- You can get started without the Certificate of Eligibility (COE)
- Your credit score still matters, but it’s not everything
- Make sure you have enough saved
- Shop for a VA lender and get pre-approved
- Hire a real estate agent that’s VA-savvy
- Choose a property that’s VA-approved
- Close the deal only when you’re ready to move in
Serving our nation is a tough job, but it does have its perks. One of them? Being able to finance your home purchase through a VA loan.
VA loans are backed by the U.S. Department of Veterans Affairs and are available to service members, veterans and eligible surviving spouses.
The program allows those qualifying to take advantage of a unique set of benefits, including $0 down payment, low interest rates and closing costs, and the ability to forgo private mortgage insurance (pmi), just to name a few.
Over 1.2 million homes were purchased with VA loans last year — a record volume since the program was first launched in 1944.
So with this particular loan type more popular than ever before, we’ve decided to put together a useful list of tips on how to get a VA mortgage loan in order to secure your dream of homeownership. Though the process closely mirrors that of getting a conventional loan, there are some key differences you need to be aware of.
1. You can get started without the Certificate of Eligibility (COE)
The Certificate of Eligibility or “COE” is issued by the U.S. Department of Veterans Affairs as proof that you have fulfilled the minimum military service requirements to be eligible for the VA home loan benefit. In other words, the COE is your golden ticket to getting a VA loan.
However, it’s not absolutely necessary to have the COE before you start. According to John Bell, deputy director of the VA’s Veterans Benefits Administration, prospective homeowners can still get pre-approved without a COE since it is usually verified during the loan process itself.
It’s also a common misconception that you have to procure the document yourself. Bell says mortgage lenders can get the COE for you. Roughly 80% of the time they can get it instantly, otherwise, it can take up to five business days.
But if you want to be cautious and make sure you meet the service requirements before applying for the loan, you can always request a copy of your COE through the VA’s eBenefits portal, or by reaching out to one of the VA regional loan centers in your area.
2. Your credit score still matters, but it’s not everything
True, VA loans generally offer lower interest rates and better loan terms than conventional loans even if you don’t have stellar credit. That being said, though the VA does not set a minimum credit score, your credit score still will have bearing on what rate and terms you’ll receive.
Isabel Williams, broker-owner of We Save Loans, a Florida-based mortgage company that specializes in VA mortgages, says that lenders will still need to check your credit score to approve you for the loan and determine your interest rate, just as with a conventional loan (aka a loan not insured by a government agency).
And as with any conventional loan, the higher your credit score, the better the deal. With VA loan rates already so favorable, a good credit score will allow you to get a rock bottom variable or fixed rate and mortgage payment, allowing you to make the most out of your hard-earned entitlement. (If you don’t know your credit score, some financial institutions like Discover, American Express and Citibank, allow their customers to view their FICO score for free.)
If your score is not the greatest, don’t lose heart. According to Williams, lenders tend to be more flexible with VA loans and look at your overall financial picture.
“They are more holistic,” Williams says. “They look at what your credit history looks like, and what your income versus debt looks like.” VA lenders will look at your residual income, which is how much money you have left after paying taxes, debt-to-income ratio, and other necessary expenses.
Regardless of your credit score, in all cases it is a good idea to pull up a copy of your credit report so there are no surprises before you apply. These could take the form of negative marks like delinquencies and accounts in collection you may not have known about.
If after checking your report anything seems amiss, you can contact the bureaus directly to get any inaccuracies removed from your credit report. You can also hire a credit repair company to help you do this if you don’t feel confident enough to repair your credit yourself.
3. Make sure you have enough saved
It’s a common misconception that because VA loans don’t require a down payment, buyers won’t be required to pay anything upfront out of pocket. “People hear this a lot,” Williams says. But it couldn’t be further from the truth.
Even if you don’t need a down payment, you’re still responsible for certain closing costs, including the following:
- Loan origination fees
- Application fees
- Discount points (if applicable)
- Hazard insurance
- Real estate taxes
- Title insurance
- Recording fees
- Appraiser fees
- Home inspection fees
Other third-party fees, like brokerage fees and termite reports are absorbed by the seller with VA loans.
