A VA home loan is a mortgage offered through the US Department of Veterans Affairs. It is supported by the federal government but issued via private lenders. The main purpose of this program is to provide home financing to veterans, military personnel and certain other groups at an affordable cost.
Bear in mind that only lenders approved by the US Department of Veterans Affairs are licensed to initiate VA loans. So, you should choose a lender who has extensive knowledge and experience in the VA loan process.
Once you get hold of an experienced lender, they will help you obtain a Certificate of Eligibility (COE). Having a COE means that you meet all the initial eligibility standards for VA loan benefits. Besides, it will also let the lender know the amount you are entitled to receive through the program.
You may skip the pre-qualifying step but choosing to complete it will save you a lot of time and hassle. In order to pre-qualify for your loan amount, you need to have a detailed and candid discussion with your VA loan professional. The conversation should cover aspects such as your marital status, income, employment and credit history. This will help identify areas that need to be worked on like credit or debt-to-income ratio etc.
Next choose a reliable real estate professional and start your hunt for houses. This is the step that borrowers enjoy the most. The VA home loan allows certain costs and fees to be paid by the seller (if both parties agree). A knowledgeable agent is well aware of these benefits of the VA home loan program. They can therefore help negotiate the seller-paid fees; once you and the seller have agreed on a deal, you can go ahead and sign a purchase agreement.
The next step is VA appraisal where a VA-approved appraiser will check the house for any major defects or faults before the final purchase. They will see whether the house meets the MPRs (minimum property requirements). If the house doesn’t appraise at a value that is high enough to get the VA loan, you may renegotiate the sale price or even request a reconsideration of value (ROV).
After the home has been well appraised, the lender will verify that you qualify for the VA loan. Then the underwriter will give their stamp of approval.
The last step is completing the legal closing paperwork. This includes documents pertaining to closing costs, fees, loan terms and your estimated monthly payments. After you have signed the documents you will have to provide homeowners insurance. All that is left to do thereafter is get the keys and move into your new home.
In most loan programs, borrowers are required to pay some percent of the total mortgage amount upfront in cash. Even in case of FHA loans, buyers are typically looking at a minimum of 3.5 percent down payment. But the VA home loan program has no such requirement. It facilitates service members and veterans to realize their wish of owning a home without having to stockpile cash for years.
Conventional and FHA loans have an upfront mortgage insurance premium as well as annual mortgage insurance. The latter lasts for the entire life of the loan and buyers are required to pay it monthly unless they have paid a substantial amount (20% or more) as down payment. With VA loans there is no mortgage insurance. However, it does include a funding fee which goes to the Department of Veterans Affairs; but it is not required in cash and can be financed with the VA loan. Furthermore, veterans with disabilities or illnesses incurred during their active military years are exempt from paying this fee.
As with all other loan programs, VA loan also requires an acceptable credit history, specific documentation and sufficient income to pay monthly installments. But in comparison to other mortgage types, VA loan guidelines are more flexible. This is owing to the VA loan guaranty which safeguards the lender against loss in case a borrower is unable to repay the loan.
Since VA home loans are backed by the federal government, this security allows banks to lend to veteran borrowers at very low rates. According to a research by the mortgage software company Ellie Mae, VA loans are over 0.25% lower than the average conventional mortgage rates. Most loan programs require higher credit scores and down payment than the VA home loan. In the open market such a loan (VA) carries a higher rate due to the risk factor and lenient lending guidelines. But through the efforts of the Veterans Affairs, borrowers are able to get good loan rates and risks for the banks are also reduced a great deal.