Applying for a VA Loan

A VA loan is a special mortgage loan guaranteed by the US Department of Veteran Affairs (VA). The mortgage program is intended to help American veterans and currently serving military service people gain financing so they can purchase a home.

Eligible veterans and active duty members are able to gain financing, often with no doubt payment. The loan itself can be issued by a wide variety of mortgage lenders.

VA Loan Pre-Qualification

If you’re looking to become a homeowner, a smart first step is to establish pre-qualification status for a loan. This is especially important for a military homebuyer!

By obtaining pre-qualification status, you can start the homebuying process confidently and identify any financing or eligibility hurdles, such as a low credit score. Pre-qualification is also a way to help you, the homebuyer, compare loan rates and terms in a safe, non-binding way. That means you don’t have to go with one lender because they pre-qualified you. You can shop around for what’s best for you.

Pre-qualification also helps the lender assess your credit eligibility, estimate how much you can obtain with your loan, and gather documents they’ll need from you along the loan process. Pre-qualification includes a hard credit check, though; your credit score could drop slightly after this. Your credit score is what lenders look at when deciding to grant you pre-qualification status. Shoot for a score of 620 or higher if you want to pre-qualify for a VA home loan.

Lenders will also look into your current place of employment, monthly income numbers, monthly liabilities, assets, and delinquencies or defaults on other loans as part of the pre-qualification process. When you’re pre-qualified for a loan, you’ll have a better understanding of your financial profile, credit portfolio and what you can afford when it’s time to buy a home. It’s a wise first step in the homebuying process.

VA Loan Pre-Approval

Getting pre-approved for a VA home loan isn’t just a smart move for the homebuyer, but it’s also helpful for home sellers. When you get pre-approved for a VA home loan, it shows sellers that you’re a serious homebuying candidate who has his or her ducks in a row.

This is also a good move if you’re using a real estate agent. Your agent will see that you take the homebuying process seriously and are certain you want to buy a home – a big life achievement! When you get pre-approved, you’re also safeguarding yourself from listing agents who won’t accept an offer from homebuyers without pre-approval letters.

So, what does pre-approval mean? Pre-approval is a more in-depth look at your finances and credit, and while it’s similar to pre-qualification, pre-approval is the act of verifying everything you said during those pre-qualification conversations. If you said you make $100,000 a year, your lender will verify that in the pre-approval process.

Prospective homebuyers provide financial documents like pay stubs to the lender to verify, in addition to important documents like driver’s license, DD-214 forms, tax return documents, divorce decrees and other paperwork. It may seem cumbersome, but the faster you return these documents, the faster you get pre-approved.

In the end, you’ll obtain a pre-approval letter, which is not loan approval or a guarantee of financing. It is, however, something important to show your sellers and agent. The letter usually detail conditions that have to be met for the loan process to move forward. But pre-approval is not binding; you can be pre-approved from various lenders.

Seeking pre-approval status is a great way to understand what you can afford while giving sellers and agents a clear picture of your verified financial situation.

VA Loan Entitlemet & Loan Limits

If you’re a veteran or an active duty service member, and you’re familiar with your VA Loan benefits, that’s great! According to the Department of Veterans Affairs, a third of veterans don’t know about their VA home loan advantages, so that’s a good start.

But just because you know you have access to the VA Loan doesn’t necessarily mean you understand everything about this entitlement.

The “entitlement” part can be confusing for many VA homebuyers. On each VA Loan, the government provides a financial guaranty. That means that if the homebuyer defaults on his or her loan, the government will pay the lender back. Usually the guaranty covers 25 percent. This guaranty in dollars is the entitlement a VA homebuyer has, that amount reflects how much the homebuyer can borrow before a down payment.

Basic entitlement is typically $36,000, but there’s also a form of bonus entitlement in the amount of $70,025. When the basic and bonus entitlements are added together, they equate to $106,025 – the max VA Loan entitlement a homebuyer can have. Homebuyers in more expensive areas of the country – high-cost counties – have even larger entitlements. That’s where VA Loan limits come in.

VA Loan limits exist so VA homebuyers know just how much they can afford before making a down payment. In these cases, the down payment must be at least 25 percent of the difference between the home purchase price and the entitlement cap.

VA Loan Eligibility

If you’re a veteran, active duty, reservist or a retired service member, chances are you have access to the VA Loan. The VA Loan is a unique homebuying advantage that helps many service members obtain homeownership. But just because you’ve served doesn’t necessarily mean you’re eligible, unfortunately.

The Department of Veterans Affairs has requirements for service members wanting to take advantage of the VA home loan. To be eligible for the VA home loan, service members must meet one of the following requirements:

• 90 consecutive days active duty service during war time
• 181 consecutive days active duty service during peacetime
• 6 years’ service in Reserves of National Guard
• Surviving spouse of a veteran killed in line of duty or who died of service-connected injury or disability

There are other eligibility factors for the VA home loan, of course – financial situation, credit score, etc. The above, however, are basic service-based guidelines for eligibility. You must also have your Certificate of Eligibility (COE) to determine if you can obtain a VA home loan. This important document officially states that you have the option of using a VA Loan. While you don’t have to have your COE to start the home loan process, you must have it to move forward with financing your home via a VA Loan. Only your home loan expert or loan officer and the VA will be able to determine if you are truly eligible for a VA home loan.

VA Loan Properties

If you’re planning to use a VA home loan to finance your home purchase, it’s best to know which types of properties are acceptable use properties. What does this mean? Acceptable use properties are types of properties that the VA has approved for VA home loan financing.

Remember: the VA Loan program is meant to help qualified service members and veterans and their families find homes. But these homes must be safe, sound and sanitary, and the owners should live in them full-time.

If your dream is to flip a house or buy a fixer-upper to make your own, the VA Loan program is not going to help you do that. A different type of financing may be best for you. The most widely accepted VA Loan property is a single-family home in good condition. This type of property is the most commonly purchased property for VA homebuyers.

VA Loan holders can also buy a condo, but only if it is in a VA-approved development. Condominium developments must be VA-approved, and your lender and Realtor can help you determine which properties are approved. If you have your heart set on a condo unit and the development is not approved by the VA, you may be able to get help from your lender in asking the VA to approve the development. This isn’t a quick fix, though; the approval process can take weeks or months.

VA homebuyers can build new construction homes, but these homebuyers may find difficulties in working with lenders that will fund new construction. In most cases, it is easier to use a construction loan from a builder, and then opt to refinance that loan into a VA Loan. Things get tricky here; ask your lender and home loan team for expert advice.

The VA also approves manufactured homes for purchase, along with modular homes and multi-unit properties, but all come with their own obstacles. Manufactured homes aren’t always financed by lenders as they’re seen as unreliable investments. Modular homes sometimes require the homebuyer to use a construction loan, as discussed above. And finally, multi-unit properties are approved, but only up to four one-family units in a multi-unit property. The homebuyer must live in one of the units, as well.

Having an understanding of which properties are approved by the VA is a great first step in the homebuying process. Knowing what you can finance with your VA home loan sets you up for homebuying success!