When buying a home, veterans or active duty personnel can use a VA loan to finance the purchase. Many lenders around the US offer these types of federally guaranteed mortgages, which tend to offer attractive fixed-rate loans with little or no money down.
Borrowers need to understand how VA loans work and how to obtain one to take advantage of the program's many benefits.
How Does A VA Loan Work?
The Department of Veterans Affairs partially backs VA loans, which private lenders finance. In addition to the benefits the VA may guarantee, there are limitations called "entitlements."
There are no low down-payment requirements for VA loans for primary residences for qualified borrowers. Veteran homeowners can also qualify for mortgages with laxer income and credit requirements.
VA Loan Requirements
There are a few requirements that borrowers must meet before they are approved for VA loans, including having a primary residence, sufficient income, and satisfactory credit (although no minimum credit score is required). Before applying for a VA loan, borrowers must complete the VA Certificate of Eligibility (COE) requirements.
Generally, people who meet these criteria are eligible:
- A minimum period of active duty service is required for service members
- Veterans who have met the service length requirements
- Survivors of deceased veterans who meet the eligibility requirements
- Reservists and National Guard members who qualify
How To Get A VA Loan
Typical, the VA loan procedure looks like this:
1. Look For A VA-Approved Lender
Obtain a VA loan from a lender who participates in the program. Identifying the type of documentation you will need, and the size of the loan you qualify for may be possible with the help of a loan officer. Lenders offer different deals regarding interest rates, VA closing costs, and discount points, so you should shop around.
A lender of any kind might appear to be sufficient at first glance. You may find, however, that not every lender is the same if you dig a little deeper. In the first place, only VA mortgages can be originated by lenders who the US Department has approved of Veterans Affairs.
Furthermore, some lenders focus almost exclusively on VA loan programs for military personnel, while others offer conventional loans primarily. The process of obtaining a VA loan may be easier and quicker if you use a VA specialty lender who is knowledgeable about the VA loan process. You can contact a VA specialty lender by clicking here.
2. Obtain A Certificate Of Eligibility (COE)
If you meet the initial eligibility criteria for a VA loan, you need a COE before getting preapproved. One can obtain a COE through the VA.gov eBenefits portal or by contacting the VA.
It is also possible for borrowers to apply through their lenders. If you're the surviving spouse of a veteran, you may be required to provide proof of the veteran's military service or a marriage license.
A COE proves your eligibility for VA loans at the outset. You will also be able to find out how much entitlement you can receive, aka how much VA loan guarantee you will receive.
You will need to provide information about your military service to your lender to receive your COE. If a servicemember or surviving spouse cannot obtain their COE online, they must mail it in.
3. Get Preapproved For A Mortgage
Home sellers appreciate when you're preapproved because it shows you're serious about buying. Your lender can determine the amount you can borrow. Your income and other pertinent information must be verified with additional documentation to guarantee a loan.
There is no requirement for prequalification. The time you save by completing this step now could prevent future surprises. The amount of your VA loan will be determined by your income, credit history, employment, marital status, and other factors.
When you prequalify, giving your lender all the details is important so there are no surprises during the underwriting process. As part of the prequalification process, you may be able to find out where your credit scores or debt-to-income ratio need to be improved before you can be approved.
Your lender will have to verify the information you provide once your prequalification letter has been sent to you to get a ballpark price range for house hunting. After all the documents have been reviewed and received by underwriting, a loan can be approved.
4. Find A Home
Real estate specialists who help military members are best suited to process VA loans. The right agent can help you maximize your benefits by understanding what to look for.
Home inspections are usually one of the most enjoyable steps for borrowers, as they get to spend time looking at homes they might buy. When applying for VA benefits, it is helpful to work with an agent specializing in this area.
A knowledgeable agent will know this and help you negotiate seller-paid fees, as the VA allows specific fees and costs to be covered by the seller (if all parties agree). The VA loan process can begin once you have a signed purchase agreement.
5. Sign A Purchase Contract
Agents are responsible for helping you craft a compelling offer and devise a solid negotiation strategy. The sellers can cover closing costs for VA loans in part or in full.
A contract should include contingencies you want to address. Your financing timeframe, earnest money requirement, and home inspection rights can be included in this section.
Home inspections may or may not be required depending on your location, but they shouldn't be skipped. The seller will have a chance to make certain repairs before closing, so you can back out if you cannot get them to agree.
6. Go Through A VA Home Appraisal
A VA-approved appraiser will determine the home's value. Besides helping you assess whether a property meets the VA's property condition requirements, this person will also help you determine if it meets the VA's Minimum Property Requirements.
During this stage, if your purchase agreement includes a home inspection, you will go through the inspection process.
7. Complete The Mortgage Underwriting Process
Your eligibility for a loan will be evaluated by underwriters based on additional documentation. In addition to financial documents, you may need to provide proof of your income and assets. Your information will be cleared to close if everything checks out.
8. Complete The Closing Process
When you sign your loan closing documents, you confirm your understanding and agreement to its terms. A closing disclosure, which shows your final closing costs in detail, will be sent to you before your scheduled loan closing.
Fees ranging between 1.25 percent and 3.6 percent of the loan amount are common costs. A lower fee is usually associated with a higher down payment. A disability or death exception may also apply.
The property can also be walked through one last time. The keys to your new home will be handed over once all closing documents have been signed. Closing and moving in are just a matter of waiting for the loan to be approved by the underwriter.
As part of the closing process, legal ownership of the property is transferred from the former owner to you. The closing process requires you to sign documents acknowledging your understanding and agreement with the loan terms. As part of the closing process, you must provide proof of your homeowners' insurance.
Applying for cash benefits from Social Security can seem overwhelming for some people. Check out our article on when you will receive your first VA disability check.
To help you prepare for VA disability claims, make sure you do your research as well. Visit the Disability Help blog for more information.
