Because these loans are only “guaranteed” by the VA, they are made by private lenders–banks and mortgage companies, for instance–in the same way as are traditional loans. Veterans can only qualify for the loan if it is for a home they intend to occupy. It is important for veterans to realize that they don’t automatically “qualify” for a VA loan. There area some requirements that have to be met.
What Veterans Need to Apply for a VA Loan
The process isn’t all that different from applying for any kind of loan, but it is worth reviewing what is needed here. Before you get started with the process, have the following information on hand–for you, your spouse, and anyone else who might be on the loan application:
• Addresses and loan information of other real estate owned• Certificate of Eligibility and DD-214 (for veterans only)
• Estimated value of furniture and personal property
• For self-employed individuals, you will need to provide personal tax returns for the past two years, current income statement and balance sheet for the business
• Names and addresses of your employers over past two years
• Names, addresses, account numbers and balances on all checking and savings accounts
• Names, addresses, account numbers, balances and monthly payments on all open loans
• Residence addresses for the past two years
• Social Security numbers
• W2s for the past two years and current check stubs
• Your current gross monthly salary
In addition, as with other loans, you will have to pay for a credit report as well as an appraisal of the property to be purchased.
Because this is a VA loan, you will need other items as well:
• Your DD Form 214–Your DD-214 provides your proof of military service. It also shows the nature of your discharge, the dates you served, and your current classification (whether you are retired or separated, or if you have guard or reserve status. This document is one of the most important you will have once you leave the military; it is needed to claim any military benefits and services.
What Does It Mean When a Loan is “Guaranteed”?
VA guaranteed loans are made by private lenders, such as banks and mortgage companies, to veterans who meet eligibility requirements and plan to purchase the home to live in themselves. Veterans must apply for the loan at a lender, and if the loan is approved, the VA will guarantee a portion of it with the lender. The lender is then protected against financial loss and the veteran will be able to get attractive financing terms.
Often VA loans are limited to $417,000, primarily because lenders sell these VA loans in the “secondary market,” and there is a limit of that amount on loans.
The advantages to VA loans include the following:
• The VA funding fee can be financed.
• The mortgage is assumable.
• The buyer is informed of reasonable value.
• Closing costs are comparable or lower than other financing types.
• Equal opportunity exists for all qualified veterans to obtain a VA loan.
• Homes inspected by the VA during construction receive a warranty from builder and assistance from the VA to obtain the cooperation of the builder.
• The interest rate is negotiable.
• There is no down payment (unless the lender requires it because of the price of the property).
• There are no mortgage insurance premiums.
• The loan can be repaid without penalty.
• VA assistance is available to borrowers who are experiencing financial difficulty during the life of the loan.
Keep in mind the following items that the VA does not handle:
• The VA cannot ensure a home that is defect free. Only the loan is guaranteed–not the property itself. This is why an inspection is always recommended.
• If you are building a new construction home, the VA has no influence over the builder.
• The VA does not offer investing advice, so it is up to the veteran to determine whether or not the purchase is a good investment.
• The VA does not provide legal services.
What Are the Steps to Obtaining a VA Loan?
Step one: Find a home and sign a contract with a condition that it is approved for a VA guaranteed loan.
Step two: Find a lender and complete loan application; present Certificate of Eligibility for the VA backing. Call for a credit report and an appraisal.
Step three: Receive a loan decision. If the established value is acceptable to all parties and the lender develops that a veteran is credit and income qualified, the loan may be approved. Most lenders are authorized to make this decision.
Step four: Close on the loan, signing the note, mortgage, and other related documents. When the loan is reported to the VA, the Certificate of Eligibility will be annotated to reflect the use of entitlement and returned to the applicant.
Keep in mind, that these steps may vary somewhat from state to state.
Troubleshooting the VA Loan
Because this is such a popular loan program among veterans, there are also issues that can pop up. Take a look at the list below to answer your questions before you seek a loan, and to answer questions that might come along while you are in the process.
• The Veterans Administration does not act as the lending agent for the loan; they merely guarantee some of the backing for it.
• Buyers who qualify may be able to purchase a home with a VA backed loan with no money down.
• Veterans may be able to get a fixed rate loan at a negotiated amount; other options include an adjustable rate loan.
• Just as buyers applying for a conventional loan should be preapproved, so too should those seeking a VA loan. It will save time in the long run.
• For those getting started with the VA loan process, an online program called the Automated Certificate of Eligibility (ACE) can help streamline the steps.
• Keep in mind that the way in which you were discharged from the service will impact your eligibility for the VA loan. If you had a discharge that was other than honorable, that will likely complicate things.
• Don’t lose your DD214; that’s your discharge paperwork and it’s the most important document among your military records.
• If you already have a VA loan, you might be able to reduce the interest rate by refinancing; check with your lender. The beauty of this is that you will not need to reestablish your VA loan eligibility in order to do it.
• You can renew your VA certificate of eligibility; you’ll qualify if you have paid the existing VA loan in full and still own the property.
• If you have an existing VA loan, you might still be able to get a second loan depending on the unused amount you are entitled to get.
• Although buying an investment property makes good financial sense, you cannot use a VA loan for this purpose.
• You will need to have a certain debt ratio if you are to qualify for a VA loan. Income and debt ratios will have to be approved before you are.
How a VA Loan is Flexible
Granted a VA loan is generally used to purchase existing homes for families. However, there are some other applications available with this type of loan that may be surprising. For example, there is a “VA funding fee” that is required by law. A first-time buyer will pay a little over 2 percent for a no-money-down loan, and a second-time buyer’s fee is slightly over 3 percent. In addition:
• Cosigners, in the form of a legally married spouse or a military member or veteran, are not penalized. The loan is still completely guaranteed by the VA.
• If you have been turned down in the past for the VA loan process, the Veterans Benefits Act of 2004 might have bade it easier to get approval given some of the changes they have made. It is worth checking out again.
• If you have been preapproved but you cannot find a home to purchase, you might have some options. For instance, VA loan foreclosures might off you some opportunities that you were previously unaware of.
• If you are turned down for a VA loan, you might be able to fix your credit–and then get approved the next time you apply for a loan.
Much as it did in the post-war era, VA loans continue to work in improving this nation’s economy by helping veterans obtain the American dream of home ownership.