Military spouses often play key roles in the homebuying process. Here we take a deep dive into what spouses can expect and how to be better prepared for your homebuying journey.
Military spouses often play a critical role in the VA loan process.
Some handle the entire transaction for their Veteran or service member. Others come to the process solely as co-borrowers on their spouse’s loan, providing effective income that helps couples qualify for a larger loan amount. Some military spouses even have their own VA loan eligibility in the wake of a loved one’s passing.
That’s why we created this guide to the VA loan for military spouses. Every Veteran and spouse’s homebuying journey looks different, but this is a good place to start.
VA loans are the most powerful home loan option for many military families. These loans are made by private lenders like Veterans United and backed by the Department of Veterans Affairs.
VA loans have been helping Veterans, service members and military families become homeowners for more than 75 years, thanks in large part to some big-time benefits.
This isn’t to say that a VA loan is the right fit for every Veteran or military family. There are pros and cons to all the different loan types. But the VA loan remains an incredibly powerful tool for Veterans and service members. In some cases, it’s the Veteran’s only financially feasible shot at homeownership.
A good mortgage lender can help you evaluate your options and get a clear understanding of what loan types you’re eligible for and what might be the best fit for you.
Aside from the advantages, VA loans aren’t much different from other types of home loans, especially when it comes to the homebuying and mortgage process.
This key question sets the path for military spouses. Many Veterans and service members want or need their spouse’s income in order to maximize their homebuying budget, but that doesn't mean spouses have to be on the VA loan.
When it comes to how much you can borrow, lenders can count income only from people on the loan. But being on the loan also means military spouses must meet lender and VA guidelines for credit, debts, income and more. We’ll take a closer look at some of those considerations shortly.
The bottom line is spouses with credit or debt issues might have to stay off the loan, which can limit the Veteran borrower’s purchasing power. Veterans with sufficient income can also opt to be the sole borrower. In either scenario, the military spouse becomes what’s known as a “non-purchasing spouse.”
In most cases, lenders won’t consider the credit score or financial information of a non-purchasing spouse. But there are nine states where this isn’t always the case — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. These are the country's nine community property states where lenders can consider a non-purchasing spouse’s credit and debts.
Guidelines on community property states can vary by lender. At present, Veterans United doesn’t consider a non-purchasing spouse’s credit score or derogatory credit (things like collections, foreclosures, bankruptcies and more). But we do look at a non-purchasing spouse’s debts and liabilities in community property states, which get factored into the loan file’s overall debt-to-income ratio and residual income. We also have to consider non-purchasing spouses’ judgments or liens in community property states.
Moving forward, we’ll focus on military spouses planning to be co-borrowers on a VA loan.
Every borrower on the loan must meet the lender’s minimum credit score for VA loans. Those benchmarks can vary by lender and other factors.
A Veteran with outstanding credit can’t somehow compensate for a spouse whose score is below the lender’s cutoff, and the reverse holds true as well. Both borrowers either meet the requirement or don’t.
There is no minimum credit score requirement for a VA loan, but most mortgage lenders want to see a FICO credit score of at least 620. At Veterans United, prospective buyers who don’t meet our benchmark (currently 620) can work for free with our credit experts on a plan to boost their scores into the qualifying range.
Lenders will quote VA loan interest rates based on credit scores. When there are multiple borrowers on a loan, lenders will base their rate quote on the lowest score.
Credit score is an important consideration, but lenders are also on the lookout for negative issues on your credit reports like bankruptcies, foreclosures, judgments, liens, collections and more. Some derogatory events, like bankruptcy and foreclosure, can mean a mandatory waiting period before you’re able to close on a home loan. Others such as judgments and liens, could be satisfied at closing or with a solid repayment history.
Guidelines and policies for these types of derogatory credit can vary by lender.
Lenders consider each co-borrower’s credit score separately, but they look at your combined debts and income when calculating things like debt-to-income (DTI) ratio and residual income. These are two important guidelines for VA lenders.
DTI ratio is the relationship between your gross monthly income and your major monthly debts. For example, if your gross monthly income is $5,000 and your major monthly debts (including the new mortgage payment) are $2,000, then the two of you have a DTI ratio of 40 percent.
