Every month or two, I’ll come across this question or a slight variation of it: “Does a disabled veteran qualify for a VA home loan?”
It’s a trickier question than it might first appear. Military borrowers have multiple requirements to hit in order to fully qualify for a VA home loan, from meeting the service standards and a lender’s credit score minimum to residual income and acceptable debt-to-income ratio. But in some respects, the general answer couldn’t be clearer.
Nothing about your disability rating by itself is going to negatively affect your chances. In fact, VA lenders can count disability income as effective income toward a mortgage, and borrowers with a service-connected disability are exempt from paying the VA Funding Fee, a mandatory cost the VA applies to every purchase and refinance loan to help cover losses and ensure the program’s continued success.
VA Funding Fee Exemption
Being exempt from paying the funding fee is a big benefit. This fee is a percentage of the loan, and it goes straight to the VA. For many first-time buyers the fee is 2.15 percent, which on a $150,000 loan is $3,225. Borrowers without an exemption can ask the seller to pay this or pay it themselves, either up front or over time by rolling it into the mortgage.
It’s not uncommon for VA borrowers to be in the process of receiving a disability rating during the purchase process. Sometimes they won’t receive word until after the loan closes. In cases like this, veterans who receive a disability rating can apply for a refund if the effective date of their VA disability compensation is before the loan closed.
You can’t retroactively apply your disability compensation once it arrives, but borrowers can choose to pay down some of their mortgage with that lump sum. There are no prepayment penalties on VA loans.
Counting Disability Income
Like any other prospective borrower, disabled veterans who are eligible for a VA home loan don’t get one automatically. They’ll still need to meet a VA-approved lender’s credit and underwriting requirements. Generally, VA lenders are looking for a least a 620 credit score to move forward. Stable, reliable income that’s likely to continue is critical. So is having a healthy balance between debt and income.
Disabled veterans may also be able to tap into the VA’s Specially Adapted Housing (SAH) grant program. This helps veterans adapt or retrofit properties to meet their unique needs. Grants can run up to $5,000 and even $10,000 in some cases. Every borrower’s situation is different, so it’s best to contact the VA directly to determine whether you’re eligible to utilize the SAH program.