The journey to homeownership can be particularly intricate for military families, whose dedication often involves frequent relocations, deployments, and other inherent uncertainties. Fortunately, the Veterans Affairs (VA) home loan program steps in to offer eligible servicemembers, veterans, and surviving spouses a clear path to homeownership, even without the burden of a less-than-perfect credit history. These government-backed home loans are facilitated by approved, private lenders, providing the distinct advantages of highly competitive interest rates and typically requiring little to no down payment.
Does this sound like a viable option for your situation? We’ll meticulously outline the VA loan process, stage by stage, to ensure you fully understand what to expect and whether a VA home loan aligns with your needs.
Step One: Understanding VA Eligibility and Qualification Criteria
To gain approval for a VA loan, you must satisfy criteria established by both the VA and your chosen lender. Below is a summary of the VA’s requirements and common financial guidelines:
- VA Certificate of Eligibility (COE) – This document serves as proof that you meet the VA’s military service standards:
- Any veteran who served after August 2, 1990, is eligible if their service spanned 24 continuous months.
- Individuals currently on active duty become eligible after 90 continuous days of service.
- National Guard or Reservists who served after August 2, 1990, are eligible after 90 days of active-duty service.
- Credit score – While the VA doesn’t impose a minimum, most lenders typically require a score of 620 or higher.
- Debt-to-income ratio (DTI) – Generally, 41% or lower.
- Proof of income – Documentation verifying consistent income sources.
- Down payment – Can be as low as zero.
- VA minimum property requirements (MPRs) – These are stringent safety standards, verified by a VA-backed appraiser.
- Primary residence requirement – VA Interest Rate Reduction Refinance Loans (IRRRLs) are available for second homes and investment properties, but this does not apply to purchase or cash-out refinances.
The U.S. Department of Veterans Affairs website is an excellent resource for an in-depth review of eligibility requirements. You can also apply for your COE directly on their site.
Step Two: Selecting a VA-Approved Mortgage Lender
Choosing a lender involves more than simply finding the lowest rate. You’ll want a professional who specializes in VA loans, shares your values, and is genuinely invested in your homebuying success. Many military families discover that a credit union often fulfills all these criteria.
As you conduct your research, consider asking prospective lenders these key questions:
- Are you an approved VA lender?
- Which type of loan would be most suitable for my circumstances?
- What costs should I anticipate when engaging with your services?
Step Three: Obtaining VA Loan Pre-Qualification
Once you’ve selected your VA lender, or at least narrowed down your options, the next step is to get pre-qualified for a loan. This stage requires you to understand your home affordability based on your income, credit standing, VA entitlement, and other financial factors. While pre-qualification doesn’t serve as an official stamp of approval, it establishes the parameters for how much home you can realistically afford.
After your lender confirms your service requirements through the COE, they’ll conduct a soft credit check, which won’t impact your credit score, to provide an initial estimate. As soon as you identify a property and are ready to submit an offer, they will then assist you with pre-approval. This more rigorous process necessitates additional documentation concerning your finances and involves a hard credit check. A pre-approval demonstrates to sellers that you are a financially capable and serious buyer, giving you a competitive edge in the housing market.
Step Four: Collaborating with an Experienced VA Real Estate Agent
While it’s not strictly mandatory to use a real estate agent, they can be an invaluable partner throughout the homebuying journey. When you interview potential agents, inform them of your intention to use a VA loan. Ensure they possess direct experience with VA home loans so they can confidently guide you through the process. They should only present properties that they believe meet the VA’s property standards.
When it’s time to make an offer, your agent will advocate on your behalf to negotiate the most favorable deal – potentially including the seller covering some of your closing costs. The VA even provides homebuyers with protection against having to pay real estate agent commission fees.
Step Five: Completing Your VA Loan Application
Congratulations! By this stage of the process, you’ve found a home, your offer has been accepted, and you’re prepared to advance. At this point, your lender will request all necessary documentation for loan approval. Here are the most commonly required documents (some of which you may have already provided for pre-approval):
- VA Certificate of Eligibility (COE)
- Government-issued ID
- Bank statements from the last two months
- Pay stubs from the last 30 days
- Business and personal tax returns from the last two years
- W-2s or 1099s for the past two years
- Retirement statements from the last two to three months
- Social Security award letter
Additionally, at this juncture, you will typically need to provide:
- The property appraisal
- The house contract
- Inspection documentation
- Evidence of title insurance
Having your documents well-organized and readily available will enable underwriters to efficiently review your application. We’ve compiled some helpful tips, but be prepared to answer questions or furnish additional details if further clarification is required.
Step Six: Scheduling the Home Appraisal
The penultimate step in VA loan qualification is the home appraisal, conducted after both service and financial eligibility have been confirmed. The VA imposes stringent standards regarding property use and condition. Your lender will engage a VA-approved home appraiser who will examine the property to ensure its safety and security. It’s crucial to note that the appraiser is distinct from a home inspector. VA minimum property requirements (MPRs) are in place to guarantee your home’s safety before you move in. They serve as safeguards to prevent you from purchasing a home that is hazardous or requires extensive repairs.
Various issues can potentially slow down the loan process during this stage, including concerns related to property safety or the need to renegotiate an offer if the appraisal valuation comes in lower than the price you agreed to pay.
Step Seven: Reviewing the Loan Estimate
Within three business days of receiving your application, your lender is obligated to provide a loan estimate. This three-page document meticulously outlines important figures, including your anticipated down payment, interest rate, monthly payment, VA funding fee, and total closing costs.
What Is the VA Funding Fee Amount?
While lower interest rates and the prospect of no down payment are highly appealing, VA loans typically involve a funding fee. This funding fee is a one-time payment that can either be paid upfront or incorporated into the loan’s principal.
Here’s a brief overview to provide you with a clearer understanding of what to expect:
- If your down payment is less than 5%, your funding fee would be 2.15% of the loan.
- If your down payment is 5% or more, your funding fee would be 1.5% of the loan.
- If your down payment is 10% or more, your funding fee would be 1.25% of the loan.
Although the loan estimate is not an official approval or a final offer of rates and costs, it is an invaluable document that provides a realistic perspective of your financial responsibilities if the loan proceeds. Take the time to carefully review the pages, ask any questions you may have, and compare options if you are still deliberating between multiple lenders. This is the opportune moment to crunch the numbers and ensure you can comfortably afford both the upfront costs and the monthly payments.
Step Eight: Finalizing the Agreement, Paying Closing Costs, and Commencing Your Move
Upon completing the COE, financial qualification, and home appraisal, you will have confirmation that both you and your property meet the VA loan requirements. Finally, you will be prepared to close the deal and move in. This concluding step is when all elements converge — the appraisal is satisfactory, your loan is approved, and the offer is definitively settled. Now, it’s time to formalize everything by signing the necessary documents and covering the upfront costs.
A comprehensive list of fees due at closing can feel daunting. The good news is that the VA offers protection from certain costs, such as escrow fees, lock-in rate fees, and application fees. They also facilitate the reduction of upfront expenses and the avoidance of some closing costs altogether. This is another compelling reason to work with a lender and real estate agent who possess extensive experience with VA loans and their borrowers.
After executing numerous legal documents — pertaining to insurance, banking, and other financial information — you’ll receive your keys, and the home will officially become yours.
These encompass all the stages of the VA loan process. Whether you’re new to the homebuying experience, seeking to refinance, or simply exploring options for your next residence, it’s consistently important to consult with a loan specialist to determine if a VA loan is the right fit for you. For a more exhaustive review of the process, be sure to download our eBook.