For the vast majority of military borrowers, VA loans represent the most powerful lending program on the market. These flexible, no-down payment loans have helped more than 22 million service members become homeowners since 1944.
But even some longtime VA borrowers aren’t familiar with all of the program’s unique benefits and quirks. First, let’s walk through the VA loan process.
How VA Loans work
Get prequalified: Find a VA lender and prequalify to get an estimate of how much house you can afford based on your income, credit, entitlement and other financial factors. You can get a free quote with Veterans United Home Loans online anytime. Prequalification is a basic first step that paves the way for a much more powerful step – VA loan preapproval.
Get preapproved: Loan preapproval is a major step and puts you in the driver’s seat to spring into action when you find a home you love. Lenders will verify income and financial information to get a clear sense of your purchasing power. The end result is receiving a preapproval letter. These letters show real estate agents and home sellers you’re a strong and serious buyer who has what it takes to get to closing.
Put in an offer: When you and your agent find the perfect VA loan approved home, it’s time to craft an offer and negotiation a contract with the seller. It’s important to find a VA loan savvy agent you trust that also knows the ins and outs of VA loans.
VA Appraisal and underwriting: Once you’re under contract, your lender will order a VA appraisal of the property. Underwriters will evaluate your income, financial and related documents along with the appraisal once it’s finalized. If everything checks out, you’ll be issued a clear to close and move on to your loan closing.
Closing: You’ll sign all kinds of legal documents and paperwork at your loan closing and get the keys to your new home.
For more details, let our experts take you on an interactive tour of the homebuying process with our free, online Homefront Academy.
While the VA loan process can be summed up in these five steps, there are many things about VA mortgages that many potential borrowers and agent don’t know about.
Let’s take a closer look.
Here’s what service members need to know about VA Loans:
1. They’re reusable. You can use your full VA entitlement over and over again as long as you pay off the loan each time. But you may be able to obtain another VA loan even if you’ve lost one to foreclosure or currently have one.
2. They’re only for certain types of homes. If you’re planning to buy a working farm, a downtown deli or a fixer-upper, the VA loan may not be for you. It’s mainly designed for properties in “move-in ready” condition, including single-family homes, condos, modular housing, some multi-unit properties and more.
3. They’re for primary residences only. Don’t bother trying to use your VA loan benefits to buy an investment property or a vacation home in the Poconos. VA loans are for primary residences, although you can use this benefit to buy a duplex or another multiunit property, provided you live in one of the units. The VA does offer exceptions, though lenders also have their own standards that might affect occupancy requirements. Read more: What Are the Exceptions to VA’s Occupancy Requirements?
4. They’re not issued by the VA. The VA isn’t in the business of issuing home loans. Instead, the agency provides a guaranty on each qualified mortgage loan.
5. But they’re guaranteed by the government. If you have a VA entitlement, the agency typically guarantees up to a quarter of the loan amount. The guaranty gives lenders confidence and helps service members secure great terms and rates.
6. They’re available despite foreclosure or bankruptcy. Service members with a history of bankruptcy or foreclosure can secure a VA loan. Even borrowers who have had a VA loan foreclosed on can still utilize their VA loan benefit.
7. They don’t have mortgage insurance. Mortgage insurance is a monthly fee you pay with other programs when you’re not putting at least 20 percent down. The VA’s guaranty eliminates the need for any mortgage insurance or mortgage insurance premium, helping borrowers save even more money each month.
8. They come with a mandatory fee.
There’s no mortgage insurance with VA loans, but there is the VA Funding Fee. This fee helps the VA keep the program going and is required on both purchase and refinance loans. It can be rolled into the loan amount and waived entirely for those with service-connected disabilities.
9. They have limits on co-borrowers. Some loan programs let you get a loan with just about anybody. That’s not the VA loan program. Having a co-borrower who isn’t your spouse or another veteran with VA loan entitlement will require a down payment. Not every VA lender offers these types of joint loans (Veterans United does).
10. They don’t have a prepayment penalty. You can make extra payments any time you want, saving you a boatload in interest over the life of your loan. You can even structure your payments to automatically deduct a little extra every month. Just an extra $100 per month can shave years and tens of thousands of dollars from the balance.
Photo courtesy of David Sawyer