteran is eligible for VA home loan benefits if he or she served on active duty in the Army, Navy, Air Force, Marine Corps, or Coast Guard after September 15, 1940, and was discharged under conditions other than dishonorable after either:

  • 90 days or more, any part of which occurred during wartime, or
  • 181 continuous days or more (peacetime)

2 Year Requirement: A greater length of service is required for veterans who:

  • Enlisted (and service began) after September 7, 1980, or
  • Entered service as an officer after October 16, 1981.

These veterans must have completed either:

  • 24 continuous months of active duty, or
  • The full period for which called or ordered to active duty, but not less than 90 days (any part during wartime) or 181 continuous days (peacetime)

Note: Cases involving other than honorable discharges will usually require further review by the VA.

Wartime and peacetime refer to the following periods of service:

Wartime Peacetime
World War II
9/16/40 - 7/25/47
Post World War II Period
7/26/47 - 6/25/50
Korean Conflict
6/27/50 - 1/31/55
Post Korean Period
2/1/55 - 8/4/64
Vietnam Era
8/5/64 - 5/7/75
(The Vietnam Era begins 2/28/61 for those individuals who served in Republic of Vietnam.)
Post Vietnam Period
5/8/75 - 8/1/90
Persian Gulf War
8/2/90 - Date to be Determined

Eligibility of Reserves and/or Guard

Members of the Reserves and National Guard must provide proof of at least 6 years of service time.

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