The VA Home Loan Basics

The VA home loan program is designed for veterans of the United States military who have served a minimum amount of time depending on the era of military service. The VA loan program involves a loan guarantee made by the Department of Veterans Affairs to a participating private VA lender of the borrower’s choosing. The VA itself does not lend money--it insures the loan, making it a safer credit risk for the lender.

VA home loans offer a no-money-down option, which can help young couples and first time house hunters on a budget. VA loans have no penalty for early payoff, require no private mortgage insurance, and offer “streamline” refinancing options that can lower interest rates and monthly payments later on.

Soldiers, Sailors, Airmen, and Marines on active duty, members of the Guard and Reserve, retired or separated military members are eligible to apply once their minimum required time in service has passed. Potential VA borrowers must apply for a VA Certificate of Eligibility (COE) before applying for a VA home loan through a lender.

Once the COE has been received, the borrower is free to apply for a VA mortgage. Some borrowers choose to get pre-approved for a VA home loan and start house hunting with a certain price range in mind based on pre-approval. Others choose to find the house first, make an offer to the seller, then apply for the VA home loan.

It should be noted that having a VA COE is not the same as VA home loan approval. Your certificate of eligibility is simply proof for the lender that you are eligible to begin the application process for a VA home loan. All VA borrowers must qualify for the VA loan with good credit, reliable income and other factors. The lender will furnish you with a VA loan application which requires extensive information about your current employment, credit history, residence information and other details. Once your application is submitted, the lender will verify the information, process the loan, and for approved borrowers, help the borrower and seller set a closing date once the loan has been approved.

Because VA home loans are credit-qualifying lines of credit like any other mortgage, borrowers are encouraged to start preparing for a VA mortgage loan application at least one year in advance of filling out that application. You should examine your credit score, take steps to insure at least one year of reliable, on-time payments for all debt, and reduce or eliminate unnecessary credit cards or other major debt. The amount of your monthly debt compared to your income will be an important factor in VA loan approval; the larger amount of debt you have compared to your gross monthly income, the more difficult it can be to get a VA loan approved.

Smart borrowers choose pre-purchase VA home loan counseling before they apply; such counseling helps the borrower prepare not only for the amount of scrutiny on their financial habits and activity, but also to prepare a budget for the fees and expenses associated with a VA home loan including possible down payments (in cases where the seller’s asking price is higher than the home’s appraised value), closing costs, appraisal fees and other expenses.

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