Millions of people have bravely 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, 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 pay back a portion of the loan. This allows lenders to provide veterans with loan options that include lower down payments, because the VA bears some of the risk.
10 steps to get a VA loan
Veterans Eligibility: Veterans must prove 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 must be used in the home you live in, so talk to your mortgage lender about alternative options in a rental property.
Interest rates: Interest rates on VA loans can change depending on the mortgage lender. Be sure to discuss 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.
Apply: Complete a mortgage application with a VA-approved mortgage lender. They will ask for your personal and financial information, then ask you to sign a completed application.
Provide documents: Give your COE, recent pay stubs, W-2 forms, tax returns, and bank statements to the lender 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 guarantee percentage you are eligible for and whether or not you are required to pay a financing fee.
Subscription: The underwriter will make sure you meet their loan 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 debt when calculating your debt-to-income ratio.
Credit History: The VA makes allowances for borrowers with no credit history. According to Chapter 4 of the VA Lender Manual, the insurer may make a determination based on the borrowers’ utility, rent, and auto insurance payment history. This is a great advantage for veterans who have been serving overseas and may not have needed traditional credit.
Evaluation: The VA requires that an appraisal be completed on your home and that the life expectancy of the home be equal to or greater than the term of the loan. For example, if the house is expected to last only ten years, it will not qualify for a 30-year loan. That’s a good thing because realistically you wouldn’t want debt on a house that no longer works.
Finalize your Loan: Once the lender has issued a final approval, they will draw up the loan documents for you to sign. Using your COE, the lender will obtain the necessary collateral documents from the VA. As a borrower, he does not need to worry about doing any extra work. He 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 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 ensure you get a home loan that is the perfect fit for your family’s needs.
