Guide to VA Home Loans

By W D Adkins

In the years since the passage of the original GI Bill during World War II, the Veterans Administration has helped millions of Americans purchase homes. The Department of Veterans Affairs' Loan Guaranty Services continues this tradition by guaranteeing home loans for those who have served in the Armed Forces. A VA loan offers a number of benefits, including limits on closing costs, low or no down payment requirements and a flexible credit policy.

To be eligible to apply for a VA loan, you must have served at least 181 days on active duty (90 days in wartime) and may not have a dishonorable discharge. You may also qualify if you're the unremarried spouse of a veteran who died while in service or from a service connected disability. The Department of Veterans Affairs also requires that your total monthly debt payments may be no more than 41 percent of your gross household income, including the mortgage payment.

To establish eligibility, you must file VA Form 26-1880 (see Resources). You will need your discharge (Form DD-2214) to complete and file Form 26-1880. The next step is to locate a VA-approved lender in your area. If you have an account with a major bank, it is probably approved. If not, use the Loan Guaranty Services website to find your local office of Veterans Affairs, which will have a list of approved mortgage lenders. Then submit a mortgage application to the lender, as you would for any mortgage. If you meet the VA credit requirements, a VA guarantee makes your lender's approval virtually certain.

The VA will accept a FICO credit score of 580, provided you meet other conditions. This is considerably lower than other lenders, which require a score of at least 620 and prefer at least 680. If your credit score is low, you will need to show that you've consistently made timely payments of your bills for the previous year (especially on rent or an existing mortgage) and overall responsible use of credit. A low amount of debt, stable employment and substantial savings also work in your favor.

The VA will waive the FICO standard under some circumstances. If a low credit score is linked to problems that resulted from a combat injury, the credit score is disregarded. If you don't have a credit history--and no FICO score--records of rent, utility and phone payments are acceptable. A bankruptcy or foreclosure won't permanently keep you from getting a VA home loan, but you'll need at least two years of on-time bill payments after the event to qualify.

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