Do you qualify for a VA loan right now in Orange County, CA? Do you know what it takes to qualify? Orange County has one of the highest concentrations of military Veterans in the country and yet so many do not realize they are eligible for the VA loan program or even know what it takes to get qualified. First, it is important to understand the basics. What is the Debt to Income ratio and how high can it go? What are the FICO score requirements? What is Residual Income and how does it factor into qualifying for a VA loan? How long do you have to wait after a bankruptcy or foreclosure before qualifying for a VA loan? What are the VA loan limits in Orange County, CA?
Debt to income ratio
The Debt to Income ratio is a calculation that will compare a borrower’s monthly debts to their monthly gross income. The guideline that the Department of Veterans Affairs has set for VA lenders in regards to the Debt to Income ratio is 41%. This means that 41% of the borrowers’ gross monthly income can go towards the total payment (PITI), along with any car payments, installment loan payments, and credit card payments. VA also includes child care in the monthly debt calculation. It’s important to understand that 41% is only a “guideline”. VA does not have a max Debt to Income percentage. It is not unusual for a VA loan to get approved even if the Debt to Income ration is as high as 60%. However, the higher the DTI the more important compensating factors will be. What is more important on a VA loan that the Debt to Income ratio is “Residual Income.”
What is Residual income?
VA loans default at such a low rate partly because of the “Residual Income” requirement. Residual income is the monthly remaining income after a borrower has fulfilled all of their current credit obligations, including the mortgage payments, utility bills, childcare, car payments, etc. The amount of residual income required for a VA loan will vary based on the borrower’s family size and their geographical location. Your Orange County VA lender should take a close look at your Residual Income during the qualifying stage to make sure you qualify for the loan you are applying for.
The Veterans Administration is not a lender. The VA acts as an insurer on VA loans and sets the standard guidelines for underwriting a VA loan. How lenders interpret those guidelines varies from lender to lender. Credit score requirements definitely vary from lender to lender. Most lenders have a minimum score benchmark of 620. Some require higher FICO scores on Jumbo VA loans. Some may even lend at a lower score (like 580). The bottom line is if a lender won’t approve your loan request based on your FICO score, it is worth looking at other lenders to see if you can find someone that will approve your request.
How long do I have to wait after a foreclosure/bankruptcy?
Many borrowers think that a foreclosure or bankruptcy will prevent them from being able to get a VA loan, which is not the case. With a little bit of effort put into credit repair after a major derogatory event, a Veteran can qualify for a VA loan only 2 years after a foreclosure or 2 years after a bankruptcy has been discharged. A 2 year wait period makes VA one of the most flexible loan programs available. Even better, there is no waiting period after a short sale.
VA loan limits
VA county loan limits in California vary from county to county and typically follow the limits set by the Federal Housing Finance Agency (FHFA). The VA will guaranty 25% of a VA loan amount for lenders up to the county limit, which helps to reduce the risk of offering Zero Down home financing to Veterans. The VA county loan limit in Orange County is $679,650 (2018 Loan Limit). It is possible to get a VA loan with a loan amount higher than the county loan limit, but a down payment equal to 25% of the difference between the purchase price and the county loan limit will be needed. A VA loan that is above the 100% financing loan limit is known as a Jumbo VA loan. The Jumbo VA loan program makes it possible for Veterans in Orange County to purchase homes priced higher than $679,650 with a lower down payment than other types of financing. For example, if a Veteran in Orange County is purchasing a home for $1,000,000 in Irvine, which is $320,350 over the $0 down loan limit of $679,650, they would need a down payment of $80,087, which is 25% of $320,350. The VA loan would be $919,912. There is not currently another loan program that would allow for a $1,000,000 purchase with 8% down and have no monthly mortgage insurance.
Authored by Tim Storm, an Orange County VA Loan Officer specializing in VA Loan. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.OrangeCountyVALoans.com. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.