VA Home Loan Process: How to Get a VA Home Loan
For more than 70 years, the U.S Department of Veteran Affairs has been helping veterans and other service members find new homes and secure affordable mortgages through the VA home loan process.
Under the VA loan program, the U.S. Department of Veteran Affairs will finance 80% of the home’s value, or purchase price, and does not require a down payment or mortgage insurance. Since the VA guarantees to pay up to 25 percent of defaulted VA loans, mortgage costs are reduced, which encourages VA-approved lenders to remove costly requirements. Getting a VA loan is simple if you follow the VA home loan process.
Begin the VA Home Loan Process by Determining if You’re Eligible
Before diving into the VA home loan process, it’s important to check whether or not you meet the VA loan requirements. VA home loans are reserved for current or former members of the military, along with surviving spouses of fallen military members or those who passed due to a disability related to their service work.
Active duty members can usually qualify for a VA loan 6 months after starting service while reservists and members of the National Guard have to wait 6 years.
Obtain a Certificate of Eligibility
Typically, the first step of the VA home loan process is to get a certificate of eligibility (COE), which verifies your eligibility for a VA-backed loan. You’ll need to submit information regarding your active duty status, discharge information, or marriage license and death certificate if you are a surviving spouse.
You can apply for a certificate of eligibility online, over the phone, or by mail. If you don’t know how to obtain one, you can wait until you find a VA-approved lender as they’ll be able to help you with that process.
If you prefer to wait until your lender can walk you through the VA home loan process, you’ll have to make sure that they are approved by the VA.
Find a VA-Approved Lender
In order to obtain a VA home loan, you’ll need to go through a VA-approved mortgage lender. This means your mortgage lender will generally specialize in the VA home loan process and your loan will be backed by the VA loan program guarantee.
To receive the benefits of obtaining a VA mortgage, which includes getting a house with little to no down payment, getting better interest rates, and waiving the requirement to pay private mortgage insurance, you’ll want to go through a lender that is experienced with VA loans, rather than lenders that have originated a few amongst a handful of conventional loans. The VA home loan process is unique compared to the process for an FHA loan or conventional mortgage. Be sure to compare VA lenders before moving forward.
Prequalify and Get Pre-Approved
After you find your ideal VA-approved lender and obtain your certificate of eligibility, you’ll need to prequalify, and ideally get pre-approved, before you start looking for homes. This part of the VA home loan process can be taken care of in person with your lender, over the phone, or sometimes even online.
To prequalify, your credit will be run and you’ll be provided with an estimate of how much home you can afford. Lenders like to see a FICO score of at least 620. During the preapproval process, your lender will ask you a series of questions detailing your income, credit history, marital status, bank statements, debt-to-income ratio, and any investments. After the lender reviews your answers, you’ll receive a preapproval letter. A preapproval letter does not guarantee that you’ll receive a VA loan, it merely demonstrates that you are a possible candidate. This is an important step in the VA home loan process because the preapproval letter will show realtors and sellers that the likelihood of you being able to close on a home is high.
After providing you with your preapproval letter, your lender will send you a list of documents that you’ll have to complete and submit for final approval.
Find a Home
Once you are pre-approved, you’ll be ready to start looking for a home within your price range. As of January 2017, the U.S. Department of Veteran Affairs does not have a maximum amount that an eligible veteran can borrow for a home, but they do set caps on the maximum amount they’re willing to guarantee. This means that they will guarantee up to $424,100. However, if you’re looking to purchase in an area that is considered to be “high cost”, your limit may exceed the national average. VA loan limits have been raised in 238 American counties that are deemed to have “high cost” housing prices.
With a VA loan, you can purchase a single-family property, VA-approved condominium, or 2-unit property. Ideally, you’ll want to work with a Realtor who has experience with the VA home loan process so that they can help you properly present an offer.
Get Under Contract
When you find your ideal home and are ready to make an offer, your real estate agent will put together a contract. This is why working with a Realtor who has experience with the VA home loan process can come in handy. There are certain benefits that you can ask for from the seller when taking out a VA loan.
Your Realtor should be able to structure the contract to allow you to put as little as no money down if you choose to take advantage of this benefit. Your Realtor can also include the fact that the VA allows sellers to pay all of a buyer’s mortgage-related closing costs and up to 4% of the purchase price in concessions in your contract.
It’s important to disclose that this offer is provisional as you have not been fully approved for the VA loan. This may seem counterintuitive to providing an offer, but you’re able to submit a deposit, called earnest money, along with the offer to demonstrate how serious you are as a candidate. Should you choose not to move forward with the property, you’ll receive your deposit back and won’t be penalized for retracting your offer. If you chose to work with a Realtor experienced in the VA home loan process, they’ll be able to walk you through this step in more detail.
Order a VA Loan Appraisal
After finding your home, presenting an offer, and getting under contract, you’ll need to have the home appraised. The home appraisal process works like a traditional home appraisal, except the appraiser needs to be certified by the VA. This is due to certain standards set by the U.S. Department of Veteran Affairs to ensure that the property is move-in ready and meets the VA’s minimum property requirements.
Keep in mind that this part of the VA home loan process is not the equivalent to a home inspection and is basically used to establish the value of the home.
With that being said, you do want to get the home properly inspected since the VA requires that any issues found with the home need to be fixed either by you or the seller before the loan closes.
Allow Your Lender to Process the VA Home Loan
Once you’re under contract and the appraisal has been completed, you’ll need to submit the final documents to your lender so that they can send that information to the underwriter for loan processing.
If the home passes the appraisal for value and meets VA property requirements, the underwriter will verify all the financial documents and request additional information that they believe is needed.
Different lenders have different requirements, but you may be asked to submit extra pay stubs or tax returns, re-verify your income 10 days before closing, look at bank statements to see if anything needs more documentation, and so on. This part of the VA home loan process is tedious but marks the final stretch before you close on your new home.
Close on the Home
Finally, after your loan is approved by the underwriter, all that’s left is to close on the loan and move into your new home.
During the closing stage, the property is legally transferred from the previous owner to you. You’ll also need to sign documents that confirm you understand the terms of the loan – if your Realtor was able to come to an agreement with the seller to have them pay some closing costs, or offer concessions at closing, make sure those are addressed. At this point, you’ll need to purchase home insurance, if you haven’t already, and pay any remaining closing costs.
Some closing costs may include a lender’s 1% flat origination fee, a VA funding fee (charged to offset the costs of the VA home loan program based on your veteran type and down payment amount), the appraisal fee, prepaid taxes and insurance, and a credit report fee. This isn’t the full list of closing fees you might have to pay, so it’s best to discuss an estimate of your closing costs early on with your lender and Realtor.
Overall, the VA home loan process can seem like a vigorous one, but there are many advantages of using this loan program if you are a veteran or military service member. You just need to make sure you’re working with lenders and realtors who understand the process on how to get a VA loan to make everything run smoothly.