VA Home Loans & You
By: Sente Mortgage
Everything you need to know about VA Home Loans
When Congress passed the GI Bill of 1944, Congress created a variety of programs designed to help those returning from World War II. One of the most popular and enduring programs is the VA Home Loan, a one-of-a-kind mortgage program that allows qualified US Veterans to finance a home at a competitive rate, with no monthly mortgage insurance and no down payment.
Today, there are more than 22 million veterans and active duty personnel who may qualify for a VA Loan to purchase a home. If you’re a qualified US Veteran ready to explore the VA home loan process, you’ve come to the right place. Below you’ll find a step-by-step guide to understanding the qualifications, application and paperwork you’ll need to get the ball rolling.
A Sente Mortgage Banker can help make this process easy. Contact us today if you have any questions.
Step 1: Determine your Eligibility
Many of the US Veterans we work with don't immediately realize that their service to our country makes them eligible for a VA Home Loan. To clarify the eligibility rules, below is a list of the basic qualifications one must meet to apply for a VA Loan.
Who exactly is eligible for the VA home loan benefit?
Veterans: The largest single class of eligible borrowers is veterans of the Armed Forces. A veteran will need to provide evidence of the discharge with form DD-214, and the discharge must be read as an “honorable, under honorable conditions and general” discharge.
Active Duty Personnel: Those who are currently serving in any branch of the Armed Forces may qualify by showing evidence of at least 90-days of continuous service.
National Guard and Reserve Members: Current National Guard and Armed Forces Reserve members with at least six years of service are also eligible for the VA home loan benefit. Honorably discharged members of the National Guard of Armed Forces Reserves who have at least six years of service may also qualify.
Surviving Spouses: Unremarried, surviving spouses of veterans who have died as a result of a service-related injury may also claim the VA home loan benefit, as well as the spouse of a service member missing in action. Surviving spouses who later remarry on or after turning 57 may also be eligible.
Others: Cadets at the United States Military, Air Force and Coast Guard academies may qualify, as well as midshipmen at the U.S. Naval Academy.
If you fall into one of these categories, and are ready to make your dream of homeownership a reality, next step is your Certificate of Eligibility.
How to get your Certificate of Eligibility
First, let’s define what it is. A Certificate of Eligibility is often considered the first step in the VA Loan process. It’s is a document that proves that a potential buyer has met the VA Loan service requirements and is eligible to qualify for a VA Loan. It’s a fairly simple document that is obtained in several ways:
- Have your VA lender request a copy for you. The easiest way to get your Certificate of Eligibility (COE) is to have your VA lender request it for you. Approved VA lenders (like Sente) have access to an online system that allows the VA lender to request and receive a copy directly from the VA. Once the lender makes the request, the COE is delivered electronically and is received in a matter of moments.
- Request a copy online or by mail. You can obtain your COE by making a written request directly to the Department of Veteran’s Affairs, or you can apply for a copy of your COE by visiting the portal set up by the VA where you can make your request online, in person or by writing the VA. You will need to complete a Request for Certificate of Eligibility by filling out DOD Form 26-1880. You’ll also need a copy of your DD Form 214 to make sure the information on the DD Form 26-1880 matches the DD-214 exactly. Once the VA has received your request, the COE will be delivered to you.
What if I’ve already used my VA Loan Eligibility?
Veterans can use their home loan eligibility more than once. For most who use the VA Loan to buy a home, once the home is sold, the entitlement is completely restored for use on another home. And, if you’re refinancing an existing VA Loan with a VA Streamline Refinance, there is no need to request another COE as eligibility was already verified.
Please note: If you decide to keep the original home purchased as a rental or investment property, the VA Loan entitlement isn’t available for a new home unless you refinance the original property to a non-VA Loan.
Plug in some numbers and explore your borrowing power. Estimate how much house you can afford, monthly payments, evaluate interest rates, and compare loans against each other with this simple tool.
Step 2: The Application and Pre-qualification Process
Once you’ve determined your eligibility and are ready to hit the streets to find your dream home, it’s smart to begin with a lender to get the application and pre-qualification process started.
Pre-Qualification is a fairly simple process that will allow a mortgage banker to review your income, assets and liabilities and will give you an estimate on how much money you can borrow. Armed with this information you can shop with a budget in mind. The pre-qualification process also gives you an opportunity to discuss financing options with your lender, and to review any potential credit issues during this process.
Credit Scores and VA Loans
VA Lenders validate a responsible credit history by reviewing the credit report and the credit score. VA Loans don’t require perfect credit, but they do require what might be described as an “average” or better credit history. Of primary importance is the most recent two years of payment history. There can even be a late credit card payment or two in the recent past, but if those payments are isolated and the only late payments showing up, then the credit score is more than likely good enough to qualify.
