Va Home Loan Reserve Requirements Explained in Detail

The VA home loan reserve requirements can be a bit confusing, but don't worry, I've got you covered. The VA requires a 25% reserve for a 10-year period, which is the maximum amount of money that can be borrowed.

To qualify for a VA loan, you need to meet the VA's reserve requirements, which are outlined in the VA's guidelines. The VA's reserve requirements are designed to protect the borrower and the lender from financial risk.

The VA's reserve requirements are based on the borrower's income and creditworthiness, as well as the loan amount and loan term. For example, if you're borrowing $200,000 with a 30-year loan term, you'll need to have a 25% reserve of $50,000.

The reserve amount is calculated by multiplying the loan amount by 25% and then dividing by 10 years.

Six years of service in the National Guard is the typical requirement for VA loan eligibility. This is the catch-all requirement, but there are circumstances where you can earn eligibility before six years.

National Guard members called to active duty service under Title 10 have gained VA loan eligibility for decades as long as they serve at least 90 consecutive days. This is a significant benefit for those who have served in this capacity.

You may also qualify if you were discharged or released from active duty due to a service-connected disability prior to the six-year mark. This is an important exception to the general rule.

To verify your VA loan eligibility, you can check the VA's website or consult with a Veterans United VA loan expert.

Here are the specific documents you may need to provide to your lender:

Remember to check with your lender for specific requirements, as they may vary.

Lenders will look at your history of service and indications that it's likely to continue when counting National Guard and Reserve income.

Your income from National Guard or Reserve service could cancel out other expenses expected to last a year or two. Lenders may also inquire whether your income could change based on your unit's activation.

The VA funding fee is typically 2.15% or 3.3%, depending on the specifics of your loan. You can use a VA funding fee calculator to figure out your fee.

You can finance the VA funding fee into the loan or ask the seller to pay it.

The VA funding fee is a crucial aspect of VA home loans. It's a fee that goes directly to the Department of Veterans Affairs to help keep the program going for future generations of service members and Veterans.

The VA funding fee is typically 2.15% or 3.3% of the loan amount, depending on the specifics of your loan. You can use a VA funding fee calculator to figure out your exact fee.

Before January 1, 2020, National Guard and Reserve members paid a higher VA funding fee. Now, the funding fee is equal for all service types and only changes based on down payment and prior VA loan usage.

Recipients of VA home loans also have a lower funding fee than traditional loans. VA funding fees are usually only around 1 to 3 percent of the loan amount.

You'll typically need a two-year tax history as a landlord to count projected rental income toward loan qualification with a VA loan.

Many lenders require cash reserves in these situations, and Veterans United is no exception, needing six months' worth of mortgage payments in cash reserves.

If you're counting income from an existing rental property you never occupied, you'll often need cash reserves and a two-year history of receiving rental income.

In these cases, Veterans United requires three months' reserves.

Borrowers who've converted a primary residence into a rental property more than 12 months ago may also need cash reserves.

Lenders typically consider cash reserves in the context of your monthly mortgage payment, requiring a certain number of months' worth of mortgage payments in the bank.

For VA loans, having a solid stockpile of documented funds can serve as a compensating factor to help buyers overcome other potential deficits or issues with their loan file.

Cash reserve policies can vary by lender and other factors, so it's essential to understand the specific requirements for your loan.

VA buyers seeking a jumbo loan may need to meet reserve requirements, which can be a concern if you own other properties.

Veterans United typically does not require cash reserves for jumbo VA loans, but this can be a need in certain situations.

For conventional home loans, you'll usually need to demonstrate that you have a reserve of funds to pay off a certain amount of your loan.

VA home loans have more lax reserve fund requirements compared to conventional home loans.

To qualify for a VA loan, you'll need to meet the minimum service requirement, which can vary depending on your situation. For example, six years of service in the National Guard or Reserve is the catch-all requirement, but there are circumstances where you can earn VA loan eligibility before six years.

Active-duty service members who have demonstrated unwavering commitment and continuous service in the military are eligible for VA loans. Honorably discharged veterans who have proudly served in the military can also meet the criteria for a VA loan.

To get a Certificate of Eligibility (COE) for a VA home loan, you'll need to gather required military service documents and submit a VA Form 26-1880. This will verify your eligibility for a VA loan. You can obtain a COE from the VA or a VA-approved lender.

Here are the types of individuals who may qualify for a VA loan:

National Guard and Reserve members who have served 90 cumulative days of full-time duty, with at least 30 consecutive days, can now be eligible for a VA loan.

This change in legislation is a huge difference-maker for Guardsmen mobilized under Title 32 orders. As many as 50,000 Guardsmen mobilized for the COVID-19 pandemic may gain immediate access to the home loan benefit.

The new legislation is also retroactive, meaning National Guard members who served decades ago and now meet the new Title 32 guidelines could now be eligible for a VA loan.

Here are the specific requirements for National Guard loan eligibility:

Note that this is a significant expansion of eligibility, and Guardsmen should talk with a Veterans United VA loan expert to determine their specific eligibility.

Compensating factors can be a game-changer for borrowers with less-than-perfect credit or income.

Lenders may be willing to extend their cap on debt-to-income ratio for borrowers with one or more compensating factors.

Having four months' of reserves after closing is considered a compensating factor by some lenders, such as Veterans United.

Borrowers can count regular debt payments to supplement any shortfalls, which can help meet the reserve requirement.

A borrower with a $1,000 monthly mortgage payment would need $4,000 in reserves to qualify, but can proceed with just $3,000 if they make $1,000 per month in debt payments.

Additional payments can be considered as a compensating factor if they occurred within the previous 120 days.

The VA doesn't set limits on what credit score you need to use a VA loan, but lenders often have a minimum credit score to approve these home loans.

Typically, the minimum credit score for VA home loans is around 600.

Lenders use credit scores to determine the risk of lending to you, and a higher credit score generally means better loan terms.

Having a good credit score can also help you qualify for lower interest rates and lower monthly payments.

A credit score of 600 may not be the only factor lenders consider, but it's a key part of the approval process.

Some lenders may have slightly different credit score requirements, but 600 is a common minimum.