How Does a VA Loan Work?
Applying for any type of mortgage can be difficult and confusing. They all require some work from you as a potential borrower and can sometimes feel overwhelming.
However, taking the time to apply for a VA loan will be worth it. VA loans offer many unbeatable benefits and some of the most competitive interest rates on the market.
So How Does a VA Loan Work?
The Department of Veterans Affairs (VA) doesn't issue the loans itself—rather, it guarantees the loans and sets the VA home loan requirements.
VA-approved lenders are lenders that follow these VA loan guidelines. With government backing, lenders are able to offer lower interest rates and include some other unique benefits.
Here are two key benefits to the VA home loan program:
- No down payment required
- No monthly private mortgage insurance (PMI) payments
If you're familiar with the mortgage world, you know that these are some serious home loan benefits.
VA Home Loan Requirements
If you want to try and secure a VA mortgage, the first thing you want to determine is if you qualify. Some of the VA loan guidelines that will help you determine your VA loan eligibility are:
- You served 181 days on active duty during peacetime
- You served 90 days on active duty during wartime
- You served six years in the Reserves or National Guard
- Your spouse died in the line of duty or from a service-connected disability
If you fit into any of the criteria above, you may be eligible for a VA home loan. But remember that you'll have to meet both these VA requirements, as well as any additional requirements the lender may add.
The 6 Steps to Getting a VA Home Loan
We can sum up the VA loan process in six steps:
1. Find a VA Lender
Finding a VA-approved lender might not seem like a hard step—after all, most lenders do offer VA loans. But don't go with the first lender you find. Some research on your part will benefit you in the long run.
The first thing you'll want to do is verify that the lender is an expert with VA loans. Your current bank might offer VA loans, but will their loan officers know the ins and outs of them? Remember, you deserve the best options out there. And finding a lender who specializes in VA loans is an essential first step.
Here's one question you should ask a potential loan officer: "How many VA loans do you process per month?" If the answer is zero or minimum, then politely turn down their services.
On a side note, to get you really prepared, make sure you have your Form DD214 when you start applying. Additionally, you'll need your VA home loan Certificate of Eligibility (COE), but a good VA lender will be able to pull that up for you.
2. Get Pre-Qualified
A pre-qualification will give you a fair estimate of how much house you can afford. Go ahead and start it now; it only takes 60 seconds to complete! After you pre-qualify, this is where things start to get exciting.
3. Get Pre-Approved
Getting a loan pre-approval is a major step towards your homeownership goal. While the pre-qualification step gives you a fair estimate, the pre-approval step will give you an exact amount to work with.
During this process, the lender will verify your income and financial information in detail. This will involve getting:
- Pay stubs or earning statements from the last 30 days
- W-2 forms from the past two years
- Two months of statements from other assets (401k, savings, IRA)
While this step gets more involved, the end result makes it worth it. After the process is complete, you'll be issued your pre-approval letter with an exact loan amount. You can then show this to real estate agents and home sellers to show them you're a serious buyer.
4. Start Putting in Offers
Now you can start looking for houses and putting in offers. But to make this go smoother, you might want to have an agent with VA experience. There are some aspects of homebuying that are unique to VA loans.
To put it simply, your VA loan can only go towards a VA-approved home. This means that the home is move-in ready and can be a single-family home, a VA-approved condo, or some type of modular house. Having a real estate agent with VA experience can help you sort through these kinds of details.
5. VA Appraisal and the Underwriting Process
When you're under contract, your lender will send out a VA appraiser to determine that the house meets the sales price. These appraisers are not part of your lender's organization and have been approved by the VA.
After the appraisal, the underwriters will evaluate your income and any other finance-related documents, along with the appraisal. Once everything checks out, you'll be ready for closing.
6. Closing Time
During closing, you'll sign the legal documents required. You can also expect to pay your:
- Closing Costs – Under the VA home loan program, closing costs are limited compared to conventional loans. Typically, they're around 3-5% of the loan amount.
- VA Funding Fee – The VA Funding Fee is a one-time payment for a VA home loan. The fee is used to offset the cost of the few loans that go into default. It also reduces the cost to taxpayers and ensures the VA home loan program is there for future generations. The fee can be rolled into your loan amount, which is a great option for many homebuyers. Many sum up the VA Funding Fee as "veterans helping veterans."
After everything is done, you'll get the keys to your new home. Then it's moving time—whew!
Who We Are
Low VA Rates is not only an approved VA lender, but VA loans are our specialty. We have experienced mortgage professionals who have been issuing VA loans for years, so we know the ins and outs of VA mortgage products.
Become one of the millions of veterans who have bought a home with $0 down and a low interest rate—start your application today!