Millions of people have bravely served our country in the United States Military. 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 issues loans to veterans – they do not. Rather, the VA guarantees loans so that a bank or credit union can offer loans to veterans without carrying the entire risk. If the borrower defaults the VA will pay a portion of the loan. This enables lenders to provide veterans with loan options that include lower down payments, because the VA is shouldering some of the risk.
10 Steps to Getting a VA Loan
Veteran's Eligibility: Veterans need to prove their eligibility for the VA guarantee by obtaining a Certificate of Eligibility (COE).
Eligible Loans: You can use your VA benefit to purchase a home or refinance. It must be used on the house you live in, so talk to your mortgage lender about alternative options on a rental property.
Interest rates : VA loan interest rates can change depending on the mortgage lender. Make sure you discuss loan options with a VA approved lender that is also an FHA approved lender. You will want to compare loan rates to ensure that the VA program provides you with the most financial benefit.
Apply: Complete a mortgage application with a VA approved mortgage lender. They will ask you for your personal and financial information, then have you sign a completed application.
Provide Documents: Give the lender your COE, recent pay stubs, W-2's, tax returns and bank statements for processing. The underwriter will review this information to determine if you qualify for a loan.
VA and the Lender: The lender will confirm your eligibility with the VA. This includes the percentage of guarantee you are eligible for and whether or not you are required to pay a funding fee.
Underwriting: The underwriter will make sure that you meet their lending guidelines and the guidelines set forth by the VA. Something unique about the VA is that they require the lender to count household and family expenses as debts when calculating your debt to income ratio.
Credit History: The VA does make allotments for borrowers with no credit history. According to Chapter 4 of the VA Lenders Handbook, the Underwriter can make a determination based on the borrowers payment history of utilities, rent and auto insurance. This is a huge advantage for veterans that have been serving overseas and may have had no need for traditional credit.
Appraisal: The VA requires that an appraisal is completed on your home and that the life expectancy of the home is the same or greater than the loan term. For example if the home is expected to only last ten years, you won't qualify for a 30 year loan. That's a good thing because realistically, you wouldn't want debt on a house that no longer functioned.
Finalize your Loan: Once the lender has issued a final approval they will draw up loan documents for you to sign. Using your COE the lender will obtain the necessary guarantee documents from the VA. As a borrower you don't need to worry about doing any additional work. You have already served our country and it is up to the lender and the VA to work out the paperwork details. 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 issued to veterans. As a service member or veteran you are entitled to receive the benefit from this guarantee, which should make it easier for you to get a loan. A VA approved mortgage lender can walk you through the process and ensure that you obtain a mortgage loan perfectly suited to your families needs.