How to Use a VA Home Loan in Six Easy Steps
Current and former military members have gained skills like leadership, self-sufficiency, integrity, and financial responsibility. All of which will help them as they return to civilian life after their service completion. However, another great benefit is their access to excellent benefits like access to VA home loans, which most real estate experts see as the best home loans available because of the great benefits that they offer their borrowers.
VA loans started as part of the Servicemen's Readjustment Act of 1944 and have since gone through several updates that have made them into the premier home loans they currently are. In the last 76 years, VA home loans have allowed more than 22 million applicants to become homeowners. Also, because the government guarantees these loans to protect lenders if their borrowers end up defaulting.
To enjoy all of the benefits from VA home loans, the applicant must follow six key steps.
Step 1: Determine Eligibility
The first step in using a VA home loan is determining whether you meet the VA's eligibility requirements. The first thing to keep in mind is that these loans are meant exclusively for Veterans, Active Duty Service Members, and eligible spouses. However, there are additional military service, income, and credit score requirements.
- Military Service Requirements
When it comes to military requirements, applicants must have served at least 90 consecutive days of active duty service during wartime or 181 days during peacetime. Members of the National Guard and the military reserves must have at least six years of service. In addition, if the applicant is the spouse of a deceased veteran, the only requirement is for the veteran to have lost their lives while on duty or due to a service-related disability.
- Income Requirements
Eligible candidates have to have an income that is considered steady and reliable. Lenders will also look into any outstanding debts that the applicant might have and meet compensating factor requirements.
Adequate incomes come from a full-time job, social security, VA disability, and retirement. Other eligible incomes that need at least two years of existence are from a part-time job, self-employment, 1099, and seasonal jobs. Additionally, there are some incomes that, to be accepted, must have a three-year continuance, these include child support and alimonies.
Some incomes are not eligible for VA home loans, and these are the GI Bill, workers comp., Basic Housing Allowance, cash payments, and unemployment.
- Credit Requirements
When it comes to eligible credit scores, the VA currently has no credit score requirements. That decision is up to individual lenders who, on average, have a credit score requirement of 640. However, there are ways in which VA loans can accept an applicant with lower credit scores. In this case, the lender will look into the applicant's history of late payments, existing mortgages, and reported collections when determining their eligibility.
Step 2: Go Through the Pre-Approval Process
Once eligibility is determined, the lender will give the applicant a Certificate of Eligibility (COE). From then on, the applicant will have to go through the pre-approval process, which will require that the applicant talks to a lender about their income, debts, and assets. The lender will also look at the applicant's credit score before approving them for a specific amount. The amount the applicant is pre-approved for might change once all the information is confirmed.
Step 3: Find Representation
After the applicant receives their pre-approval letter and their COE, they will have to find a Realtor® who will help find the best deal available. Government-sponsored brokers like VA Home Loan Centers have a team of Realtors® who will assist the applicant in finding a home that meets their wants and needs at a reduced cost.
Step 4: Find an Eligible Property
The VA, just like it does for service, income, and credit score, also has property requirements before the applicant can enjoy a VA home loan. Properties that are eligible for the VA home loan include:
- Single-family residences.
- Multi-family dwellings of up to four units, with the applicant living in one of them.
- VA approved condominiums.
- Manufactured homes on a permanent foundation.
- Double-wide mobile homes are also on permanent foundations.
These properties must have no health or safety issues, which could cause the property disqualification. They cannot be within a flood hazard area with no flood insurance or an Airport Noise Zones 3 (Very Noisy). Additionally, ineligible properties include cooperatives, timeshares, and non-VA-approved condos.
Step 5: Perform a Property Appraisal
Once the applicant finds a property that meets all eligibility requirements and the seller accepts their offer, the property will have to be inspected and appraised. A third-party appraiser will inspect the property and use current market trends and sales prices for similar properties.
In addition to the appraiser, the applicant should hire an independent home inspector for a more detailed inspection of the property. They will check all of the property's systems and components to ensure that the property is safe to live in and meets all VA requirements.
Step 6: Sign Your Home Loan Documents
The last step in the VA home loan application process is to get all of the information checked out by an underwriter. The underwriter will then verify the applicant's income, employment, and assets. After this is all finished, the applicant will sign all closing documents on the property, transferring all property ownership to the applicant.
VA Home Loan Benefits
Applicants who use these loans will enjoy some great benefits that make them better than all other government-guaranteed home loans. These benefits include:
- $0 down payment requirements.
- Lower monthly mortgage payments.
- Low-interest rates.
- No mortgage insurance premiums.
- No prepayment penalties.
These loans can also finance the funding fee, further reducing all initial costs from taking out a VA loan. Borrowers can also take out these loans as either a 15-year or a 30-year fixed-rate mortgage.
In addition to these great benefits, as of January 1st, 2020, VA loans are no longer subject to county loan limits. Borrowers can now purchase property anywhere in the country without limiting their options based on county limits. Now the only limitation is how much the applicant can afford.
Phil Georgiades is the CLS for VA Home Loan Centers, a government-sponsored brokerage specializing in VA home loans. He has been practicing real estate for 22 years professionally.