The following four factors are essential to qualify for a VA loan.
- You must have a Certificate of Eligibility
- You must have adequate income – this will vary depending on house price and your circumstances.
- You must have adequate credit – even the VA has standards below which you cannot go, as do the lenders. That loan guaranty doesn’t guaranty against your default and the VA doesn’t want to have to sell your house after they seize it. Therefore make sure your credit score is high, hopefully over 700. If it’s low, maybe there’s a good explanation. Since you are military, you understand the principle of not quitting. Ever.
- The house has to be in appropriate condition, either “move-in” if built or capable of being remodeled or built according to approved plans.
After you have obtained your Certificate of Eligibility (COE), follow the steps outlined below to complete your VA loan application and approval process.
For the savvy home buyer, the loan process begins well before scanning the real estate pages for the ideal house. In fact, it’s difficult to determine which house is right for you without first determining how much house you can afford. This is done by the “pre-qualification process”. To allow the VA lender to estimate as accurate as possible, you should have as much information about your income and assets on hand as possible.
If you are purchasing a home or refinancing please have copies of:
- Your last two paychecks or paystubs (husband and wife)
- Your W-2’s from the last two years
If you are self employed, include:
- Tax returns from the last two years
- A copy of your business license to verify last two years or a letter from a CPA stating that they have done your taxes for the last two years
If you are on a fixed income include:
- A copy of your 1099
- An award letter from S.S.I. or the V.A.
- Bank statements to show direct deposit or a copy of your check
The following are needed only if you are refinancing (VA Streamline or IRRRL Loan):
- The HUD Settlement Statement from last closing
- Your most current mortgage statement
- The front page of your Homeowner’s Insurance)
The VA uses two methods for income qualification purposes. The primary method of evaluating a veteran’s income is the residual income method. Under this method, the underwriter determines that a veteran has sufficient income to cover day-to-day living expenses after paying housing expenses, taxes, and other debts such as car payments and credit card payments. VA also uses a debt-to-income ratio method like many programs. However, VA uses only one ratio which is the ratio of total debt (both housing and other debt) to income.
Once you complete the optional VA loan pre-qualification process you can begin shopping for a home with a better idea of what you can afford.
Once you have found the right house for your needs, you will draw up a purchase contract (your realtor will assist you with this part of the transaction). This contract will solidify the terms of the sale agreed upon by the buyer and the seller. This contract is also known as a “purchase agreement” or “sales agreement” contract. It will cover such things as any liens existing on the property, disclosures, inspections, pre-closing maintenance, and the preparation of closing documents.
Since the amount of the VA home loan cannot exceed the value of the property, the lender processing your VA loan application must conduct an appraisal according to the lending guidelines. If the asking price of the property and the appraised value match up, then it is time to finalize the loan approval process.
When a VA lender obtains an approval that meets the requirements of a VA guaranteed loan they will explain what’s expected of you with regard to the terms of the mortgage and the details of the monthly payments. When the VA is notified of the loan they will modify the Certificate of Eligibility accordingly before returning it.
This process may vary depending on location and there may be some unanticipated costs, so don’t hesitate to call and discuss with the lender you decide to work with towards securing a VA mortgage. They should be able to help guide you through the loan process.
Get a Credit Check
A surprisingly high percentage of credit reports contain inaccuracies. To make sure that yours is not one of them, request a credit report and look it over for errors. You should get a report that features information from the three major credit bureaus. Should you find an error, contact the credit bureaus and ask them to fix it. If you don’t take this important step your lender will make far-reaching decisions based on false information, and this could cost you a lot of money.
Determine Your Price Range
Before you go house hunting, you should find out how much house you can afford. Pre-approving your VA Home Mortgage Loan amount is a good way to do this. Once you’re pre-approved you can narrow your home search. When you find the home you’re looking for, pre-approval indicates to the realtor that you are serious about buying a home. This will give you an advantage over others who did not have the foresight to get pre-approved.
Consider an Adjustable Rate Mortgage
If you do not plan to stay in your home for an extended period of time, an Adjustable Rate Mortgage (ARM) might be your best mortgage option. The initial rate of an ARM is usually lower than that of a Fixed Rate Mortgage, so there are some short-term savings opportunities. Once the initial rate expires, however, your interest rate may increase up to one percent per year and up to five percent for the life of the loan. As a result, the long term rate changes may offset the lower initial rate. So, if you’re planning to stay in your home for ten years or more you may want to choose a Fixed Rate Mortgage, which offers more stability and predictability. Determine what your situation is before you decide whether to opt for a Fixed Rate or an Adjustable Rate Mortgage.