How To Apply for a VA Home Loan: Veterans Mortgage Process Explained
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Applying for a loan backed by the Department of Veterans Affairs is much simpler than a traditional loan, provided you meet the eligibility requirements. Let’s look at the steps it takes to get a VA mortgage.
What Credit Score Is Required to Get a VA Loan?
Technically, there is not a required credit score — at least by the VA. However, because VA home loans are actually provided by private lenders, but backed by the federal government, the lenders themselves can set required scores. Typically, this is about 620, in the “Fair” bracket. This is lower than a conventional or FHA home loan.
If you don’t have a credit score, or it’s lower than 620, you may want to look into ways to build your credit. If your credit report is littered with negative entries, consider credit repair. For even more information on what affects your credit, and what you can do to raise your score in order to get approved for a mortgage, visit our Credit Score Resource Center.
Once you get the mortgage, it will help your score even further. Mortgage is a form of debt, and paying back debts on time is the biggest factor of your credit score. So long as you diligently pay back your mortgage, it will positively affect your credit score.
Another factor that sits alongside your credit score is your debt-to-income ratio. You want this as low as possible. If you are above 41 percent, you should reconsider taking on another debt before applying for a home loan, as you may be rejected.
Get Your Certificate of Eligibility for a VA Home Loan
One of the major requirements needed when you apply for a VA home loan is a Certificate of Eligibility, or COE. To obtain a COE, you must be an active-duty service member, current National Guard or Reserve member who has never been federal active service, honorably discharged, or an unremarried surviving spouse of a servicemember who died in the line of duty or due to a service-related injury or disability. The VA has a full listing of requirements for each category.
Applying for a COE
Current, active service members will need a statement of service signed by or at the direction of the adjutant, personal officer, or commander of the unit or higher headquarters, showing:
- Your full name
- Your Social Security Number
- Your date of birth
- Entry date on active duty
- Duration of any lost time
- Name of the command providing the information
- Total number of creditable years of service (Current National Guard or Reserve members who have never been activated only)
- NGB Forms 22 and 23 (Discharged National Guard members who have never been activated only)
- DD Form 214 showing items 24 and 28 (Veterans only)
Unremarried surviving spouses will need a VA Form 26-1817, along with a DD214 if available. If you are not receiving DIC, also submit a marriage license and death certificate or DD Form 1300 to the correct regional office.
If you would rather not apply online, you can bring the completed forms to your lender — most should be able to process them — or mail them to the following address:
VA Loan Eligibility Center
Attn: COE (262)
PO Box 100034
Decatur, GA 30031
Find a Lender and Get Pre-Approved for a Mortgage
Most private lenders can help you get a VA loan if you are eligible. However, there are a few, like USAA, that specialize in helping service members and veterans. Your best bet is to shop around and see who will give you the best deal. Remember that you are already getting a lower interest rate thanks to using your VA loan entitlement, but not all lenders will be the same.
Once you’ve found the lender you want to work with, it’s time to get pre-approved for a loan. While not strictly required, it will help you find a house you can afford, as pre-approval allows the lender to determine what they are willing to loan you. This can inform your choice of house and what price you offer.
Start Shopping for a House
Whether you have gone through the pre-approval process or not, the next step is to find the home you want. A real estate agent can help you here. This and the next step are likely the hardest for you, as you have to find a home you actually want for a price that is affordable (which is where the pre-approval comes in, as you will have a better idea of what “affordable” is for you).
Make an Offer on a Home
Now it’s time to make an offer, where you can try to negotiate the price of the home. There are other parts of the offer that are important, too. Is there damage to the home? If so, is your buying the home contingent on the current owner fixing the damage, or will you negotiate a different price so that you can fix it yourself?
Another contingency is what the VA calls the “VA Option Clause.” They offer an example:
“It is expressly agreed that, notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs. The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs.”
An escape clause, if you are not pre-approved, can also be written into the contract, should you be unable to secure a VA-backed mortgage. Again, a real estate agent can help you here, as well as with any other contingencies or hiccups to making an offer.
You may need a deposit or “earnest money” to prove to the seller you are interested in the house. This is not a down payment, as down payments are not required for VA loans. It’s likely to be between $500 and $1,000, depending on the seller.
Get Final Approval for Your Mortgage
You’re in the home stretch. If you have already been pre-approved, this process should be quick and simple. Either way, you will need to complete your loan application, which includes providing personal information such as your Social Security number, employment and income details; gross income before tax deductions; other income sources; your assets and debts; and contact information. Tax returns, pay stubs, and bank statements are how you will prove most of these. You will also need homeowners insurance — bear in mind that USAA is the only insurer that requires you to get a quote will still in the offer phase. Other insurers will allow you to wait until closing.
The house will be inspected for any damage by a licensed inspector, as required by the VA. The VA uses rotating contractors. The average fee for this is $400 to $450. This will also provide you with an estimated market value of the home.
Closing on Your Home
Unless something has gone horribly wrong, such as the inspector finds damage you are unwilling to negotiate on, or you are unable to secure a mortgage, you will close on your home. There is usually a closing fee, but the VA limits buyer’s closing fees.
These closing costs, which also include the aforementioned appraisal fee, along with paying for a credit report, state and local taxes, and recording fees for the county, may be paid by the buyer, seller, or both sharing the cost. The seller can pay closing costs, up to 4 percent of the loan.
There is also a funding fee that goes straight to the VA, as the cost for using entitlement. This also helps future service members use their entitlement. This cannot be paid for by the seller.
You can find out more about what fees might be charged, and who can pay them.
After paying closing fees, congratulations! The VA home loan process is complete, the title has changed hands, and you have a new house.
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A former newspaper journalist, Cole spends his free time reading, writing, playing video games, watching movies, and learning about every subject under the sun. He lives with his wife and daughter in Idaho. Follow Cole on Twitter: @ColeMayer42
This post was updated June 18, 2018. It was originally published June 19, 2018.