Of all the military benefits, the VA home loan is one of the most popular and important for those interested in becoming a home owner. VA home loans are a benefit for military members who have served a minimum amount of time in uniform and that minimum time served requirement will vary depending on when you began military service.
The first step toward getting a VA mortgage is establishing whether you are currently eligible or not, and passing that information to a lender.
How To Get A VA Home Loan: Apply For Your Certificate Of Eligibility (COE)
The VA Certificate of Eligibility is the document that tells the lender that you are eligible for the mortgage loan, how much VA guarantee is available for the mortgage, and whether there are other circumstances that can affect the loan such as a borrower being exempt from having to pay a VA loan funding fee due to receiving or being eligible to receive VA compensation for service-connected medical issues.
You can apply for your VA COE through the VA official site or you can ask the lender to help you – this is part of their job when processing VA home loan applications. Don’t worry – asking the lender to help you obtain your COE does NOT obligate you to buy a home or sign loan documents.
Remember that obtaining your COE is NOT loan approval – all VA borrowers must apply with a participating lender and qualify the way all home loan borrowers do. Eligibility for the VA loan benefit is not the same thing as loan approval.
The VA Certificate of Eligibility can be delivered to the lender electronically, and you can also request one by mail. In certain cases a VA COE may ONLY be available through the mail, as in the cases of qualifying surviving spouses who request one.
Start Preparing For Your Home Loan By Reviewing Your Credit And Other Financials
At least a year in advance of your home loan application, review your credit profile, income, expenses, and monthly budget. You need to insure that there are no instances of identity theft on your credit report that need to be contested (this is a time-consuming process if you find identity theft and have to dispute charges), and you definitely need to insure you come to the home loan process with a minimum of one year of on-time payments for ALL financial obligations. Anything less can jeopardize your chances at VA home loan approval.
It is strongly advised for best results not to apply for new lines of credit (any credit at all) in the months leading up to your home loan application. VA mortgages, like any other home loan, are a major investment and you need to be concerned with keeping your debt ratios low, cutting down credit card debt rather than adding to it, and changing your overall credit picture for the better.
Applying for new credit not only provides a “hard inquiry” into your credit which can and does affect credit scores, but it also changes your debt to income ratio and your potential debt may be just as important to the lender as your actual debt. Ask a loan officer about these issues and how they can affect your chances at loan approval – you will learn a great deal about how lenders view these issues prior to the decision to approve or deny your VA loan.
Select A Participating VA Lender
The Department of Veterans Affairs guarantees VA loans but does NOT issue them – a participating VA lender will do that. A participating lender can be a credit union, mortgage company, or other type of lender. The VA does not set or regulate VA loan fees, interest rates, or other expenses and it will be necessary to shop around for a lender to get more competitive rates and terms. Don’t settle for the first VA lender you find – compare rates and terms.
Get Pre-Approved For A VA Loan
You can work with your lender to get pre-approved for a home loan, which can help you determine how much house you can afford and how much the lender is willing to offer you. VA home loans have loan guaranty limits that put a cap on the amount of the loan the VA is willing to back; this does not necessarily mean that cap is the final loan amount you can get.
But to determine your basic eligibility and the amount your lender is willing to work with, a pre-screening process is required. And it doesn’t just help with matters related to your loan officer; house sellers take those with pre-approvals far more seriously and you won’t be treated like a window-shopper when you show up as a pre-approved borrower.
Remember that VA home loan pre-approval is NOT the same as final loan approval. That is a separate process that must happen according to VA loan rules. But it is a very good start toward home ownership.
Search For A Home With Or Without A Real Estate Agent
You are not required to use a real estate agent to search for your new home, but it can help. You will need to know whether there are problems with certain neighborhoods in terms of natural disasters, fires, floods, or other problems.
Whether you choose to use a realtor or not, you should be researching the homes you are interested in and their neighborhoods to insure you aren’t surprised by proposed developments nearby, changes or disruptions to local traffic or other services due to planned construction or other issues.
Do you know if your dream home is close to a source of light or noise pollution such as an airport, shopping center, mass transit headquarters, post office, etc.? Some homeowners purchase property in a new suburb development not realizing that a new Wal-Mart may be going up nearby, or a gas station, or other construction. Whether you are concerned about such issues or not, it’s good to know what may lie ahead for you as a new homeowner in the area.
