Millions of people have valiantly served our country in the United States Armed Forces. As a way of thanking them for their service, the government created the VA loan guarantee program to help veterans qualify for a home loan. A common misconception is that the VA actually makes loans to veterans, but it doesn’t. Rather, the VA guarantees loans so that a bank or credit union can offer loans to veterans without assuming all the risk. If the borrower defaults, the VA will repay a portion of the loan. This allows lenders to provide veterans with loan options that include lower down payments, because the VA is taking some of the risk.
Ten Steps to Getting a VA Loan
Veteran Eligibility: Veterans must demonstrate their eligibility for the VA guarantee by obtaining a Certificate of Eligibility (COE).
Eligible loans: You can use your VA benefit to buy a home or refinance. It should be used in the home you live in, so talk to your mortgage lender about alternative options on a rental property.
Interest rates: Interest rates on VA loans can change depending on the mortgage lender. Be sure to discuss your loan options with a VA-approved lender who is also an FHA-approved lender. You’ll want to compare loan rates to make sure the VA program gives you the most financial benefit.
Request: Complete a mortgage application with a VA approved mortgage lender. They will ask for your personal and financial information and then ask you to sign a complete application.
Provide documents: Give the lender your COE, recent pay stubs, W-2 forms, tax returns, and bank statements for processing. The insurer will review this information to determine if you qualify for a loan.
VA and the lender: The lender will confirm your eligibility with VA. This includes the percentage of guarantee for which you are eligible and whether or not you must pay a financing fee.
Subscription: The insurer will make sure you meet their loan guidelines and the guidelines set by VA. Something unique about the VA is that they require the lender to count household and family expenses as debt when calculating your debt-to-income ratio.
Credit history: The VA makes allowances for borrowers with no credit history. In accordance with Chapter 4 of the VA Lenders Handbook, the Insurer may make a determination based on the payment history of utility, rental, and auto insurance providers. This is a great advantage for veterans who have been serving abroad and may not have had a need for traditional credit.
Evaluation: The VA requires that an appraisal of your home be completed and that the life expectancy of the home be equal to or greater than the term of the loan. For example, if the home is expected to only last ten years, it will not qualify for a 30-year loan. That’s a good thing because realistically you wouldn’t want to go into debt on a house that no longer works.
Finalize your loan: Once the lender has issued a final approval, they will draft the loan documents for you to sign. Using your COE, the lender will obtain the necessary collateral documents from the VA. As a borrower, you don’t need to worry about doing any extra work. It has already served our country and it is up to the lender and the VA to work out the details of the paperwork. Anything that requires your signature will be included in your closing paperwork.
The goal of the Veterans Administration is to provide lenders with a loan guarantee so that more home loans are made to veterans. As a military service member or veteran, you are entitled to the benefit of this guarantee, which should make it easier for you to obtain a loan. A VA approved mortgage lender can guide you through the process and make sure you get a home loan that is perfectly suited to your family’s needs.
