Government guaranteed home loans administered by the Department of Veteran Affairs have been recognized as some of the best home loans available. However, on June 25th, 2019, significant changes were made to these loans, with the signing of the Bluewater Navy Veterans Act, which made the already outstanding home loans even better.
The law brought many changes to VA loans: However, the most significant one was removing loan limits for first time VA loan recipients. Now veterans, active-duty service members, and eligible spouses can buy property all over the country as long as they can make their monthly payments. However, government-sponsored lenders who distribute these loans are still required to make sure that the borrower can afford their monthly payments.
Some lenders have even adopted loan limits for how much they are willing to lend out with no money down. One such lender is VA Home Loan Centers, which implemented a $5 million loan limit for zero down for first-time borrowers. Therefore it is possible to take out a $5 million loan as long as the applicant’s income is enough to cover their monthly payments.
Real estate experts recommend that an individual’s mortgage shouldn’t take up most of their monthly income; that’s why there is a practice named the 28/36 rule. This means that an applicant’s mortgage should not exceed 28% of their monthly income. Simultaneously, their debt-to-income ratio should not be higher than 36% of their total revenue. By these standards, a 30-year fixed-rate, five million dollar VA home loan borrower should make about $93,000 per month to be eligible.
Therefore it is possible to take out a $5 million loan for no money down, as long as the borrower makes enough to cover the monthly payments.
VA Home Loans
Since its creation on June 23rd, 1944, as part of the Servicemen’s Readjustment Act, the VA home loan program has allowed 22 million veterans to become homeowners. This is mostly due to the excellent benefits that the program offers to eligible service members.
These benefits include no down payment requirements, lower monthly payments, low-interest rates, no-prepayment penalties, and no mortgage insurance premiums. Additionally, these loans also come in both 15 and 30-year fixed-rate mortgage options. Fixed-rate mortgages like these have interest rates that remain the same throughout the life of the loan.
In addition to removing loan limits for VA home loans, the year 2020 also saw the increase of loan limits for borrowers with more than one existing VA loan. These limits saw an average increase from $484,350 to $510,400, although some county limits are higher depending on their cost of living.
VA Loan Eligibility Requirements
Before the applicant can enjoy the benefits that VA home loans offer, they must first meet the loan’s eligibility requirements. These include property, income, credit, and military service requirements. The latter ones are:
– Serve at least 90 consecutive days of active duty during wartime.
– Serve at least 181 consecutive days during peacetime.
– If the applicant is a member of the National Guard or Reserves, they must have served at least six years.
– Eligible spouses must have lost their spouses while on duty, or due to an injury sustained while on duty.
Property Requirements for a VA Home Loan require that the loan be either a single-family residence, a multi-family dwelling, or an eligible condo. All of these properties must be safe to move into and must meet all hazard and safety standards. Additionally, manufactured home and mobile homes are also eligible. However, they must be on a permanent foundation, and mobile homes must be double wides.
Eligible incomes include full-time job incomes, self-employment incomes, rental incomes, and many more. However, there are a few incomes that do not qualify for a VA loan. They include unemployment (unless it is typical for that line of work), workers compensation, GI bill income like BAH, and cash payments.
Finally, when it comes to having a satisfactory credit score, VA home loans do not have a set credit score requirement. However, lenders do, and on average, that requirement is at 640 FICO credit score to be eligible. The good thing is that it is still possible to qualify for a VA loan with a lower credit score as some lenders will help you become eligible for a home loan.
As of January 1st, 2020, when the bluewater navy act became law, it is possible to take out a $5 million home loan and enjoy all of the other benefits that VA loans offer. However, the applicant must have the income required to make their monthly mortgage payments.
Phil Georgiades is the CLS of VA Home Loan Centers, a government-sponsored brokerage specializing in VA home loans. He has about 22 years of professional experience working in real estate.