Using your VA loan benefits to purchase a home is exciting, but if you are new to the process, you may need some pointers along the way. Below we compiled the top tips for Veterans looking to use their VA loan benefit.
Buying a home using your VA loan benefits can be one of the most exciting transactions you'll ever make. But it can certainly come with moments of frustration and uncertainty.
Both experienced and first-time homebuyers can enhance their VA loan experience significantly by entering the process well-prepared and informed. To help, here are 10 essential VA loan tips designed to help Veterans maximize their hard-earned benefits.
1. Understand What a VA Loan Can Be Used For
The VA program aims to help Veterans and active duty service members purchase their primary residence. It’s important to understand that VA loans cannot be used for a vacation home or investment property.
VA-approved homes include single-family, new construction, modular homes, manufactured homes, condos or multiunit properties (as long as one unit is occupied by the VA borrower). There are specific restrictions with each property type, and some VA lenders won’t offer financing for all eligible properties.
Knowing ahead of time if your plan fits within the acceptable VA uses can save you time and help you achieve homeownership sooner.
2. Gather Necessary Documents
While providing documentation right away isn’t required, it can help speed up the process. Most VA lenders require a government-issued ID such as a driver’s license or passport, recent pay stubs or self-employment income evidence, two years of tax returns, two years of W-2 statements and various bank statements.
Another important document is your Certificate of Eligibility (COE). You can start the VA loan process without your COE in hand. But your lender will need it to verify you meet the eligibility requirements. Typically, lenders can get your COE during the preapproval process.
3. Prioritize Your Credit
Your credit and credit history are very important when applying for a home loan. Lenders will look at your credit report to determine if you are a risky investment. While the VA doesn’t mandate a minimum credit score requirement, most lenders do.
It is possible to get a VA loan with a low credit score, but it may come with additional requirements. Checking your credit score and report before applying for a mortgage is a good rule of thumb. Sometimes credit errors can show up on your report, so it’s best to dispute those ahead of time. Common errors include a wrong name, address or an incorrect date you made a payment.
A higher credit score can help you secure more favorable terms, such as a lower interest rate. If you're considering a VA loan but need help navigating your credit options, get help from the Veterans United’s Lighthouse Program®.
One of the big benefits of VA loans is that they often require lower credit scores than what would-be buyers might need for a conventional mortgage.
The credit underwriting flexibility of VA loans helps put homebuying within reach for many Veterans and service members who might otherwise struggle to secure financing.
4. Your Income Must Be Stable and Reliable
Having a stable and reliable income is crucial when applying for a VA loan. Although VA loans are backed by the U.S. Department of Veterans Affairs, lenders still need to assess a borrower's ability to repay the loan. A consistent income stream gives lenders more confidence that the borrower can meet the monthly mortgage payments.
Stable income also positively affects the borrower's debt-to-income ratio, which increases the likelihood of loan approval.
5. Focus on Paying Off Debt
Before applying for a VA loan, it's a good idea to pay down any existing debt you have. Lenders will evaluate your debt-to-income (DTI) ratio when considering your loan application. A high DTI can be a red flag, indicating that a significant portion of your income is already going toward debt payments.
By reducing your debt, you lower your DTI. Having less debt makes you a more attractive loan candidate and can also help improve your credit score. Lower debt levels and a better credit score can lead to a smoother approval process and possibly more favorable loan terms.
VA loans don’t have a hard-and-fast cutoff for DTI ratio, and benchmarks will vary based on the lender and other factors. Buyers whose DTI ratio exceeds 41% need to meet a higher threshold for residual income, which is a unique VA underwriting standard that basically looks at monthly discretionary income.
6. Be Aware of VA Minimum Property Requirements
VA loans are designed to ensure homes are safe and a sound investment for the Veteran. All homes financed by VA loans must be in line with the VA’s Minimum Property Requirements (MPRs).
Some sellers (and sellers’ agents) are wary of VA loan requirements, particularly when marketing a home in need of renovation. Out of fear that a home won’t live up to VA standards and a deal will fall through, some sellers bypass VA purchase offers altogether.
Aim to look at homes in good condition, and make sure you have a good understanding of the VA's MPRs and appraisal guidelines.
7. Consider Making a Down Payment
Even though VA loans often don't require a down payment, making one can be a smart move.
Putting money down can improve your chances of securing your VA loan and results in lower monthly payments and possibly a lower VA funding fee. A down payment reduces the amount you need to borrow, which can make your loan application more appealing to lenders. It also means you have equity in your home from the start, which is beneficial for your financial health.
Making a down payment can save you money both upfront and over the life of your loan. While it's not always possible to make a large down payment, even a small amount can have a positive impact on your loan terms.
8. Current Market Conditions Matter
When applying for a VA loan, it's crucial to stay informed about current housing market trends. These trends can significantly influence your VA loan approval and terms.
For instance, in a seller's market, you might face higher home prices and more competition since home demand is greater than supply. In a buyer's market, you might find better deals and more negotiating power since there are more homes for sale than potential buyers.
Keeping an eye on market trends can help you strategize your homebuying process and prepare for potential challenges. You can make more informed decisions and improve your chances of getting your VA loan approved under favorable conditions.
9. Get Preapproved
Preapproval is essential in today’s competitive market and helps you gauge how much you can afford. It also shows lenders and sellers how serious you are about homeownership. In fact, some listing agents and sellers will not consider an offer from buyers who do not provide a preapproval letter.
The preapproval process often involves a lender reviewing your financial information and determining how much they're willing to lend you. This not only gives you a clear idea of your budget but also speeds up the buying process once you find the right home.
Without preapproval, you might face delays or lose out on your dream home to other prepared buyers. Understanding your budget helps you focus your home search, saving time and effort.
Getting preapproved is like getting your golden ticket to house hunt with confidence. This is a non-binding step that ensures you know what you can afford and lets home sellers know you’ve got what it takes to get to closing day.
10. Work With a VA Real Estate Agent
Working with a real estate agent who has expertise in VA loans can make a significant difference in your homebuying journey. These agents understand the specific requirements and nuances of VA loans, ensuring a smoother, more efficient process.
Agents can guide you in finding properties that meet VA loan criteria, avoiding potential setbacks. An experienced agent can provide valuable insights and advice on negotiating deals. They also play a crucial role in communicating with sellers who may not be familiar with VA loans to help with any misconceptions.
Consider using our affiliate realty network, Veterans United Realty. The network connects Veterans to top VA-savvy real estate agents in their area, helping them achieve their dreams of homeownership.
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