`One of the major factors regarding any type of VA benefits is the type of discharge you had upon leaving the military. This is definitely true for VA loan eligibility as well. You might not need strictly honorable discharge in order to receive benefits, but there are certain types of discharge that will require further review and yet one that will render you ineligible for the VA loan altogether.
The Time Served
Before you can even consider if your type of discharge enables you to be a good candidate for the VA loan, you have to look at the time you served in the military. If you did not serve the minimum required time, then you may not be eligible for the benefits in the first place. The time requirements are as follows:
- If you served during wartime, you must serve at least 90 consecutive days in order to be eligible
- If you served during peacetime, you must serve at least 181 consecutive days in order to be eligible
- If you served in the Reserves or National Guard, you must serve at least 6 years in order to be eligible
If you served the correct amount of time, you should file VA Form DD 214 with the VA. This gives them the opportunity to determine your eligibility based on the information you provide and their own records.
Types of Discharge other than Honorable Discharge
Once you know that you served the required amount of time, you have to consider whether your discharge qualifies you or not. The following types of discharge are generally acceptable for VA loan benefits:
- Honorable Discharge (HON) – This means you left the military with a good record and there were no issues to speak of upon your departure. Your service either met or exceeded the expectations set forth for your time in the service and your personal conduct was exemplary. In some cases, you might not have finished your term due to personal issues (family responsibilities, etc.) but you still left under good conditions.
- Under Honorable Conditions (UHC) – This is the next best type of discharge. This status means your discharge was under satisfactory conditions. Your service did not exceed expectations and you might have had a few minor infractions that prevented you from securing an Honorable Discharge. This type of discharge still enables you to receive VA loan benefits.
- Other than Honorable Discharge (OTH) – This type of discharge signifies that there were problems during your time of service. It is the least favorable of the honorable discharge types. The behaviors that could occur to warrant this type of discharge include violence, the use of drugs and insubordination.
- Bad Conduct – Any soldier guilty of any type of offense that he was found guilty for in court results in a bad conduct discharge.
Soldiers with an Other than Honorable Discharge or Bad Conduct Discharge generally are ineligible for VA loan benefits. However, the final determination is up to the VA itself. They will look at the situation leading up to the discharge as well as whether the solider completed his term of service or not. A solider that completed his time of service has a better chance at gaining VA benefits than one that the service discharged before his service time was complete.
The Other Requirements
A soldier that has eligibility based on his type of discharge does have rights to the VA loan, but that is just one part of the equation. The soldier and any co-borrowers need to meet the remaining requirements in order to obtain a VA loan. This includes certain credit and financial requirements.
Minimum Credit Scores
One thing the VA does not specify is the minimum credit score they allow for a VA loan. Generally speaking, most lenders will not accept a credit score lower than 620 as the risk becomes too high. However, there have been cases where the VA approved loans with scores as low as 580. The credit score is just one piece of the puzzle, though. If the credit score is low, but the other factors are favorable, such as a low debt ratio and high disposable income, then the borrower has a better chance of obtaining approval.
Maximum Debt Ratios
Debt ratios are another measure of how risky you are for a bank. The VA does not have maximum debt ratios set for the loan program, however. They focus more on the amount of disposable income you have each month. This typically equates to a favorable debt ratio if you fall within the parameters the VA set for your area of the country. This is important because the VA believes that disposable income is much more important than focusing on the debt ratio of the borrower. The more money a person has at their disposal at the end of the month, the more likely he is to make his mortgage payments on time because daily living expenses do not become a struggle.
The VA will also look at other factors in your loan profile. They will look for bankruptcies and foreclosures in your credit history. They will also look at the stability of your employment and your income history. What they want to see is not perfection, but someone that learned from their mistakes and picked up the pieces. This means that if you have a bankruptcy in your past, you are not automatically ineligible for a VA loan. It does mean, that you have to wait at least 24 months after the discharge of your bankruptcy in order to qualify if you filed a Chapter 7 bankruptcy. If you filed for a Chapter 13 bankruptcy, you must wait 12 months after the date you filed for the BK as well as obtain approval from the trustee that oversees your BK to ensure that you can add another payment to your monthly obligations.
The VA also wants to see a stable employment and income history. This does not mean that you cannot change jobs, but it should be within the same industry and provide the same level of income, if not more income. If you have a decrease in income over the years or you held many jobs over the past few years, you might look like a higher risk to the VA and have some explaining to do before you can utilize your VA benefits.
Overall, having an honorable discharge, a good credit score, stable employment history, and enough disposable income is your best bet at obtaining a VA loan. That does not mean that you will not be eligible if everything does not fall into place as perfectly as this – you might have to provide more explanations and go through more scrutiny though. However, if you have a Bad Conduct discharge or even an Other than Honorable Discharge, you will have to go through the VA to determine your eligibility.