Not all first-time buyers are in their early 20’s, and the same is true for first time VA loan buyers. A first-time buyer could decide to purchase a home at any stage of life. Whether currently in the service, separated from service, in the reserves, disabled Veteran, or a surviving spouse, getting that first time VA loan is a big step. Therefore, we want to share how to get a VA loan for the first time, no matter which stage of life you currently stand!
How to Get a VA Loan Started
In the beginning, there are some basic steps for a first-time buyer to experience. Do not be afraid of the number of steps. Gladly, we complete most of these for you. The following are common steps buyers experience during a home purchase.
- Discussion with Loan Officer
- VA Certificate of Eligibility
- VA Disability Verification
- Submit Documentation
- Income Verification
- Strategy – Loan Size, Payment, & Seller Paid Costs
Discussing Goals, Process, & Plan of Attack
A buyer starts with the idea of potentially buying a home. However, do not make the mistake of going straight to making an offer! The first step is to have a detailed discussion with a loan officer experienced with VA loans. This experience includes opportunities and hurdles within the VA loan process.
The conversation starts with a discussion of goals. This discussion involves monthly payment comfort, maximum out of pocket, length of time in the home, among other topics. Rather than blindly state a qualifying price, it is key for a loan officer to understand the buyer’s parameters. For instance, why discuss qualification of a $400,000 when a buyer’s maximum comfort level is $1,000 per month?
Cash to Close
Maximum cash to close is another important area to discuss. Although a first-time use VA loan within the county maximum limit will allow 100% financing, there are closing costs. Depending on the first year of insurance, escrow setup, plus closing costs, the total can be several thousand dollars. Luckily, VA loans allow for the seller to pay these costs.
Therefore, there will be a thorough discussion of including costs in an offer or paying them out of pocket. One school of thought is to borrow less money. Conversely, a buyer may choose to finance the costs by including it in the offer to purchase. Therefore, the VA loan could lend 100% of the price including the costs paid by the seller. This results in a potential no cash to close VA purchase.
VA Loan Process
Next, a plan of attack is laid out for the VA loan process. A list of items needed for underwriting is provided to the buyer based on the buyer’s scenario. Based on the borrower’s scenario, the process is explained which includes the items discussed below such as the VA certificate of eligibility (COE), DD-214, income verification, and more.
How to Get a VA Loan Certificate of Eligibility
For someone to use a VA loan for a purchase or refinance, a borrower must have VA eligibility. VA lenders use a form called the Certificate of Eligibility or COE to determine the borrower’s available entitlement. There are several ways to obtain this form, and we are happy to make the request. The easiest way is for us to retrieve it online which is a very quick response if available.
If not available online, we will supply VA form 26-1880 for the Veteran to complete and sign. Next, we will submit the completed form and required supporting documentation to VA. Typically, VA responds within a few days. Once we have the COE, it is used as one of the tools to determine the loan qualification amount.
VA Disability Income Verification
Whether considered 10 – 100% disabled by the Veteran’s Administration, there is usually an income to count towards qualification of a VA loan. Furthermore, it is nontaxable income, and it can even be grossed up to a higher amount. This aids qualification even more. Luckily, the disability income is also stated on the above COE, and then no other documentation is required. If there is a delay in receiving the COE, the Veteran may provide a current VA disability award letter. The award letter may be obtained through e-benefits online.
How to Get a VA Loan – Providing Documentation
Like all mortgage loans, there is documentation to provide to prove income, assets, and credit. Because of VA’s flexible guidelines and potential no money down benefit, documentation is not too difficult to provide. Although buyers are not required to provide all documentation up-front to a lender, it is highly suggested. By providing complete documentation, a buyer can shop for a home with confidence. Nothing is worse than finding out late in the process that a purchase will not work. So, providing documentation helps us do a better job for the buyer!
How to Get a VA Loan – Income Verification
To qualify for a home, lenders must verify all borrower’s income. Furthermore, the total of the new mortgage payment plus current monthly payments are compared to the total monthly income. Mortgage lenders call this a debt to income ratio. Depending on the overall file strength, debt ratios on approvals may range from 41 – 55% or more. Income verification also depends on the type of income. For active military, just an LES will usually suffice. Disability, retirement, or social security income requires a current award letter. salaried employees must provide the most recent pay stub and W2’s for usually 2 years.
How to Get a VA Loan – Putting Strategy in Place for Home Shopping!
So, the goals were discussed, documentation has been provided, and everything looks in line. Now, it is time for putting this plan into action. In other words, find a house! There are some numbers a buyer and their buyer’s agent needs to take with them:
- Price range
- Payment range
- Seller paid costs
Understanding the price and payment range dramatically improves the home shopping process. Now, the buyer and Realtor can look at homes with precision as well as confidence. Now, keep in mind that the amount of seller paid costs discussed was an estimate in the beginning. Early on, the numbers were probably based on a hypothetical home. Once a property of interest has been located, a very accurate quote with costs including property taxes and an insurance quote could be derived. Thus, the seller paid costs are tweaked for the buyer’s offer.
VA Loan Closing Costs Paid By Seller
Keep in mind, that in addition to seller paid costs, the seller may pay sales concessions on a purchase involving a VA loan. These concessions may go towards paying a Veteran’s debts, lease buyout, VA funding fee, or even down payment. Check out a recent article that describes how VA sales concessions can create an amazing strategy for a Veteran.
Hopefully understanding how to get a VA loan just got easier. More than likely, it has also brought up questions which are good. Our goal for our first time VA buyers is to provide knowledge throughout the home buying process. So, bring your questions, and we will provide the answers. In the end, we want to see a confident and successful first time homeowner!