Not all first-time home buyers are in their early 20’s, and the same is true for first-time VA loan buyers. Whether you are currently in the service, separated from service, in the reserves, a disabled veteran or a surviving spouse, getting that first-time VA loan is a big step! The information below will give you a head start as you begin your first VA loan purchase.
How to get a VA loan started
In the beginning, there are some basic steps for a first-time buyer to take. Do not be afraid of the number of steps! We gladly complete most of these for you. The following are common steps buyers experience during a home purchase:
Step 1: Meet with your Loan Officer
A buyer starts with the idea of potentially buying a home. One of the most important things you will do is to have a detailed discussion with one of OVM’s highly-skilled and experienced Loan Officers.
Discuss your goals
Our Loan Officers know loans inside and out and will be able to help you every step of the way. The conversation will begin with a discussion of goals including the following topics:
- Monthly payment comfort
- Maximum out of pocket
- Length of time in the home
- Budgeting for cash to close
- Next steps
Step 2: Get preapproved for a VA Loan
Rather than blindly state a qualifying price, it is key for a loan officer to understand the buyer’s parameters. For example, why discuss the qualification of a $400,000 home when a buyer’s maximum comfort level is $1,000 per month?
A VA loan preapproval comes in handy to support this conversation. Learn more about the difference between mortgage prequalification and a mortgage preapproval here, and discover why a preapproval is essential.
Step 3: Gather your VA 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 on your behalf. 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.
Step 4: Provide documentation
As with all mortgage loans, there will be documentation needed 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!
Step 5: 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 a Leave & Earnings Statement (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.
VA disability income verification
When considered 10 – 100% disabled by the Veteran’s Administration, there is usually an additional income stream to count toward qualification. Furthermore, it is a 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.
Step 6: Shop with VA financing
So, the goals were discussed, documentation has been provided, and everything looks in line. Now, it is time to put 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 real estate agent can look at homes with precision as well as confidence.
Once a property of interest has been located, a very accurate quote with costs including property taxes and an insurance quote could be derived. As well as the accurate amount of seller-paid costs.
Step 7: VA Appraisal
After your real estate agent drafts your purchase contract, we will order your VA appraisal. The appraisal certifies that the home meets the VA’s minimum property requirements. Check out this blog post to learn about the VA appraisal and what VA appraisers will note during their appointment.
Step 8: Prepare to close
Although a first-time use VA loan 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.
However, we can finance VA closing costs into the loan, or the seller can pay for them. One school of thought is to borrow less money. Conversely, a buyer may choose to finance the costs by including them in the offer to purchase.
Therefore, the VA loan could lend 100% of the home’s price, including closing costs paid by the seller. This may result in a potential no cash to close VA purchase.
VA sales concessions paid by the seller
Keep in mind that the seller may also pay sales concessions on a VA purchase in addition to closing costs. 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.
The bottom line
Hopefully the answer to the question “How do get a VA loan for the first time?” is clear. Give us a call! 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!
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