Table of Contents
- Understanding the Correct Loan Type
- Follow These Steps to Buying a Home
In Fiscal Year 2019, the U.S. Department of Veterans Affairs (VA) backed nearly 625,000 loans. For the eighth year in a row, homebuying loans were on the rise.
Are you a veteran or active service member looking to put down roots in the home of your dreams? If so, a VA-backed loan can help you find the perfect one.
Yet, as with other legal procedures, this one can be a little complicated. There are forms to fill out, questions to answer, and protocols to follow to ensure everything falls into place.
That’s why we’re here to help. Today, we’re sharing the steps to buying a home that you’ll need to follow when pursuing your VA loan. Read on to learn more about this important process!
Understanding the Correct Loan Type
To buy a home through the VA home loan program, you’ll pursue a certain type of funding known as a VA-backed purchase loan. With this loan, you can buy a home, build a new home, or perform renovations on an existing property.
There are three eligibility factors that the VA will consider to determine if you meet the criteria to receive a VA-backed purchase loan. To begin the process, you must:
- Qualify for a Certificate of Eligibility (COE)
- Meet the VA’s standards for lending (credit, income, other financial requirements)
- Meet your lender’s standards for lending
- Plan to live in the home you’re using the loan to buy
Note that you do not need to contact the VA directly to pursue this loan. Rather, you will work with a private lender, such as a bank, credit union or mortgage company.
Step 1: Apply For Your COE
You’ve navigated the different loan types and understand how a VA-backed purchase loan works. Now, your next step is to apply for your Certificate of Eligibility, or COE.
Your lender will require a copy of your COE when you go to apply for a loan. This proves that you are eligible to receive the VA benefit that you are requesting. You can visit the VA’s website to see if you qualify.
Step 2: Review Your Financial Standing
Simply qualifying for a COE doesn’t guarantee that you’ll be an ideal candidate for a VA-backed purchase loan. Remember: Both the VA and the private lender you choose will review your current finances. What they find can ultimately influence their lending decision.
That said, take the time to go through yours with a fine-toothed comb. Start by taking a look at your credit profile. Note anything that looks “off” or doesn’t add up, and contact one of the four main credit bureaus to look into the details.
Then, create a list of your monthly income and expenses to better understand your cash flow and the realistic amount of debt you can comfortably take on. Also, consider how a mortgage payment will impact your current monthly budget.
In the end, you should feel comfortable with the size of the loan you’re taking out. Crunch the numbers necessary to determine how much you can afford to spend on a house. As you do, remember to include closing costs and the VA funding fee in that price.
Step 3: Find a Lender
When it’s time to select a private lender, it pays to shop around. Each one will provide different fees and interest rates, so do your research until you find one that meets your requirements. If the options overwhelm you, there are mortgage experts available to help walk you through the loan shopping process, including the team at https://jaketaylor.com/.
Even if the one you select has very low rates, keep in mind that most lenders will require you to pay a lender fee or loan origination fee. These add-on charges are especially common for VA-backed home loans and most amount to around 1% of the total loan amount.
Sometimes, you might be able to negotiate lender fees. If you’re asked to pay any fees that you do not understand, be sure to ask your lender to explain.
Step 4: Find a Real Estate Agent
Once your lender takes the reins on your loan, you can start looking for a great local real estate agent.
Whether you’re buying a new home, buying a foreclosed home, or starting from the ground up, it pays to have an experienced expert by your side. Ask your friends, family members, and social media circle if they can recommend anyone.
Step 5: Find Your Home
Staying within your price range, you can begin to tour viable properties with your real estate agent.
To narrow down your options, create a list of your must-have features (i.e. a dishwasher, first-floor master), along with your dream features (a laundry chute, heated bathroom floors). In addition, remember to factor in the local school district, as well as your work commute.
Step 6: Complete the Purchase Agreement
Once you’ve landed on the perfect home, your real estate agent can help you complete the required purchase agreement. This document is similar to a sales contract and includes important clauses, including an “escape clause”, which is sometimes called a “VA option clause.”
This clause allows you to back out of purchasing the home if it doesn’t appraise for the price on your contract. In addition to this clause, there are other contingencies you can add to the purchase agreement. For instance, you may request the freedom to back out if the property fails a home inspection.
Step 7: Hire a VA-Approved Appraiser
Before you sign on the dotted line and become fully committed to the house, it’s smart to hire a VA-approved appraiser to check on its general status. The appraiser will make sure that the home meets certain minimum property requirements (MPRs). They will also offer you their professional opinion on the value of the house.
What happens if the property doesn’t appraise high enough to secure the VA loan you’re pursuing? In this case, you have three options:
- Ask the appraiser to perform a Reconsideration of Value (ROV) based on sales data
- Renegotiate the purchase price with the seller
- Cover the difference between the sales price and appraised price at closing
Step 8: Attend the Closing Process
Finally, you’re ready to close! Be sure to read over all of the details included in your Closing Disclosure before meeting to sign papers. You should have at least three days to review this document. Be sure to read through the following points:
- Your loan terms
- Your total closing costs
- Your total loan fees
- Your estimated monthly payments
The closing might take place at your attorney’s office, the title company, or an escrow office. Flex your fingers and be prepared to sign many documents that day!
The upside? You’ll walk out with the keys to your new home!
Follow These Steps to Buying a Home
These steps to buying a home through the VA loan program might sound complicated. However, with the right approach and connections, you can cover them all. That way, you’ll be able to call yourself a homeowner sooner than you think.
Looking for more lifestyle advice? Keep reading and check out the rest of our blog!