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Veterans or active duty personnel looking for a home have the option of using a VA loan for financing. These types of mortgages, which are guaranteed by the federal government and available through lenders around the U.S., tend to offer attractive fixed-rate loans with no (or little) money down.
Understanding how a VA loan works and how to get one can help borrowers unlock the loan program’s unique benefits. Let’s take a look at the steps to getting a VA loan.
How does VA a loan work?
VA loans are funded by private lenders but they’re partially backed by the Department of Veterans Affairs. There are limitations on how much the VA can guarantee — also called “entitlements.”
Qualifying borrowers can take out a VA loan for their primary residence with no to low down-payment loans. There are also more lax income and credit requirements, helping veterans become homeowners.
VA loan requirements
Borrowers need to meet VA loan eligibility requirements to be approved, such as that the home needs to be used as a primary residence, and the applicant must have sufficient income and satisfactory credit (though there’s technically no minimum credit score). Borrowers must meet the requirements in order to receive a VA Certificate of Eligibility (COE) in order to start applying for a VA loan.
The following people are generally eligible:
- Service members who have served a minimum period on active duty
- Veterans who’ve met the requirements for length of service
- Qualifying surviving spouses of deceased veterans
- Qualifying National Guard and Reservists members
How to get a VA loan
Here’s what a typical VA loan process looks like:
1. Shop around for a VA-approved lender
Find a lender that participates in the VA loan program. A loan officer may be able to help you identify the types of documents needed and what size loan you can qualify for. It’s a good idea to shop around since deals offered by lenders can differ by interest rates, VA closing costs and discount points.
2. Obtain a Certificate of Eligibility
You need a COE before you can get preapproved for a VA mortgage since it shows that you meet the initial eligibility criteria for a VA loan. To get a COE, check the eBenefits portal on the VA.gov website or contact the VA for help. Borrowers may also be able to apply through their lender. Additional documents you may need to provide include proof of military service or a marriage license if you’re a surviving spouse.
3. Get preapproved for a mortgage
Getting preapproved shows home sellers you’re serious about purchasing a home. Your lender can determine how much you can afford to borrow. It’s not a guarantee of a loan, as you’ll need to submit additional documentation to verify your income and other pertinent information.
4. Find a home
Find a real estate agent who understands VA loans — better still if this person specializes in helping members of the military. Veteran-friendly agents can help you understand what to look for in terms of maximizing your benefits.
5. Sign a purchase contract
Your agent’s job is to help you craft a strong offer and formulate a sound negotiation strategy. This can include sellers paying for some or all of the VA closing costs.
Don’t forget to ask about contingencies that you’ll want included in a contract. This can include how long you have to secure financing, the amount of earnest money you’ll need and the right to have a home inspection.
Depending on location, you might or might not be required to get a home inspection, but in general, you shouldn’t skip this step. You’ll be able to get to know your property better and back out if you can’t get the seller to agree to make certain repairs before closing.
6. Go through a VA home appraisal
A VA-approved appraiser will determine the value of the home. This person will also help you assess whether a property can meet the VA’s property condition requirements, or Minimum Property Requirements. This is also the stage where you’ll go through the home inspection process if that was agreed upon in the purchase agreement.
7. Complete the mortgage underwriting process
Underwriters will need additional documentation to evaluate your eligibility for a loan. Documents you might need to submit include proof of income, assets and other types of financial documents. If your information checks out, you’ll be issued what’s called a “clear to close.”
8. Complete the closing process
The closing step is where you’ll sign documents that you understand and agree to the terms of your loan. Before your scheduled loan closing, you’ll receive a document called a closing disclosure where you’ll be able to see a breakdown of your final closing costs.
Typical costs may include a funding fee, which varies from 1.25 percent to 3.6 percent of the loan amount. Usually, the higher your down payment, the lower the fee. There are also exceptions such as ones related to disabilities or death.
You can also do a final walkthrough of the property. Once you sign all closing documents, you’ll receive the keys to your new house.
9. File your certificate
After closing, the VA will return your Certificate of Eligibility with a note stating that you have used (all or part) of your VA mortgage loan entitlement. In other words, qualified borrowers can use their eligibility more than once to obtain a loan on a new owner-occupied home.
As with subsequent refinancing, subsequent mortgage loans carry higher funding fees, although those fees can be reduced with a higher down payment.
How the process differs from other types of home loans
The process to get a VA loan can take longer compared to conventional loans since there are additional documentation requirements as part of the appraisal and inspection process. However, borrowers will get more favorable terms which can save thousands of dollars throughout the lifetime of the loan.
Borrowers can take certain steps to help speed the process such as getting a Certificate of Eligibility before signing a purchase agreement and ensuring you have other necessary documents during the underwriting process.