The U.S. Department of Veteran’s Affairs (VA) does NOT issue loans. The VA does, however, provide a guarantee to reimburse lenders 25% of the loan amount in the event a borrower defaults. The reduction in risk that the VA guarantee provides to lenders issuing VA loans allows them to offer lower than normal interest rates and require little or no down payment. If you are an eligible veteran or eligible spouse of a deceased veteran, here is a step-by-step guide to using your VA loan to purchase a home.
1. Apply For Your Certificate of Eligibility (COE)
An approved VA lender can help you get your COE or you can contact the VA directly and request VA Form 26-1880. Your COE will be included in the loan package that the lender submits to the VA for approval.
2. Get Prequalified By a VA Approved Lender
Being eligible for VA loan benefits does not automatically mean you are qualified to get a loan. You still need to have sufficiently good credit and enough income. You will need the following.
- Your most recent leave and earnings statement (LES) or pay stubs for the previous month.
- W-2 forms for the past 2 years or your past two tax returns if you are self-employed.
- Past two months bank statements.
- If you receive paper statements, bring the entire statement. If you are printing online statements, print all pages and insure that your name and account number appear on the printout.
- Certificate of release or discharge.
- If you are no longer active duty, you will need to bring your certificate of release or discharge from active duty, commonly referred to as a DD-214.
3. Find a House and Submit an Offer Including a VA Option Clause or VA Financing Contingency
Make sure your real estate agent has previous experience working with VA buyers. In the section of the contract designated for special terms and conditions or for financing contingencies, your agent will include language specifically designed to protect you in a situation where the VA appraisal is lower than the purchase price or you are not approved for a VA loan.
The clause allows you to cancel the contract with no liability of losing any deposit or good faith money you may have submitted with the offer. The clause can also include language that states that you reserve the option to go forward with the contract regardless of the VA appraisal.
The offer may also include a contingency for a home inspection and a request for the seller to pay some or all of the buyer’s closing costs. The VA allows the seller to pay buyer closing costs equivalent to 4% of the sales price.
4. Apply For a VA Loan
Once the purchase contract for the property has been accepted by the seller, it is time to complete and submit your VA loan application. If you have already gathered the necessary documents when you were prequalified, this will be a simple step.
5. Appraisal, Home Inspections, and Insurance
While the information submitted in your application is being processed, the VA will order an appraisal of the home. Your lender cannot request a particular appraiser. The VA will assign an appraiser from their approved list on a rotating basis. The appraiser will determine the fair market value of the home based on their inspection and by using recent sales of similar homes in the area.
The appraisal is not the same as a home inspection. You may want to hire a home inspector to check the property for major defects. Depending on the age of the home and where you are buying, you may also want to have specialized inspections for termites, radon gas, asbestos, and led paint.
At this time, you will also need to be making arrangements for home insurance.
Congratulations, The Home is Yours!
Once the appraisal has been completed and the VA has approved the loan, the lender sends the mortgage money to the closing agent and title of the home is transferred to you.