How to better understand the market, what your income needs to look like for you to be able to qualify, what your credit and debt situation must be ,how much money you need to have saved, and also how to find, structure, and negotiate the perfect deal for you to win in 2024.Â
I will show you how to navigate the VA loan process.
1. The Market.
A lot of people are always trying to time the market, but what ends up happening is they end up taking no action simply because they miss out on the opportunity that they would have had from appreciation and equity gained over the time that they had owned a property to begin with.
Take a look in May of 2022, the median home price peaked at 430,000. Well, 18 months later today, the median home price is at 412,000, a 5% decrease. Some people would look at this and say, if you bought a house prior to that point, you lost money.
When you buy real estate, you build wealth over the time that you own it. As time goes on, the property goes up in value and the debt that is associated with the property goes down, thus creating equity for you.
Real estate is a safe investment because it’s far more than just simply putting money in to like the stock market. Real estate provides shelter. It provides a place of peace, home, safety. It provides something to families that’s far more than just something that changes your bank account balance.
2.Your income.
When it comes to your income and trying to qualify with the VA Home Loan Benefit, they’re going to use your gross income. And this is the money that you have coming in before taxes are taken out. The different forms of income that you could have could be from VA disability, Social Security, or SSDI. It could come from a pension. It can come from retirement, or it can come from a form of employment like hourly, salary, or active duty military as other different forms as well. When it comes to your hourly and salary forms of wages, what they’re going to look for is that you have been working in that line of work for two years. Now, it doesn’t mean that you have been with the same employer or even the same type of employer. What they’re looking for is the same type of work that you’re doing. Here’s an example. Let’s say you’re a receptionist at a law office, and then you go from being a receptionist at a law office to a receptionist at a gym. Well, you’re still a receptionist. Those two jobs can translate together, even though the two industries that you’re working in are different. That’s what they’re looking for in those circumstances.
3.Previous employment history.
This can actually be from college or trade school. Let’s say that you’re now working as a registered nurse and you’ve only been a registered nurse for 30 days. Well, if it took you two years to get your degree in order for you to do your job, that time frame of the time you spent in school actually counts as prior employment history, which means that you technically do not need to wait to buy a home until you’ve been on a job for two years.
If you are coming out of college or coming out of a form of trade school, I’ve seen people do it literally within the month out of school and be able to achieve home ownership. Now, another form that I have not talked about is going to be commission income. And where this really goes into commission, bonus or overtime income, those different forms of income fluctuate, which means that when you are using any of those forms of income, it is going to be required that you have been receiving that income for at least two years. The reason for that is because of, as I mentioned, the fluctuation in the income across different periods. And what they’re going to need to do is take an average across the two years to determine what your qualifying income would be. Now, if you are an hourly employee and you’re also receiving a overtime as well or a bonus, but it hasn’t been two years, it doesn’t mean your hourly employment or your hourly income doesn’t count. It just means that they’re not going to use the bonus or overtime income as additional income.
The only way that additional income can count is if you’ve been receiving it for at least two years. Now, if you are self-employed, this is a little bit unique. Self-employed again is also going to be a two-year average, but they’re going to be using the tax returns. Because you’re self-employed, you have a lot of different tax benefits that go on with your situation, which means that your lender is going to need to review your tax returns to come up with that to your average. So if you are being very aggressive with write-offs and taking advantage of, unfortunately, all of the perks that come with being a business owner, well, it’s also going to probably bite you in the butt too, because it’s going to make it look like you’re not making much money. So the way I would say around this or to work through this is to have a good VA loan specialist and also your CPA working together to find the happy medium in regards to what write-offs you can use to still allow you to have enough income showing in your situation to allow you to qualify for a home.
4.Your credit.
When it comes to credit, the VA’s requirement is actually that there is no minimum credit score. The VA is not the one who actually does loans. It’s lenders who do loans. The VA just guarantees and determines who’s eligible, which means that you need to know what is the minimum credit score that you need to have with the lender that you’re working with. Most of them require 620. Some will require as low as 580, and very few will allow you to have less than that.
So know what your credit score requirement is with the lender you’re working with. If you find yourself in that lower tier of the credit spectrum. The different credit bureaus that are out there to determine your credit scores are going to be Experian, Equifax, and TransUnion. When applying for a mortgage, they’re going to pull all three for every borrower. If it’s just you on the loan, they’re going to pull those three and throw out whichever is the higher score, whichever is the lower score, and they’re going to use whichever one falls right in the middle.
