Navigating the VA Loan Process
After the 2008 financial crash spurred by a mortgage crisis, lenders have tightened eligibility requirements. For some, it’s harder than ever to buy a home.
But about 22 million Americans have access to VA loans, a government-backed variety of mortgage assistance run by the Veterans Administration (VA) which often loosens lending requirements for current and former service members.
VA loans allow certain veterans, active duty service members, and the currently-enlisted, as well as qualifying surviving spouses, to receive up to 100 percent financing toward the purchase of a home — diminishing the need for a down payment.
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The Veteran’s Administration, does not directly finance VA loans, but it does set VA loan limits and VA loan guidelines, which must be followed.
Lenders are willing to loosen their lending restrictions because of the VA loan guaranty, in which the Veterans Administration stands behind a portion of a loan. If a borrower cannot make payments, the agency will assume the lender’s losses.
This “insurance” allows lenders to provide competitive rates to veterans and service members regardless of their current employment or credit situation.
But the VA loan program can become a paperwork tunnel, with a difficult VA loan process. Navigating the VA loan eligibility process and finding the best VA loan rates can often be complicated for the uninitiated. It may feel like too much work to unlock the VA loan benefits.
Fortunately, we’ve put together this guide, which offers everything you need to know about VA loans, including:
- VA loan eligibility requirements
- VA loan guidelines, including the VA loan process and everything you need to fill out a VA loan application
- VA loan rates and tips on how to get the most out of your VA loan benefits
- VA loan limits, including when a VA loan cannot help you and why
VA Loan Eligibility: How to Meet VA loan Qualifications
The VA loan program was created by the U.S. Dept. of Veterans Affairs to give former service members a better shot at financing the purchase of a home.
While the government agency does not directly provide funding for a VA loan, it does dictate VA loan eligibility, since the Dept. of Veterans Affairs insures all VA loans against default. It’s imperative to establish one has met VA loan eligibility requirements before moving forward.
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Nearly all veterans, reservists, and active duty members of the military and National Guard should meet VA loan eligibility standards. This includes:
- Active duty members, who can access VA loan benefits six months after they’ve started their service.
- National Guard members, as well as reservists, after six years unless they switch to active duty and combat.
- Veterans serving in a war gain VA loan eligibility after 90 days of service.
- VA loan guidelines state the money can only be borrowed for a home the veteran or service member plans to reside in, such as apartments (condominium or co-op), single-family homes, modular homes, and other properties.
- The spouses of service members who died while on duty or due to service-related ailments may also meet VA loan qualifications.
If the potential buyer meets the basic standards listed above, he or she can apply for a Certificate of Eligibility. This form, provided by the VA, gives a lender all the information necessary to establish VA loan eligibility and the VA loan limits.
The amalgam of ways to get a Certificate of Eligibility are too varied to list here. The VA’s website has a nifty chart matching current military status to the forms needed to get started on your VA loan application.
It also has an eBenefits portal which helps fill some of the paperwork necessary to establish VA loan eligibility.
It’s important to add VA loan eligibility isn’t limited to first-time buyers. The VA loan benefits are reusable, as long as you’re purchasing your primary residence.
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VA Loan Guidelines: Submit Your VA loan Application Properly
The VA loan process, despite certain situations that differ from person to person, remains nearly universal for all applicants.
Finding a real estate professional who specializes in the VA loan process helps. If there isn’t one on hand or you’re not sure, ask friends who’ve had positive experiences for recommendations — or warnings if things didn’t go too smoothly.
Buyers must first determine their VA loan eligibility and see if they have fulfilled VA loan qualifications. This includes getting a Certificate of Eligibility.
VA loan applicants need to then find a potential lending institution such as a bank which participates in the VA loan program. It may be prudent to “pre-qualify” at this point.
The lender will determine how much you can borrow and at what rate, which will show you the extent of your VA loan benefits and help you with the next step.
Though the VA loan process is uniform, the math behind how much to lend and at what rate varies from one institution to another. Be sure to shop around, as not all lenders will give the same offer.
Knowing their VA loan limits, veterans and service members can hunt for a home they hope to purchase. Make sure the price will be covered by the VA loan benefits.
Once the prospective buyers find their ideal home and agree on a price, they can begin drawing up a purchase agreement. Be sure your real estate professional includes a “VA Option clause,” which allows the buyers to back out if the VA’s appraised value of the home is lower than the agreed-upon price.
Also, be sure the purchase agreement has another escape hatch should the buyer ultimately not qualify for a VA loan.
