Military & VA Home Buyer

What is a VA Loan?

Originally part of the Servicemen’s Readjustment Act of 1944, commonly referred to as the G.I. Bill, the VA home loan benefit was introduced along with a host of programs designed to assist service members returning from World War II. 

This special program is hands-down the best mortgage program in the marketplace for those who qualify. The VA home loan requires zero money down from the borrower, common sense credit guidelines and reduced closing costs as well.

 And while a VA loan has no down payment requirement, the interest rates are as competitive as any and there is no monthly mortgage insurance payments compared to other reduced down payment mortgage programs. VA loans come with a government-backed guarantee on all VA mortgage programs and have the highest performance rate of any mortgage product in the industry. 

No down payment, reduced closing costs and easier qualifying is why more than 20 million have taken advantage of this very special home loan.

Are You Eligible?

Eligibility is determined by a review of your Certificate of Eligibility, obtained directly from the Department of Veteran’s Affairs. This certificate is obtained by completing the DOD form 26-1880 and can be mailed directly to the VA, received in person by visiting the nearest regional VA center, making an online request or have your VA lender get it for you. VA approved lenders have access to ACE, the Automated Certificate of Eligibility portal, which can retrieve your certificate of eligibility in a matter of seconds.

Generally, those eligible for the VA home loan are: 

  • Honorably discharged veterans 
  • Active service members with at least 181 days of continuous service 
  • Members of the National Guard or Armed Forces Reserves with at least six years of service
  • The surviving spouse of an eligible veteran who died as a result of service related injuries

Basic Requirements?

While VA loans don’t require a down payment and easier qualifying compared to conventional loan programs, there are still basic requirements that lenders must follow. The lender must adhere to the VA issued loan guidelines in order for the loan to be eligible for the VA loan guarantee.

Credit

VA borrowers must exhibit a responsible credit history, documented by a credit report. The credit report will show the credit history of the borrower as well as provide at least two credit scores. The credit score is a three digit number assigned to the level of credit risk associated with the borrower. The higher the credit score, the better the credit. The VA doesn’t establish a minimum credit score requirement but most VA lenders ask for a 620 credit score or better.

If the borrower doesn’t have a credit score or hasn’t established a credit history, some VA lenders allow for a “manual” credit approval. A manual approval means verifying at least three non-traditional forms of credit with a minimum two year history in addition to verification of a timely rent history. Non-traditional credit can be a cell phone bill, utility or cable bill. Note, not all VA lenders offer the manual approval option.

Income

VA lenders must certify the borrower’s ability to repay monthly debt. This is performed by calculating debt-to-income ratios, represented as a percentage of a borrower’s gross monthly income. VA loan requirements ask for a debt ratio to be no greater than 41 percent of gross household income. Although the ratio is not a strict limit, some VA lenders adhere to this number and will only allow a slightly higher ratio of say 42 to 44 if the borrower has an excellent credit history or significant cash reserves.

Occupancy

VA loans are intended for purchasing a primary residence only and cannot be used for investment property.

7- Step Process for getting a VA Loan

  1. Get Prequalified Your very first step is getting prequalified. A prequalification is obtained by speaking with a VA-approved lender and reviewing your current financial picture with a loan officer. The loan officer will ask questions about your gross monthly income, current debt and your overall credit profile.

     This conversation will tell you how much you may qualify for, what your monthly payments might be and how much money you’ll need to bring to the closing table. Knowing your price range will give you and your real estate agent a starting point when you begin your home search.

  2. Gather Your Documentation Now it’s time to start gathering the paperwork necessary to start your VA loan process. You’ll be asked to provide your most recent pay check stubs covering at least 30 days, your two most recent W2 forms and your most recent bank and investment statements. If you’re self-employed, you will need to provide the past two years personal and business income tax returns and a year-to-date profit and loss statement

  3. Your Certificate of Eligibility The certificate of eligibility is a document generated by the Department of Veteran’s Affairs validating your eligibility for a VA loan. You can obtain your certificate of eligibility by visiting your nearest regional VA center, mailing in your request or obtaining a copy online. To request your certificate, you’ll need to complete the DOD form 26-1880 and have a copy of your DD-214 as well. Yet the easiest way to obtain your certificate of eligibility is having a VA-approved lender request it for you.

  4. Get Pre-approved A pre-approval is an upgrade from a prequalification. A pre-approval is issued after you apply for a VA loan and provide the necessary documentation to your VA lender. Once your credit report is pulled, your application will be reviewed and submitted for an automated approval. The only thing missing at this stage is the property address.

     Your lender will then provide you with your pre-approval letter which verifies that you have completed an application and documented your loan and all you need to do next is find a property.

  5. Go Shopping Now the fun part begins! Find a real estate agent that is familiar with the VA loan process. VA loans require zero money down but you should also negotiate to have the seller pay your closing costs for you. An experienced real estate agent can help guide you through the negotiations to get the right house at the right price.

     Once your offer is accepted, your agent will provide you with a list of property inspectors who will physically inspect your new home from basement to the rooftop highlighting any issues that need to be addressed.

  6. Processing and Underwriting The moment your sales contract is signed by you and the seller, the clock begins to tick. Most sales contracts allow for a 30 day closing period but may be adjusted depending upon your agreement with the seller.

     Your lender will order a property appraisal to support the sales price as well as obtain a copy of the property’s title report. Your loan is now “in process” and you will work with both your loan officer and loan processor. The processor prepares the file for final underwriting.

     The underwriter is the individual that manually reviews your file and supporting documentation to determine that your loan meets the required VA guidelines. Once that determination is made, your loan is forwarded to the closing department.

  7. Closing and Funding The closing department prepares your loan documents and sends your loan papers electronically to your settlement agent who will oversee the closing. The settlement agent will prepare an initial settlement statement called the HUD-1. This is a form that accounts for all the charges, deposits and credits associated with your loan closing and itemizes any and all costs for which you’re responsible and tally the final amount needed from you to close.

      At your closing, you will review, initial and sign your final closing papers and provide the amount needed to close your VA loan. Your settlement agent will follow the closing instructions issued by your lender then forward the signed documents to the funding department.

     The “funder” will make sure the settlement agent followed the instructions to the letter then release your funds to the settlement agent. Congratulations, you’re a home owner!