VA Home Loan Smarts: A Pro’s Advice on Getting it Right.
Helpful how-to’s for getting a VA Loan
August 16, 2013 by Laura Lynch
Home sweet home. A mailbox with your name on it, the swingset out back. It’s the American dream, and if you’re reading this, you’re already thinking about how to make it come true for you and your family. If you’re a veteran, a VA-guaranteed Home Loan may be your very best bet. For starters, there is no down payment or mortgage insurance, and you may find more lenient credit requirements than with conventional lenders.
With a VA Home Loan, you can:
- Buy a home, or a condominium unit in a VA-approved project
- Build a home
- Simultaneously purchase and improve a home
- Improve a home by installing energy-related features or making energy efficient improvements
- Buy a manufactured home and/or lot
As veteran friendly as a VA Home Loan is, it is not a sure thing. There are still requirements to be met, paperwork to be completed and even some homework on your part. As with any loan, the process can be confusing, overwhelming and even intimidating — unless you know the ropes. If you do, then it’s a fairly easy process. So how do you know?
I consulted Angie Joyce, Production Manager with MidCountry Bank, and asked her for the 411 on VA Home Loans, from planning to applying and beyond. Here are her no-nonsense tips for a hassle-free process.
Decide if a VA Loan Works For You
Know the pros and cons
A VA Home Loan typically offers lower rates and is easier to qualify for than a conventional home loan, often with a more forgiving view of your debt-to-income ratio. One of the reasons for this is that the VA guarantees every loan. Which brings us to the Guarantee Fee. You will be charged this fee, which is often far less than what a down payment would be, and you can finance it right into your loan. Also, since VA Home Loans do not include mortgage insurance like conventional loans, the resulting savings offset the guarantee fee. Finally, and this is the biggie: VA Home Loans are usually written with 0% down.
Make sure you are eligible, and document it.
Most veterans qualify, but there are exceptions. Step one is to find out for certain if you are eligible. This typically includes service members and veterans, spouses and other eligible beneficiaries.
If you are indeed eligible, you will need a Certificate of Eligibility (COE). The COE verifies to the lender that you qualify for a VA-backed loan. Follow the link to determine your category and the evidence you will need when applying.
Know how much entitlement you have available
You can find this out when you research your entitlement. If you’ve already used some of your entitlement, ask the VA if it can be restored. And know that if you do not have 100% entitlement, your VA Home Loan may not be 0% down – terms can vary based on entitlement and the price of the home.
Get Your Ducks in a Row
Know your credit situation & score
It’s critical that you know your credit score and are aware of your rating when trying to get a VA Home Loan. Be honest with yourself: How does it look? Is there a lot of open debt — meaning bills you are still paying off? Have you missed payments? Are you being contacted by bill collectors? If so, you may want to work on getting things caught up and even paid off before you try to qualify for a VA Home Loan. While the terms for VA loans are lenient, approval is not a “given.”
Although the actual VA loan program doesn’t have minimum credit scores or specific requirements other than general VA guidelines, every VA-approved lender has their own guidelines. These are called credit overlays, and they vary by lender. Some might want a credit score of 620 and above, while others ask for 640 and above. Be sure to find out what your lender requires.
Consider what you earn and what you can afford
Before you apply, take the time to assess what you make compared to what debts and expenses you and your family have. And be sure to really evaluate your job situation. How much do you make? Will you get a raise? Is your job stable? Are you counting on income that varies from month to month? Will it continue? These are the factors that loan underwriters will look at when considering your loan, so it pays for you to be aware, right down to the smallest detail.
Be thorough when you apply
It sounds silly, but when you fill out the application, pay attention! A surprising number of applicants do not. Make sure to fill in every blank, and be honest. Remember, debts you choose to leave off WILL appear on your credit report whether you write them down or not.
Realize that a VA Home Loan isn’t a sure thing
According to Angie, the biggest thing people need to know is that while VA Lenders are very “pro veteran,” and the credit guidelines may not be as stringent as some lending programs, that doesn’t mean you will automatically get a loan. There are lending guidelines in place, and you need to know what they are – and that entitlement, a solid credit score and overlays are in play.
Make a Wise Buy
Get pre-approved before you look at homes
Getting pre-approved before you find a realtor will make the whole process run more smoothly and with less stress. This is the time to gather up all your “stuff” for the VA lender, including Date of Birth, entitlement information, social security, and a few months of recent bank statements and paystubs. According to Angie, the faster you provide it, the faster the process goes. When you’re pre-qualified, you can work on pre-approval, so you basically have the cash-in-hand and can shop smart and make a good offer.
Look (and buy) within your limits
Once you know what you are qualified for, do the math with your lender so you know the purchase price comes with payments you can afford. Then hire your realtor and make sure to give firm parameters of what your maximum purchase amount is. And don’t look at homes over that number, or you may fall in love and wind up in over your head.
Using a VA home loan to buy a second house or refinance
If you have a VA loan you may be able to refinance it to a VA Interest Rate Reduction Refinance Loan (IRRRL) in order to lower your interest rate. You can also use an IRRRL to refinance an adjustable rate mortgage (ARM) into a fixed rate mortgage. Note that an IRRRL can only be made to refinance a property on which you have already used your VA loan eligibility. It must be a VA to VA refinance, and it will reuse your original entitlement. Learn more
There is also a VA Cash Out Refinance Loan if you want to pull money out when you refinance. Learn more here
When NOT to go with a VA Home Loan
A VA Home Loan may not be your best choice if you are considering buying a house with a large purchase price, because those may not qualify for 0% down. Ask the loan officer about VA loan limits to make sure you get the best deal for your purchase.
Another time to pass on a VA Home Loan is if you are buying with someone other than a spouse (as defined by the VA). A veteran purchasing with someone who is not their spouse does not qualify for 0% down*, because it is considered a “joint loan” – and those loans adhere to different rules.
Always use a VA-approved lender
Every home loan is complicated, but a VA Home Loan is even more so. That’s because the loan is guaranteed by the VA, and only a VA approved lender can get that guarantee. There are a number of VA-approved lenders online, so do a little research first.
So let’s review: The secret to breezing through the VA Home Loan process? Well, you’ve heard it throughout your military life: Be prepared! Before you contact a VA Home Loan representative, do your homework. Be thorough. And then pack up and get ready to live the great American dream … in your very own home.
*0% down is contingent upon the sales price of the home. Ask your VA-approved lender for details.