Using credit scores when approving a VA Loan has been around since the late ‘90s, and today credit scores are used to quickly assess a borrower's credit history. Most lenders require a minimum credit score of around 620, but there are exceptions to that guideline on a case-by-case basis. Credit scores might seem a bit foreign to many, but they’re calculated using an algorithm established by a company called Fair Isaac & Company who goes by the name “FICO.” Credit scores are three digits and range from 300 to 850, and the higher the score the better the credit history. When lenders pull credit on a veteran’s loan application, they pull a report from the three main credit repositories of Equifax, Experian and TransUnion.
Rental history is also a major factor when evaluating a veteran’s payment history. It has a greater impact on a credit profile than a late payment on an automobile loan or student loan, and is defined as a payment made more than 30 days past the due date. When a borrower applies for a VA Loan, the borrower also gives permission for the lender to contact the landlord or otherwise provide 12-months of cancelled checks showing the rent was paid on time. Lenders want to see at least a two-year history of rental or housing payments. There are exceptions made, however, for those recently discharged or recent graduates from school who have just started to work full time.
Step 3: Loan Processing & Paperwork
Armed with your pre-qualification letter, it's shopping time. Once you’ve selected your dream home, you’ll make an offer and submit your pre-qualification letter to show your commitment as a buyer.
If your offer is accepted, your loan will move into the processing phase. As you might expect, obtaining a mortgage requires your fair share of loan documents and paperwork, and VA Loans are no different. In fact, VA mortgages might even have a few more processing requirements and pieces of paper to sign compared to a conventional home loan. This is primarily due to verifying eligibly for this special zero-down-payment program.
Once your VA mortgage banker receives your loan application, here’s what you can expect them to ask you to provide as part of the process:
Certificate of Eligibility
You’ll need to provide your Certificate of Eligibility (COE), which you can obtain directly from the VA, or you can have your VA approved lender obtain it for you.
VA lenders are required to show evidence that the veteran has the ability to comfortably repay not just current monthly credit obligations but the new mortgage payment, including a monthly portion toward property taxes and homeowners insurance. This verification is completed by reviewing the most recent paycheck stubs covering a 30-day period. If you’re active duty, you’ll be asked to provide a copy of your LES.
If you’re self employed or you rely on other income that doesn’t come directly from an employer, you’ll need your two most recent signed federal income tax forms, all schedules as well as a year-to-date profit and loss statement. The year-over-year income should be consistent without any significant drop in income from one year to the next. The profit and loss statement can be prepared by you or your accountant and does not have to be an “audited” profit and loss.
Even though veterans are restricted from paying certain kinds of closing costs and there is no down payment requirement, there will still be closing costs that need to be addressed. Your VA loan officer will provide you with a list of expected charges and what they’re for but will also make sure there are enough funds in an account you own that will cover those fees. Verification of sufficient funds to close is performed by submitting your most recent copies of those accounts. If you’re getting a financial gift from a relative to help defray these costs, your lender will provide you with a Gift Letter for the donor to complete.
You’ll need to have insurance coverage on the home you’re going to buy that will cover at least the amount borrowed. Once you select a property and the property appraisal has been completed, your insurance agent will provide a policy.
There are multiple VA home loan disclosures you’ll need to review, sign or initial and return to your VA approved lender. Those include the Occupancy Statement, Fair Credit Reporting Act, Equal Credit Reporting Act, Right to Financial Privacy, Disclosure Authorization Form, an Anti-Coercion Statement and Flood Insurance Notice. If you select an adjustable rate mortgage, you will also receive a booklet entitled Consumer Handbook on Adjustable Rate Mortgages. In addition to these loan disclosures, you will also receive and sign copies of your initial, typed loan application.
A VA lender might need additional information from you while the loan is being processed. This could be a missing paycheck stub or signing a disclosure that was previously left blank. When the loan is documented and sent for an approval, the underwriter may have some questions or even ask for additional information for you to bring to the closing table. These additional items brought to the closing are called “loan conditions” and are typically nothing more than updating the file to conform to VA guidelines.
Step 4: Closing
Once the Underwriter gives your file the final approval, a closer will draw up the legal documents and send them over to your title agency and attorney for final preparation. You’re in the home stretch now! A closing date will be scheduled at the title agency and the celebration can soon begin!
Perhaps the most attractive feature of a VA Loan is the absence of a down payment. However, it’s important to note that there are closing costs associated with any VA loan, it’s just a matter of who pays them and how they’re handled (according to the VA there are certain closing costs the veteran is not allowed to pay).
VA Closing Costs Explained
An easy way to remember which charges are considered “allowable” is to remember the acronym ACTORS.
- Credit Report
- Title Insurance
- Origination Fee
Other fees are considered to be “off limits” and veterans are not allowed to pay them. When you speak with a loan officer, be sure to discuss any charges you can expect to see at the closing table and have your loan officer explain what each of the charges are for and the third party services needed in order to close your VA Loan application.
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