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The VA loan process can seem convoluted at first. There are new terms to learn and timelines to meet.
Buying a home can be a stressful time for everyone involved. If you've never gone through this process before, not knowing what to expect only serves to add to the stress you're feeling.
You can mitigate these issues somewhat by knowing more about what the VA loan process involves. This process can be completed in six relatively straightforward steps, which are detailed in the following guide.
VA Loan Ultimate Guide
I built the VA Loan Ultimate Guide to explain the confusing VA loan process.
- What is a VA loan?
- How to determine if you are eligible for a VA loan?
- How to get a VA loan Certificate of Eligibility?
- What credit score do you need for a VA loan?
- What is the VA loan process, from start to finish?
- Who are the best VA loan lenders?
- What is a VA cash-out refinance loan?
Here's a podcast episode from my Military Money Manual Podcast all about using the VA loan:
Step 1: Get Your Certificate of Eligibility
The very first thing that you'll want to do before even getting preapproved for a loan is to seek a certificate of eligibility. Keep in mind that this certificate is meant to show that you can produce the documentation needed to prove that you are currently serving or have served in the U.S. military. Surviving spouses may also qualify for VA home loans.
Once you have obtained this certificate, lenders will automatically know that you are fully eligible for this type of loan. If you have already started working with a lender, they should be able to help you obtain this certificate and gather the necessary documents.
Check out the best VA loan lenders in this article.
Step 2: Obtain VA Loan Preapproval
You shouldn't start your search for a new home until you've obtained VA loan preapproval. This type of approval allows military and veteran buyers to understand how much they are able to spend when buying a home. The preapproval letter will also show real estate agents and the sellers they represent that you're serious about making an offer on a home. Many sellers will only provide tours to potential buyers who have preapproval letters.
Preapproval will also let you know if you qualify for a VA home loan. The lender you work with will take a look at your military service, your employment history, and the goals you have for the home-buying process. They will then perform a hard credit check to identify what your current score is. In most cases, the lowest credit score you can have to be approved for this type of loan is 580-620. A higher score should help you obtain a better interest rate.
Additional documentation will need to be given to the lender before you receive your preapproval letter. This documentation includes:
- A copy of driver's license or government identification
- A copy of your DD-214 document
- Statement of service
- Recent bank statements and pay stubs
- Disability award letter if applicable
If all of this documentation checks out, you should be given a preapproval letter that states how much you can afford.
Step 3: Begin Looking for a New Home
Now that you have your preapproval letter, you can start your search for a new home. It's highly recommended that you work with a real estate agent who understands VA loans and how they differ from conventional loans. A VA loan can be used to purchase nearly every type of building that can be bought with a conventional loan. The types of properties you will have access to include:
- Single-family homes
- New construction homes
- Multi-unit properties
- Modular or manufactured housing
Keep in mind that buying a multi-unit property with a VA loan is only possible if you intend to stay in one of these units. All homes bought with a VA loan must be in good condition to ensure the home meets the minimum property requirements that the Department of Veterans Affairs adheres to.
If there are any MPR issues with these home, the loan may not be officially approved until these issues are corrected. Since minimum property requirements must be met before the sale can go through, it may be difficult to purchase a fixer-upper. A loan specialist can help you determine if this is possible.
Step 4: Make an Offer and Get Under Contract
Once you've found a great home in a neighborhood you like, the next and likely most crucial step of this process is to make an offer. The real estate agent you work with can help you arrive at an offer that they believe the homeowner will accept. If competition among other buyers is high, the offer may need to be above the listing price.
Make sure that you also speak with your real estate agent about the closing costs that you're expected to pay. Depending on your situation, you may be able to ask that the seller covers your closing costs. Once you've made an offer, additional negotiations may be needed before the seller will accept your offer.
When your agent writes up a contract, you should consider placing several contingencies in the contract. These contingencies can give you the right to a home inspection and can inform the seller of how you want repairs to be handled.
Step 5: Wait While Loan is Underwritten and Appraisal is Completed
Once all of the necessary contracts have been signed, the closing process will begin in full. At this time, all of your financial documentation will be sent to loan underwriters who will be tasked with verifying the documentation and approving your loan.
This stage of the process also involves a standard VA appraisal, which is performed by the Department of Veterans Affairs. As the buyer, you must cover the costs for this process. A third-party appraiser will asses the value and condition of the property you intend to buy.
In the event that the appraised value of the home is lower than what you're paying, you may be tasked with renegotiating with the seller or paying the difference between the home value and the listing price.
If you find that repairs are needed to ensure the property meets the minimum property requirements, you could ask the seller to make these repairs before the closing date arrives. While this process unfolds, you may be asked to produce additional documentation to resolve any questions the underwriter has. Once all questions are answered and the loan is approved, you'll be cleared to close.
Step 6: Close on Your VA Loan
In the days preceding the closing date, you should receive a basic Closing Disclosure form that allows you to compare the final loan details and closing costs to the initial estimates that you received at the beginning of the process. Your lender will also complete a final verification on the information you provided before the loan closes. If you've made it this far, verification should occur in no time.
You may be given the opportunity to walk through the home once more before the closing date, which allows you to determine if all repairs have been made as requested. If you notice any issues with the property, inform your agent and lender immediately. On closing day, you'll receive the keys to your home after signing some final paperwork.
Even though the VA loan process can be somewhat time-consuming, understanding what this process entails makes it more likely that you'll get through it and close on the loan without any unforeseen issues or untimely delays.