Are you thinking about using your VA home loan benefit for the first time? Maybe you’re just toying with the idea but the thought of applying for a mortgage isn’t really something you’d like to sink your teeth into? The fact is that getting approved for a VA home loan today is so much easier than it used to be. In fact, the VA mortgage process just might be the easiest of any home loan available in today’s marketplace.
The VA mortgage is unique in that it doesn’t require a down payment and doesn’t have a monthly mortgage insurance premium. Interest rates for VA loans are extremely competitive and there are multiple financing options from fixed rate loans to what is known as “hybrid” mortgages where the rate is fixed for the first few years before changing into an adjustable rate mortgage that can change once per year. In addition, the VA restricts the borrower from paying certain types of closing costs. When you combine no down payment, restricted closing costs and competitive interest rates, if you’re VA eligible there probably is no better choice. Finally, the VA doesn’t approve any aspect of your loan application but instead approves certain lenders to issue VA home loans. Here’s what you can expect-
Most loan applications today are digital. When you decide on a lender and speak with a loan officer most likely you’ll be led to a secured, online loan application. You’ll complete the application and submit it to the lender. The lender will then review the application for completeness and to see if there is anything else that is needed. At this stage, you don’t need a property address at all if all you want is a preapproval letter from your lender before you go shopping for a home.
The lender will pull a credit report and request credit scores. Credit scores are three digit numbers ranging from 300 to 850. While the VA doesn’t require a minimum credit score for an approval, most lenders do. The most common minimum credit scores for a VA approval range from 600 to 620.
The lender then submits your digital application to an automated underwriting system. This system, lenders refer to it as an AUS, will quickly review your application and within a matter of moments issue your preapproval. This initial approval will tell the lender the exact items needed in order to obtain a VA home loan approval. These items are referred to as “findings.”
The lender will then request the needed items to complete your approval both from you as well as from other third-party services. You’ll be asked to provide your most recent paycheck stubs covering a 30 day period along with copies of your last two years’ W2 forms. If you’re self-employed or receive income other than from an employer you can expect to provide copies of your last two years’ federal income tax returns, both personal and business.
While there isn’t a need for a down payment there will be closing costs associated with your loan. To make sure you have enough funds to cover these costs you’ll need to provide copies of your most recent bank statements showing sufficient funds to close. To get an estimate on how much you can expect to pay, your loan officer can provide you with a Lost Estimate which will list potential charges and other important details about a selected loan.
With a VA loan, there really are two approvals. One for you and one for the property. You will provide the necessary documentation regarding employment and income and the lender orders a property appraisal. The appraisal will compare the sales price of your property with recent sales of similar properties in the area. The appraised value will typically be at or above what you and the seller have agreed to. Other third-party services such as title insurance, settlement services, and a survey or abstract will also be needed, among others.
Once the file is fully documented it is transferred to the lender’s underwriting department. It is the underwriter’s job to make sure your loan file meets all VA lending guidelines. Once that determination is made, your loan is then transferred to your settlement agent who will hold oversee your closing.
At the Settlement Table
At least one day prior to your scheduled closing date, you will be provided a final cost estimate which will show exactly how much you’ll need to bring to the closing table. If these fees do not match the ones originally disclosed in your Loan Estimate, there is a bit of leeway allowed. There are lender fees and non-lender fees. When you receive your final loan estimate, lender fees cannot be higher than originally disclosed. If they are, the lender must cover the overage, not you. If non-lender fees are higher, they cannot exceed 10 percent more than the initial estimate.
At your closing, you will sign your closing papers as directed by your settlement agent and present the funds needed to close. You can typically provide a cashier’s check or you can wire the funds directly to the settlement agent who will disburse the amounts billed by the various third parties.
Once everything is signed, the settlement agent then sends the loan file back to the lender for a review. The lender makes sure the settlement agent followed the lender’s closing instructions and once that determination is made, the lender issues the funds for the mortgage. This review is done immediately after papers are returned to the lender.
Your loan is now officially closed.
One Final Bonus
One final mention here about the VA loan program. When you have an existing VA home loan and you want to refinance later on to a lower rate or to switch from a hybrid to a fixed, the VA loan has the Interest Rate Reduction Refinance Loan or IRRRL. Lenders often refer to this type of refinance as a “streamline” due to the low amount of paperwork needed. How low?
There won’t be an appraisal needed this time around. You won’t provide any paycheck stubs, W2 forms or income tax returns. In fact, the lender doesn’t even verify your employment at all. Lenders won’t pull a complete credit report nor have a minimum credit score requirement. The lender just makes sure there are no payments made within the past six months listed as more than 30 days past the due date and no more than one such payment over the past 12.
If you have any questions, and you will have some, that’s what your loan officer is for. If you’re not sure about any aspect of your application or you’re not sure which loan to select, your loan officer is there to guide you.
Don’t be intimidated or feel as if you’re asking stupid questions because the VA home loan program is a new experience and you’ll be introduced to loan terms you’ve not heard before. Remember, no one gets paid anything until you close your mortgage. You’re the boss here. Take control. And relax. This will be much easier than you may have originally thought.