How To Improve Your Chances Of Getting A VA Loan In 2023
A VA loan is a valuable benefit for service members, veterans, and their families, offering competitive interest rates, no down payment requirements, and no private mortgage insurance (PMI). However, qualifying for this benefit can often seem like an uphill battle.
Here are ten actionable steps to improve your chances of securing a VA loan in 2023.
1. Build A Strong Credit History
The first step in securing a VA loan starts with your credit history.
While VA loans are more forgiving than conventional loans, lenders still look at your credit score to determine your ability to repay the loan. Agencies such as 1st United Mortgage will use this information to decide whether or not to approve your loan application.
To build a strong credit history, ensure you pay all your bills on time, keep your credit card balances low, and be mindful not to apply for too much new credit at once. Reviewing your credit reports regularly can also help you identify any errors that might be dragging your score down.
2. Demonstrate Stable Employment
While VA loans don’t require a specific income level, lenders want to see that you have a reliable income. Demonstrating stable employment or a consistent income source improves your chances of approval. In general, lenders prefer borrowers who’ve been in the same job or industry for at least two years.
3. Keep Your Debt-To-Income Ratio Low
Your debt-to-income (DTI) ratio is another crucial factor lenders consider when assessing your loan application.
This ratio is the percentage of your gross monthly income that goes toward paying debts. The lower this ratio, the better your chances of approval. Aim for a DTI ratio under 41% to increase your chances of getting approved for a VA loan.
4. Save For Closing Costs And Funding Fees
Although VA loans do not require a down payment, there are still closing costs and funding fees associated with securing the loan. While it’s possible for the seller to pay some of these costs, it’s not guaranteed. Therefore, saving up to cover these expenses can smoothen the loan acquisition process.
5. Get A Certificate Of Eligibility
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Before you apply for a VA loan, ensure you have a Certificate of Eligibility (COE).
The COE verifies lenders that you meet the minimum service requirements for a VA loan. It’s possible to apply for a VA loan without a COE, but having one can speed up the process and improve your chances of approval.
6. Work With A VA-Experienced Real Estate Agent
Working with a real estate agent experienced in VA loans can be a game-changer. These agents understand the VA loan process and can help navigate the intricacies of the loan, including helping you find a VA-compliant property.
7. Understand Your VA Entitlement
Your VA entitlement is the amount that the Department of Veterans Affairs guarantees on your home loan.
While you don’t need to use your entire entitlement, understanding how much you’re entitled to can help guide your home shopping process and influence your loan approval chances. You can find this information on your Certificate of Eligibility.
8. Choose A VA-Approved Lender
Not all lenders can issue VA loans, so it’s crucial to ensure that your chosen lender is VA-approved. These lenders understand the VA loan process thoroughly and can guide you through the steps required to secure the loan.
Working with a VA-approved lender will likely improve your loan approval chances and the overall borrowing experience.
9. Avoid Major Purchases Before Applying
Lenders examine your entire financial picture when deciding whether or not to approve your VA loan. That includes checking for recent large purchases that could impact your ability to repay the loan.
Avoid buying expensive items like a new car or large appliances before applying for your loan, as these can affect your debt-to-income ratio and potentially hinder your approval chances.
10. Take Advantage Of VA Loan Education Resources
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The VA provides a wealth of resources to help veterans understand the loan process. Take time to educate yourself on the ins and outs of VA loans.
Knowledge is power, and understanding the specifics of VA loans can help you navigate the process and improve your chances of securing the loan.
In Conclusion
Securing a VA loan may seem daunting, but it doesn’t have to be. By building a strong credit history, demonstrating stable employment, keeping your DTI ratio low, saving for closing costs and funding fees, obtaining a COE, and working with a VA-experienced real estate agent, you can significantly improve your chances of securing a VA loan in 2023.
Remember, a VA loan is not just a privilege; it’s a benefit you’ve earned through service. By understanding the VA loan process and preparing accordingly, you’ll be well on your way to homeownership.
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According to Wall Street Mojo, “Debt Service Coverage Ratio (DSCR) calculates the ability of companies to manage their current debt obligations using the available resources. The computation of this ratio allows stakeholders to assess the company’s financial state and check if it is capable enough to repay its outstanding long-term and short-term dues.” Basically, the debt service coverage ratio helps you to measure the available cash flow of the company to pay its current debt obligations. By calculating this ratio, investors and lenders can determine whether the company has enough income to pay off its debts or not. You can calculate this ratio once you divide the net operating income of the company by debt service, including principal and interest. When you find out the debt service coverage ratio of a company, you will be in a better position to decide whether to invest in a company or not. Or, if you are a lender, you will be able to decide whether to approve a particular company’s loan or not, provided the company’s current availability of resources. The higher the ratio for the company, the better the chances are for the company to get more loans, credits, and investments. Read More: Entrepreneur : Who Coined The Term ‘Entrepreneur’? What Is The Formula Of Debt Service Coverage Ratio (DSCR)? By determining the debt service coverage ratio of a company, you will be able to learn the financial health of the company. If the company has a lower ratio, it means that the company has a higher chance of defaulting on payments. According to Indeed.com, “To understand a company's financial health, a financial analyst compares it with other companies operating in the same industry. Comparing the DSCR ratio of an airline company, which uses larger debts, with a software company, which uses minimum debt and more equity financing, is inappropriate because both companies have different debt structures.” Here is the formula for the debt service coverage ratio (DSCR): Debt Service Coverage Ratio = Net Operating Income / Total Debt Service Here, Net Operating Income = Total Revenue - Certain Operating Expenses and Total Debt Service = Interest + Principal Payments + Lease Payments How Does The DSCR Work And What Are Its Uses? According to Investopedia, “The debt-service coverage ratio is a widely used indicator of a company's financial health, especially those who are highly leveraged with debt. Debt service refers to the cash needed to pay the required principal and interest of a loan during a given period. 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