So, you're ready to start looking for a home? Or maybe you've already found one you want to put an offer in on? Preparation will help you apply for your VA loan as smoothly as possible and make sure you get it closed as quickly as possible. Here are some tips to consider:
1. REVIEW YOUR CREDIT REPORT
This should be something you do as part of your annual financial planning, but now more than ever, you need to know what lenders will find when they pull your credit.
Choose your favorite online source for a free or low-fee credit report (annualcreditreport.com is a good, free one). Whichever site you choose, make sure they are pulling from all three main credit bureaus: Experian, Equifax, and TransUnion. Once you have your report in hand, search for mistakes or anything you find "fishy" (for example, a payment they report as late that you know you made on time, or an account you know you didn't establish) then gather your documented evidence and call the credit rbureaus as quickly as possible to get the errors removed. This is something that is much easier to do before applying for your loan and not in the middle of it.
2. GET YOUR CERTIFICATE OF ELIGIBILITY
You don't have to have your Certificate of Eligibility (COE) to start the VA loan process but obtaining yours so you have proof of your entitlement will be extremely helpful.
We can assist you in ordering online on your behalf. Or, if you want to go it alone, log onto vip.vba.va.gov , create a profile, and complete the step-by-step instructions for ordering.
For more on what a Certificate of Eligibility is and why you need it, see our previous post on the subject.
3. GATHER YOUR DOCUMENTS
This paperwork includes
- Two most recent filed federal income tax returns
- Two most recent W2 forms
- Most recent pay check stubs covering 30 days
- Bank statements as requested, including even blank pages.
- Any history of child support payments (which can be counted as income if you receive it and into your debt-to-income ratio if you pay it).
- Proof of any other sources of income (home-based businesses, winnings, inheritance)
A lender will use the income shown on your paycheck and compare it with your year-to-date earnings, as well as order copies of your last two tax years from the IRS to compare to the ones you provided.
Although there is no money down required for VA loans, there will be closing costs. A seller may pay for them on your behalf as part of a selling incentive package, but likely you'll have to pay and a VA lender will need to verify you have enough money to cover them. There are also things like the earnest money deposit, and home appraisal and home inspection fee that may be refunded at the closing table but may have to be paid for up front.
4. KNOW YOUR RIGHTS
If a lender is claiming you're ineligible because you've already taken out all or part of your VA eligibility, or even defaulted on a VA loan--know your rights! Once you have earned the VA home loan benefit, it's yours for life, and can be used over and over again within guidelines.
5. CONSIDER THE POWER OF PRE-APPROVAL
A VA home shopper with a pre-approval letter in hand has more leverage with home sellers and real estate agents than someone without it. It is proof of how much home you can potentially afford and demonstrates that you're a serious contender. It isn't a guarantee that you'll get the home, but it is something you should certainly consider having. We can help get you pre-approved today. Give us a call!
6. BUDGET, BUDGET, BUDGET!
Especially if you've been pre-approved, your budget has to keep steady so as not to change your financial situation. No new credit cards, no new cars or other motorized 'toys', no new loans, no late payments on anything, no changing jobs. Don't close any existing accounts. Any activity on your credit during the loan processing could cause a red flag that stops the loan from moving forward or kills it entirely.
Also, when considering the price of a home to purchase, there's no need to shop the top of your budget, even one in a pre-approval. Remember home ownership comes with a grip of new financial responsibilities from maintenance costs (inside and out), insurance, property tax, and maybe even buying some new furniture. VA loans do their best to safeguard you against becoming "house poor" by buying too high, but budgeting your mortgage payment so as not to exceed 1/3 of your income will make sure you can truly afford to live in your new home and keep living your life.
7. MAKE SURE YOU PICK THE RIGHT KIND OF HOME
The VA will only lend money for pre-approved homes that pass home inspection. New construction (building from scratch) will be tricky, so consider finding a builder you like and get in on the home in progress in time to customize it to your liking. Condos will have to be on the VA's list of approved condominiums. RV and manufactured home purchases will have to include the purchase of the land (no rental fees) and be on a permanent foundation. Foreclosed homes and short sales that have sat vacant for a time that are in need of serious repair or renovation will be a problem. Make sure whatever home you pick is likely to make it through the VA appraisal and home inspection process. A great real estate agent can make all the difference in making the right choice.
While this is a great starting point for preparing for your loan application, our VA-specialist agents can assist you with further preparation, including reviewing and adjusting your Debt to Income Ratio (DTI), occupancy rules, filling in employment gaps that often come with military life, and how to handle credit 'dings.' We are to help you get as prepared as possible! Contact us today!