Though the buyer navigated much of the VA loan process, they still technically haven’t filled out a VA loan application.
Only after applicants have found a lender and home do they fill out a VA loan application, which sets in motion the final phase of the VA loan process.
While lenders begin to digest the myriad information in a VA loan application, they also have the prospective home inspected and appraised for its market value as of the date of the inspection.
Even though the inspector checks the home’s condition, the VA does not guarantee the house or cover any future repairs.
To ensure objectivity, the lender cannot pick an appraiser during the VA loan process. The licensed appraiser, it should be added, isn’t a VA employee.
Once the appraisal has been submitted and all the documentation processed, it’s ultimately the lender who decides if the VA loan benefits can be granted.
Having fulfilled the VA loan process in its fullest and getting lender approval, borrowers can finally close on their new home. The lender will pick an attorney, a title company, and a representative to conduct the closing.
VA Loan Limits and Benefits
The implicit “guarantee” built into every VA loan allows lenders to broaden the VA loan benefits beyond usual mortgage terms.
For example, unlike typical mortgages, VA loans do not require a down payment if the price of the home matches its appraised value. This may free up money for an emergency fund, helping to cover any unexpected troubles or repairs needed after one moves in.
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VA loans also have no mortgage insurance premium standards. This helps lower the long-term cost of your home as you pay off your loan.
VA loan guidelines also limit closing costs, which may also be covered by a seller. VA loan benefits also stop a lender from charging penalties for early repayment, and the Veteran’s Administration itself may provide some financial backup if you fall behind on your payments.
The VA doesn’t limit how much money one can borrow within the VA loan program, but it does limit how much of the loan the government will “guarantee.” These VA loan limits essentially cap how much a fully-eligible, qualified veteran can borrow without a down payment. Anything beyond it will increase a service member’s costs outside the VA loan process.
This, in turn, affects how much money an institution will lend you, as well as your VA loan rates. Since home values fluctuate across the nation, these VA loan limits vary by county.
The VA loan limits are essentially equal to the Federal Housing Finance Agency’s, which can be located here. A local real estate professional can also help you decipher a borrower’s VA loan limits.
Aside from VA loan limits, the VA loan program includes a funding fee. This adds to the cost of the VA loans while removing some of the burden from taxpayers. The funding fee must be paid for by all who enjoy VA loan benefits.
The fee changes based upon your military category, if you make a down payment, or if its your first time using a VA loan.
Finding the Best VA Loan Rates
Lenders, not the Veterans Association, set VA loan rates, as well as closing costs, which vary from one institution to the next. Seeking VA loan rates requires a bit of shopping around.
Thanks to VA loans, about 79 percent of veterans owned their own homes, as opposed to 63 percent of the general population.
VA loans usually have a lower interest rate than standard mortgages or loans, thanks to the government’s guarantee to cover the lender’s loss if the borrower cannot pay off their debt.
This allows VA loan rates to be well below market rates.
One VA loan provider, USAA, offers a comparison table of rates. In some scenarios (for example, a 30-year fixed rate on a $225,000 mortgage for a single-family detached house in Georgia), the interest rate can differ between a fraction of a point or a whole point.
VA loan rates aren’t impervious to the usual standards required for all borrowing either. Lenders use current income, savings, credit scores, and the usual bevy of data to determine VA loan rates.
An ideal option is to have some money — any — to put down. It’ll lower the total cost of the loan, while applying the lower VA loan rates to a smaller principal.
Just as important as VA loan rates, buyers should be sure to weigh the additional costs not assumed by VA loans, which include funding fees. Be sure the total doesn’t lay to waste the savings one can earn with lower VA loan rates and no down payment.
Read More: 6 Mortgage Loans Tips for U.S. Veterans
When applying for a VA loan, come prepared with extra patience. VA loan qualifications are stringent — many high hurdles must be crossed.
Be sure to exercise the usual good habits of any potential homeowner:
- shop around for the lowest VA loan rates
- ensure you meet the requirements for VA loan eligibility
- know the VA loan limits, which set a ceiling for what you can buy
Be sure to work with professionals who have experience with the VA loan process, and lenders willing to put in the extra effort to make sure you unlock all the potential VA loan benefits.
Many veterans often neglect or do not even know the VA loan benefits available to them. A pity, as their service, sacrifice, and bravery needs to be repaid as often and in as many ways as possible.
AdvisoryHQ (AHQ) Disclaimer: Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info. Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.
AdvisoryHQ (AHQ) Disclaimer:
Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info.
Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.