Guidelines and maximums for DTI ratio can vary by lender and your specific situation. But borrowers with a DTI ratio above 41 percent face more stringent requirements for residual income, which is essentially VA’s guideline for discretionary income.
With residual income, the VA wants to make sure you have a minimum amount of money left over each month after covering your big expenses, including the new house payment. Residual income guidelines vary by family size and where you’re buying.
Borrowers with a DTI ratio greater than 41 percent have to exceed their required minimum by 20 percent to meet the guideline.
It’s important to understand that income isn’t always as simple as what you make every month. Lenders are looking for income sources that are stable, reliable and likely to continue.
Borrowers with part-time jobs or self-employed will often face tougher requirements than those with full-time employment. Commission and overtime pay can also complicate things.
Lenders will evaluate employment and income scenarios on a case-by-case basis. We’ll take a closer look at some common employment considerations for military spouses in the next section.
There are certain situations where military spouses might be able to use their income to basically cancel out some of the Veteran’s debts, even if the spouse isn’t on the loan. Talk with a Veterans United loan specialist for more details.
Income stability is a key factor for VA lenders, who want to feel good about your willingness and ability to repay the loan. For military spouses relocating to a new community or state, lenders will want to verify your employment if you'll be on the loan.
Generally, you would need to have a job lined up in the new location or work remotely. If you’re getting a new job, lenders will take a closer look at how it relates to your previous line of work or your education. Lenders might not be willing to count your new income right away if they feel there isn’t sufficient continuity between the new job and your past experience.
Every co-borrower’s employment scenario is different, and polices on job gaps/changes can vary by lender. If you’re planning to change jobs as part of a home purchase, it’s best to talk with a loan officer as soon as possible. You don’t want to get too far down the road before learning you won’t be able to count your income for the new loan.
Like all government-backed loans, VA loans come with occupancy requirements. Borrowers must intend to occupy the new home as their primary residence, typically within 60 days of closing.
In most cases, military spouses cannot fulfill the occupancy requirement for a Veteran buyer. Couples might not be able to move forward on a VA loan if the Veteran can’t move into the home within the acceptable time frame.
The big exception is for active duty borrowers. Military spouses can always fulfill the occupancy requirement for service members on active duty, including geographic bachelors.
Some lenders may also require military spouses to meet the occupancy guidelines if they’re a co-borrower on the loan. Policies on this can vary by lender, but Veterans United doesn’t currently require this.
Generally, we would still count the military spouse’s income in the old location as long as it appears likely to continue. We would also have to consider their travel expenses between the two communities when calculating things like DTI ratio and residual income.
Many military spouses are familiar with Power of Attorney (POA), which allows Veterans and service members to designate another person to sign legal documents and execute contracts on their behalf.
VA buyers can utilize POA and their attorney-in-fact to close on a loan, and it’s important for military spouses to understand the basic requirements and guidelines. The VA requires the Veteran’s written consent for the transaction in either a General POA or a Specific POA.
General POA is a broad-based green light for the attorney-in-fact to make all kinds of financial decisions for the Veteran or service member. These aren’t limited to a particular type of contract or financial activity.
With a Specific POA, the attorney-in-fact is limited in what they can execute on for the Veteran or service member. These typically feature clear restrictions that spell out exactly what the attorney-in-fact is allowed to do, along with the terms of the transaction in the case of VA lending.
No, eligible Veterans and service members have the option to put their spouse on the VA loan. However, adding a spouse as a co-borrower could increase the amount you qualify for.
No, military spouses may not use their partner’s VA benefits. The VA-eligible Veteran must be the primary borrower. However, military spouses can become a co-borrower or co-signer.
Surviving spouses may be eligible for a VA loan, typically if they haven’t remarried and their spouse died in the line of duty or due to a service-connected disability.
If you’re currently divorcing a spouse you co-borrowed a home with, your next steps will probably depend on your lawyer and lender. If you’re already divorced from a Veteran or service member, you cannot get a new VA loan using their eligibility.
Learning about the VA loan process before you start can make a huge difference, especially for first-time buyers. This guide is meant to be an overview – every Veteran and military spouse’s purchasing picture is different.
If you have questions about your specific situation, please feel free to leave them below or contact me directly at email@example.com.
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