Ever wonder how a VA loan works?

Millions of people have bravely served our country in the United States Armed Forces. As a way of thanking them for their service, the government created the VA Loan Guaranty Program to help veterans qualify for a home loan. A common misconception is that the VA actually makes loans to veterans, but it doesn’t. Rather, VA guarantees loans so that a bank or credit union can offer loans to veterans without taking on all the risk. If the borrower defaults, VA will pay a portion of the loan. This allows lenders to provide veterans with loan options that include lower down payments, because VA bears some of the risk.

10 Steps to Getting a VA Loan
Veterans Eligibility: Veterans must demonstrate their eligibility for the VA guarantee by obtaining a Certificate of Eligibility (COE).

Eligible Loans: You can use your VA benefit to buy a home or refinance. It must be used on the home you live in, so talk to your mortgage lender about alternative options on a rental property.

Interest rates: VA loan interest rates can change depending on the mortgage lender. Be sure to discuss loan options with a VA-approved lender who is also an FHA-approved lender. You’ll want to compare loan rates to make sure the VA program gives you the most financial benefit.

Apply: Complete a mortgage application with a VA-approved mortgage lender. They will ask for your personal and financial information, then ask you to sign a completed application.

Provide documents: Give your COE, recent pay stubs, W-2 forms, tax returns and bank statements to the lender for processing. The underwriter will review this information to determine if you qualify for a loan.

VA and lender: The lender will confirm your eligibility with the VA. This includes the guarantee percentage you are eligible for and whether or not you are required to pay a financing fee.

Subscription: The underwriter will make sure that you meet their loan guidelines and the guidelines set forth by the VA. Something unique about VA is that they require the lender to count household and family expenses as debt when calculating your debt-to-income ratio.

Credit history: The VA makes allowances for borrowers with no credit history. Pursuant to Chapter 4 of the VA Lenders Manual, the insurer may make a determination based on the borrowers’ utility, rental, and auto insurance payment history. This is a huge advantage for veterans who have been serving overseas and may not have needed traditional credit.

Evaluation: The VA requires that an appraisal of your home be completed and that the life expectancy of the home be equal to or greater than the term of the loan. For example, if the house is expected to last only ten years, it will not qualify for a 30-year loan. That’s a good thing because realistically you wouldn’t want debt on a house that no longer works.

Finalize your Loan: Once the lender has issued a final approval, they will draft the loan documents for you to sign. Using your COE, the lender will obtain the necessary guaranty documents from the VA. As a borrower, he doesn’t need to worry about doing any extra work. He has already served our country and it is up to the lender and the VA to work out the details of the paperwork. Anything that requires your signature will be included in your closing paperwork.

The goal of the Veterans Administration is to provide lenders with a loan guarantee so that more home loans are made to veterans. As a service member or veteran, you are entitled to receive the benefit of this guarantee, which should make it easier for you to obtain a loan. A VA-approved mortgage lender can guide you through the process and make sure you get a home loan that’s a perfect fit for your family’s needs.