How to Buy a House With a VA Loan
The process of purchasing a home can be an overwhelming task, as lenders have tightened the reigns on borrower requirements due to increased regulation coupled with the need to mitigate risk associated with lending to unqualified applicants. With the majority of home loan options available to prospective homebuyers, stringent guidelines are in place to ensure borrowers have the means to pay monthly mortgage payments in addition to other debt obligations, including criteria for sufficient down payment amounts, credit and repayment history guidelines, and debt-to-income ratio standards. While it may seem as though qualifying for a mortgage is an uphill battle, nearly 22 million individuals have access to a less-stringent, no-down payment home loan option through the Veteran's Administration (VA).
The VA home loan program is available to prior and current military service members who meet specific qualifications. The VA does not directly administer home loans to qualified applicants but instead works through private lenders that are approved by the organization. This creates a vast network of mortgage lenders with whom a prospective homebuyer can partner to obtain a mortgage through the VA home loan program. While there are numerous lenders that offer VA home loans, the process to obtain a VA mortgage is relatively similar for all applicants. Prospective buyers must ensure they meet the eligibility requirements to obtain a VA home loan first. From there, borrowers must find a VA mortgage lender, prequalify for a new mortgage, find a home to purchase, apply for a VA loan, meet all loan processing requirements and close on the new home purchase.
The majority of active duty, veteran and reservists service members of the military and National Guard are eligible to apply to the VA home loan program, as are spouses of service members who passed away while on active duty or as the result of a service-connected disability. For active duty members, access to the VA home loan program begins after six months of service, while reservists and National Guard members have a six-year waiting period before becoming eligible if they have no combat or active duty exposure. For veterans who served during a period of war, however, access to the VA mortgage program is available after 90 days of service. A VA home loan may only be used for a residence in which the borrower intends to reside, including single-family homes, condominiums, modular homes and certain multi-unit properties.
Once eligibility is established based on the criteria listed above, the prospective homebuyer must obtain a Certificate of Eligibility (COE). The certificate provides lenders with information necessary to deem an applicant eligible for a home loan backed, in part, by the VA. To obtain a COE, borrowers are required to provide evidence of eligibility, such as a DD Form 214, a current state of service signed by the personnel office or commander of the service member's unit, or an NGB Form 22. The evidence of eligibility is then used to apply for a COE online, via mail or through a VA-approved lender.
Finding a Lender
While a number of private mortgage lenders are readily available to prospective homebuyers, not all are created equal. Most mortgage providers offer a similar lineup of conventional home loans, including those backed by Fannie Mae and Freddie Mac; however, not every lender offers VA loans or is VA-approved. It is crucial for borrowers to first look into the VA-approved status of any potential lenders before deciding to work with them because VA mortgages follow guidelines that differ slightly from traditional mortgage options. A VA-approved lender should have expert knowledge of the VA home loan process and the VA mortgage options available to the borrower. Additionally, a VA-approved lender should have the ability and willingness to explain the process and requirements from start to finish.
Once a borrower secures the most suitable lender, pre-qualification is typically the next step in the home-buying process. Getting pre-qualified is simply the process of verifying how much mortgage a borrower can afford based on credit history, current debt obligations, and income. While this is not a required step for VA home loans, prequalification helps prospective homebuyers understand the true price range they should consider when searching for a home to purchase.
The Home Search
When financing a home purchase with a VA loan, the home search process is no different than it is with other home loan options, as there are few restrictions placed on the location of the home, the use of realtor or buying agent, or home features. However, the VA home loan program often requires a home to be almost move-in-ready, and it must pass certain minimum property requirements relating to safety and sanitation.
Once borrowers find a home they want to buy, a signed purchase agreement must be in place between the buyer and seller before moving on to the next step of the loan process. It is recommended a purchase agreement include an appraised contingency clause, more commonly referred to as a VA Option Clause for VA loans, which states the buyer is not required to forfeit earnest money, incur a penalty or be obligated to buy a property if the purchase price of the home exceeds a reasonable value of the property, which is established by the VA through an appraisal.
VA Home Loan Application
Once a signed purchase agreement is in place, prospective homebuyers must complete the VA home loan application with the lender. The loan application process can be extensive, as borrowers are required to provide in-depth information regarding current income, current debts, past repayment history and cash on hand. Borrowers may be asked to provide paycheck stubs for the previous two months or tax filings for the previous two years for the self-employed. Additionally, bank account statements for checking and savings may be required for each borrower listed on the loan as far back as six months. Each of these factors plays an integral role in qualifying for a VA home loan, but the guidelines for approval are slightly less stringent than those imposed on conventional mortgage applicants.
One the lender receives a VA home loan application in good order, the loan enters the processing phase. The lender analyzes the credit and income information provided by the borrower, and an appraisal of the home is ordered. While a VA appraisal is not a guarantee of the condition of the home to be purchased, it does act as a good faith estimate of the market value of the home on the date the appraisal was done. The combination of the appraisal and financial analysis can take a few days to a few months to complete depending on the preparedness of the borrower and the availability of the property to be purchased.
Closing/ The Bottom Line
The final step in buying a home with a VA mortgage is the process of closing. Typically, a lender selected title company, title attorney or company representative conducts the closing meeting, which consists of signing over ownership of the property to the borrower, finalizing loan documents, and reviewing pertinent information regarding the repayment of the mortgage. Once all documents are signed, the title of the home is transferred into the buyer's name, and payments on the VA loan begin.