VA Home Loans & You

Step 2: The Application and Pre-qualification Process

Once you’ve determined your eligibility and are ready to hit the streets to find your dream home, it’s smart to begin with a lender to get the application and pre-qualification process started.

Pre-Qualification is a fairly simple process that will allow a mortgage banker to review your income, assets and liabilities and will give you an estimate on how much money you can borrow. Armed with this information you can shop with a budget in mind. The pre-qualification process also gives you an opportunity to discuss financing options with your lender, and to review any potential credit issues during this process.

Credit Scores and VA Loans

VA Lenders validate a responsible credit history by reviewing the credit report and the credit score. VA Loans don’t require perfect credit, but they do require what might be described as an “average” or better credit history. Of primary importance is the most recent two years of payment history. There can even be a late credit card payment or two in the recent past, but if those payments are isolated and the only late payments showing up, then the credit score is more than likely good enough to qualify.

Using credit scores when approving a VA Loan has been around since the late ‘90s, and today credit scores are used to quickly assess a borrower's credit history. Most lenders require a minimum credit score of around 620, but there are exceptions to that guideline on a case-by-case basis. Credit scores might seem a bit foreign to many, but they’re calculated using an algorithm established by a company called Fair Isaac & Company who goes by the name “FICO.” Credit scores are three digits and range from 300 to 850, and the higher the score the better the credit history. When lenders pull credit on a veteran’s loan application, they pull a report from the three main credit repositories of Equifax, Experian and TransUnion.

Rental history is also a major factor when evaluating a veteran’s payment history. It has a greater impact on a credit profile than a late payment on an automobile loan or student loan, and is defined as a payment made more than 30 days past the due date. When a borrower applies for a VA Loan, the borrower also gives permission for the lender to contact the landlord or otherwise provide 12-months of cancelled checks showing the rent was paid on time. Lenders want to see at least a two-year history of rental or housing payments. There are exceptions made, however, for those recently discharged or recent graduates from school who have just started to work full time.

Related: More about Sente's Commitment to Veterans.

Step 3: Loan Processing & Paperwork

Armed with your pre-qualification letter, it's shopping time. Once you’ve selected your dream home, you’ll make an offer and submit your pre-qualification letter to show your commitment as a buyer.

If your offer is accepted, your loan will move into the processing phase. As you might expect, obtaining a mortgage requires your fair share of loan documents and paperwork, and VA Loans are no different. In fact, VA mortgages might even have a few more processing requirements and pieces of paper to sign compared to a conventional home loan. This is primarily due to verifying eligibly for this special zero-down-payment program.

Once your VA mortgage banker receives your loan application, here’s what you can expect them to ask you to provide as part of the process:

Certificate of Eligibility
You’ll need to provide your Certificate of Eligibility (COE), which you can obtain directly from the VA, or you can have your VA approved lender obtain it for you.

Verify Income
VA lenders are required to show evidence that the veteran has the ability to comfortably repay not just current monthly credit obligations but the new mortgage payment, including a monthly portion toward property taxes and homeowners insurance. This verification is completed by reviewing the most recent paycheck stubs covering a 30-day period. If you’re active duty, you’ll be asked to provide a copy of your LES.

If you’re self employed or you rely on other income that doesn’t come directly from an employer, you’ll need your two most recent signed federal income tax forms, all schedules as well as a year-to-date profit and loss statement. The year-over-year income should be consistent without any significant drop in income from one year to the next. The profit and loss statement can be prepared by you or your accountant and does not have to be an “audited” profit and loss.

Assets
Even though veterans are restricted from paying certain kinds of closing costs and there is no down payment requirement, there will still be closing costs that need to be addressed. Your VA loan officer will provide you with a list of expected charges and what they’re for but will also make sure there are enough funds in an account you own that will cover those fees. Verification of sufficient funds to close is performed by submitting your most recent copies of those accounts. If you’re getting a financial gift from a relative to help defray these costs, your lender will provide you with a Gift Letter for the donor to complete.

Insurance
You’ll need to have insurance coverage on the home you’re going to buy that will cover at least the amount borrowed. Once you select a property and the property appraisal has been completed, your insurance agent will provide a policy.

Loan Disclosures
There are multiple VA home loan disclosures you’ll need to review, sign or initial and return to your VA approved lender. Those include the Occupancy Statement, Fair Credit Reporting Act, Equal Credit Reporting Act, Right to Financial Privacy, Disclosure Authorization Form, an Anti-Coercion Statement and Flood Insurance Notice. If you select an adjustable rate mortgage, you will also receive a booklet entitled Consumer Handbook on Adjustable Rate Mortgages. In addition to these loan disclosures, you will also receive and sign copies of your initial, typed loan application.

Everything Else
A VA lender might need additional information from you while the loan is being processed. This could be a missing paycheck stub or signing a disclosure that was previously left blank. When the loan is documented and sent for an approval, the underwriter may have some questions or even ask for additional information for you to bring to the closing table. These additional items brought to the closing are called “loan conditions” and are typically nothing more than updating the file to conform to VA guidelines.

Step 4: Closing

Once the Underwriter gives your file the final approval, a closer will draw up the legal documents and send them over to your title agency and attorney for final preparation. You’re in the home stretch now! A closing date will be scheduled at the title agency and the celebration can soon begin!

Perhaps the most attractive feature of a VA Loan is the absence of a down payment. However, it’s important to note that there are closing costs associated with any VA loan, it’s just a matter of who pays them and how they’re handled (according to the VA there are certain closing costs the veteran is not allowed to pay).

VA Closing Costs Explained

An easy way to remember which charges are considered “allowable” is to remember the acronym ACTORS.

• Appraisal
• Credit Report
• Title Insurance
• Origination Fee
• Recording
• Survey

Other fees are considered to be “off limits” and veterans are not allowed to pay them. When you speak with a loan officer, be sure to discuss any charges you can expect to see at the closing table and have your loan officer explain what each of the charges are for and the third party services needed in order to close your VA Loan application.

Visit our Veterans page for more information about Sente's commitment to veterans.