Additionally, you’ll have to pay the VA funding fee. The funding fee is a one-time payment you make which enables VA loans to have such favorable terms. The fee varies depending on whether you are a first-time homebuyer and if you make a down payment. It can be up to 3.6% of your loan amount.
Some of these costs can be rolled up into your loan but that will result in a higher monthly payment. That’s why Williams recommends building a nest egg to pay these fees up front before beginning the home buying process.
4. Shop for a VA lender and get pre-approved
Fact: Shopping for lenders isn’t as fun as house hunting. However, it’s a necessary step in order to secure the best terms and interest rates and make sure you save money down the line.
There are different types of companies offering VA loans these days, so how do you choose the right one?
First, there are many reputable lenders that exclusively cater to military members, veterans, military spouses, and their families. Veterans United, USAA and Navy Federal all have vast experience servicing VA loans and can help make the application and lending process smoother.
You can also get multiple offers from a mortgage broker. Independent mortgage brokers do charge a fee for their services, but Williams says that sometimes you can compare mortgage rates from as many as 100 lenders, with just one credit inquiry, saving you time and minimizing the impact on your credit.
Getting many offers can sometimes lead to the situation where you have more than one contender all offering similar rates and fees. In these cases you need to check out who has the best track record. You can do this by looking them up in the Nationwide Multistate Licensing System (NMLS), or the Consumer Financial Protection Bureau’s database.
Once you’ve chosen your lender, it’s time to get pre-approved. This will allow you to know how much house you can afford.
Here’s a list of the things you’ll have to provide the loan officer for this process:
- An official form of identification, such as your driver’s license or passport
- Your social security number
- Proof of income in the form of paystubs, W2s or your two most recent tax returns
- Statements of assets (savings accounts, IRAs, etc.)
- Statements of debts
Preapproval is essential in today’s highly competitive market, as it will allow you to make an offer faster to secure your new home.
5. Find a real estate agent that’s VA-savvy
It’s also important to find a realtor who is an expert in VA loans, according to Williams.
“It’s already a pretty tough market, and not having someone that understands the VA loan process, or how to actually put together that offer could possibly hurt you,” she says.
To be eligible for a VA loan, the chosen home must meet certain property requirements (see tip six ahead.) So, having a real estate agent that knows the market, what’s allowed by the VA, and how to draft a successful offer, is crucial to getting the best deal on the home you want.
There are also various other VA loan products a VA loan specialist would be the most familiar with, including VA loan refinance, cash-out refinancing, and interest rate reduction refinance loans (IRRRL).
To find a VA-savvy agent, contact your VA regional loan center to see if they have someone they can recommend in your area. Some lenders, like Veterans United, also have their own division of real estate agents that specialize in finding VA-approved homes, so that’s another option you can explore.
6. Choose a property that’s VA-approved
Remember we said that not all properties can be financed through a VA loan? Well, here’s why.
Bell, from the VA’s Veterans Benefits Administration, says that the VA home loan program was designed as an “owner-occupied program.” This means that you can’t use a VA loan to purchase a vacation home or an investment property. It must be the borrower’s primary residence. Additionally, not all condominiums can be financed through a VA loan as well.
“Condominiums must meet certain requirements for it to be eligible for VA lending,” Bell says. “Some of those requirements are things like, first right of refusal when you go to sell the property,” he adds.
If you already have your eyes on a specific condo, you can find if it is VA-approved by looking it up on the VA’s condo database. If it isn’t — don’t fret. Bell says you can always contact the VA to request an evaluation of the complex to see if it can be added to the list. This process can take as little as two weeks.
All properties must also pass a VA appraisal for VA loan eligibility. This appraisal is conducted by someone chosen by the VA and its main purpose is to determine whether the property is in good livable condition and that its selling value is in accordance with other similar properties.
7. Close the deal only when you’re ready to move in
In order to be eligible for a VA loan, you must complete the VA’s minimum occupancy requirement at closing. This is a document in which “you must certify that you intend to occupy the property as your home.”
The VA considers 60 days from your closing date as a reasonable timeframe for you to occupy the property. If you’re an active-duty service member, your spouse or dependents may satisfy this requirement for you by moving in first.
In some circumstances, this period may be extended up to 12 months. So, this is something to consider before you apply for the loan.