Find A Home And Make An Offer
This is one of the most obvious parts of the home loan process for any mortgage, but with a VA mortgage loan there are important things to keep in mind when you make your offer to buy a home. The offer you make will be conditional on the appraisal of the property.
This is important because of something known as the VA loan “escape clause” which dictates that if the appraised value of the home comes in lower than the asking price, you the borrower cannot be compelled to complete the transaction.
You have the option in such cases to walk away from the transaction with no penalty. The reason for this is because the VA will guarantee the loan amount for EITHER the sales price OR the appraised value, whichever is lowest.
And if the appraised value is lower than the sale price, the borrower cannot finance the difference between the two – it must be paid out of pocket by the borrower at closing time. But the borrower cannot be FORCED to do this and can choose to walk away.
Get A Home Inspection
A very important caveat to the above is that you should make your purchase of the home conditional on the results of a home inspection which is NOT the same as a VA appraisal and must be ordered and paid for by the borrower.
Do not rely on the results of the VA appraisal instead of arranging and paying for a home inspection – you will soon learn that the VA appraisal is not intended to be as in-depth as the appraisal and that the home inspection is the way to determine the true condition of the home.
Those who do not get a home inspection have no recourse with the VA or lender if the home is purchased on the strength of the VA appraisal alone and problems are later found in the property.
Closing The Deal
If the buyer and seller reach an agreement, the borrower returns to the lender and the transaction moves forward. The borrower will be responsible for paying certain closing costs including a VA loan funding fee. The funding fee is not applicable to certain veterans – according to VA.gov, you are not required to pay this funding fee if you are one of the following:
- A veteran receiving VA compensation for a service-connected disability, OR
- A veteran who “would be entitled to receive compensation for a service-connected disability if you did not receive retirement or active duty pay,” OR
- A surviving spouse of a veteran who died in service or from a service-connected disability.
Anticipate Your Closing Costs
Save up for your closing expenses far in advance of the home loan. You may be permitted to finance certain closing costs, but not all – you will have to pay some expenses out of pocket which may include flood zone determinations, pest control, title fees, origination fees, any down payment you choose to make, appraisal fees, compliance inspections, and other costs. In general, you should know lenders cannot underestimate the closing fees provided to you in an official Loan Estimate.
The Consumer Financial Protection Bureau official site reminds, “…a lender may increase the fees it quoted you on the Loan Estimate if certain circumstances change,” which can include the following circumstances:
- The borrower opts to change the loan, for example moving from an adjustable-rate to a fixed-rate loan.
- The borrower alters the amount of any agreed-upon down payment.
- The appraisal is lower than expected.
- Situations where the borrower’s credit score gets lowered mid-transaction.
- The interest rate on your loan was not locked.
Interest rate locks are agreements made between borrower and lender to lock in an interest rate for a fixed period of time to protect against changes in rates in the time before the loan closes. Ask your loan officer about how and when to enter into a rate lock commitment for your home loan.
VA Home Loan Down Payments: Not Required
In most cases, when it’s time to commit to the loan and close the deal, no down payment is required on VA home loans unless the borrower’s credit is such that the lender requires one as a compensating factor. But some borrowers choose to make a down payment anyway.
Doing so not only lowers the principal loan amount and saves you money over the duration of the mortgage, but it also lowers the VA funding fee depending on how much money you put down. Ask your loan officer about this procedure before you decide to make or not make a down payment.
Ask your lender what is required in your specific transaction to get to closing day, how much money is needed to close the deal, and when you can pick up your keys. One thing to remember about the money you will pay on closing day; No commissions, brokerage fees, or “buyer broker” fees are allowed to be passed on to the veteran.
There is a very important factor in VA home loans (or any other real estate loan involving a residence) that you should keep in mind – don’t plan on your moving day being on the same day as closing day.
Because closing dates can and very often do get changed, and sometimes at the last minute. It’s a bad idea to hire movers and plan on moving into your new home on the same day you are required to close the deal. You could wind up having to reschedule the entire move-in based on circumstances far beyond your control.
Once you close the deal on your VA home loan, you are expected to move in within a reasonable amount of time (usually 60 days or less) and occupy the home as your primary residence. Occupancy is a requirement for VA home loans and you will be required to sign a legally binding document certifying that at least one borrower on the mortgage loan will occupy the home as the primary residence.
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News
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