VA Home Loans 101

VA LOAN 101

By guaranteeing a portion of the loan you seek through mortgage companies and banks, VetsEDU can help you attain better rates. 

How do you qualify? The answer is specific to each category of person. While detailed information can be found on the US Department of Veterans Affairs website, VetsEDU has put together this overview to give you a basic snapshot of the VA loan process to get you started:

  1. A good credit rating

  2. Income – mortgage payment should be 25%of your income maximum

  3. Certificate of Eligibility – tells your lender that you are a candidate for a VA-backed loan

GET PRE-QUALIFIED 

While it’s good to pull your credit report from the 3 major reporting bureaus to get your credit score and address any negative reports, mortgage companies typically pull the data from their own sources and the scores may be slightly different. They will use the middle score of all 3. 

GETTING PRE­APPROVAL & CERTIFICATE OF ELIGIBILITY 

Based on a review of your income, job, score, and debt situation, if approved, your lender will provide you with a qualifying loan amount and if you use your VA benefit, your Certificate of Eligibility. 

To get your Certificate of Eligibility [COE), you must have been discharged for reasons other than dishonor and meet service requirements. If you do not meet the minimum service requirements, you may still be eligible if you were discharged due to [1) hardship, [2) the convenience of the government, [3) reduction-in-force, [4) certain medical conditions, or [5) a service-connected disability. 

There are slightly different lists of forms needed, depending on your service category. After gathering all the documents you need, you can apply for a COE online through the E-benefits portal, by mail, or through your own lender, most of whom have the Web LGY system. 

VA APPRAISAL EXPLAINED 

After you’ve found the perfect home, you’ll be ready for a VA home loan appraisal. 

The VA home loan appraisal is part of the process of obtaining VA­ backed funding for your mortgage. It is paid for by you [the buyer) and costs about $500. In short, it is a thorough look at your potential home’s condition and value that focuses on health and safety concerns. If any aspect of the home is flagged, you will need to renegotiate the contract to remedy those issues before the funds for your loan will be released. 

WHO DOES THE VA APPRAISAL? 

After your appraisal is ordered, your regional VA loan center will randomly assign a VA-approved appraiser to your case. This is to ensure that the appraiser is objective and has no interest in the transaction and the appraised value will be fair and unbiased. 

ENSURE COMPLIANCE WITH PROPERTY REQUIREMENTS 

These screening guides are intended to ensure that VA loan applicants are purchasing move-in-ready homes that offer a safe environment. 

Things to watch for while searching for homes: 

  • Functional mechanical systems: Electrical and plumbing systems must be in good repair and have some usable life remaining.
  • Adequate heating: The home’s heating system must be safe, adequate, and able to maintain a temperature of at least 50 degrees Fahrenheit to prevent pipes from freezing.
  • Adequate roofing: The roof must be in good condition and without any major defects.
  • Dry basements/crawl spaces: Basement leaks must be corrected for VA home loan approval.
  • Free of hazards and defective conditions: A toxic landfill on the property or poor workmanship can eliminate homes from  VA loan approval. Faulty support beams, exposed wires, or stairs without proper railings can also be considered hazardous by a VA appraiser.
  • No wood-destroying insects: If you live in a pest-prone area, the VA may require a termite inspection. Properties with termite infestations must be treated and re-evaluated.
  • No lead-based paint: Properties built before 1978 must be inspected for lead-based paint. Surfaces with cracked or chipped lead-based paint must be scraped and repainted, covered with drywall, or totally removed.

ESTABLISH PROPERTY VALUES 

To establish the value of a property (how much the  lender should loan towards the purchase), appraisers will look at the sales of comparable homes to arrive at a fair market value for your property. Then value is adjusted depending on the specific features of the subject property.

  • VA appraisers must use a “sales comparison” approach rather than a “cost-based” approach in calculating appraisal value. The cost of building or replacing the home has no bearing on the appraisal value.
  • Only completed sales can be used as comps for the purposes of the VA appraisal. Sales listings, contract offers, and unsettled sales don’t qualify.
  • Comps should be based on similar property type sales in the area, i.e. square footage, bedroom/bathroom count, land, etc.
  • Comps should have been sold less than 12 months ago and more than six months ago. 
  • Comps should be within a mile of to subject property to be appraised.

THE RESULTS 

When your appraisal is complete, your lender will be provided with a comprehensive appraisal report. The report should include a variety of details about your property, including maps, photos, and sketches of each floor. The most significant part of the report explains the value calculation and lists any repairs needed to bring the home up to VA standards.

APPRAISAL VS. INSPECTION

It is important to understand that the VA appraisal process and the home inspection that is part of your contract are different. There is no national standard for what is included in a home sale inspection. It’s important to keep your emotions in check until after the home inspection. For older homes especially, an inspection before you fall in love with a house can prevent heartache. The inspector should provide an assessment of the home’s heating and cooling system, electrical system, plumbing, walls, ceilings, flooring, foundation, roofing, drainage, and basement. Many of these things are not readily apparent by walking through a cleaned-up home for sale. Even if there are issues that crop up, they may be fixable, or the cost can be included in the transaction, or by reducing the home price. A home inspection is done before the VA Appraisal which will have you more prepared for any potential issues.

LIST OF VA DOCUMENTS

Purchase

  1. 2 most recent pay stubs & most recent LES statement (if applicable)
  2. Previous 2 year tax returns
  3. Previous 2 year W2s
  4. Most recent bank statement(s) showing assets
  5. DD214 & Certificate of Eligibility (COE)*
  6. Contact information on who will be able to fill out your Verification of Employment (ie: Commanding Officer, Boss, HR Dept, etc?)
  7. (if applicable) Disability &/or SS awards letter
  8. (if applicable) Copy of orders

*If you do NOT have a Certificate of Eligibility (COE) within the past 6 months please apply here: https://www.ebenefits.va.gov/ebenefits/about/feature?feature=cert-of-eligibility-home-loan

Current VA – Cash Out Refinancing 

  1. 2 most recent pay stubs & most recent LES statement (if applicable)
  2. Previous 2 year tax returns
  3. Previous 2 year W2s
  4. Contact information on who will be able to fill out your Verification of Employment (ie: Commanding Officer, Boss, HR Dept, etc?)
  5. (if applicable) Disability &/or SS awards letter
  6. Most recent mortgage statement
  7. Mortgage note
  8. Home insurance policy
  9. Current utility bill

IRRL Refinancing

  1. Most recent mortgage statement Mortgage note 
  2. Home insurance policy 
  3. Current utility bill 
  4. Most recent pay stub 

Into VA – Cash Out Refinancing 

  1. 2 most recent pay stubs & most recent LES statement (if applicable)
  2. Previous 2 year tax returns
  3. Previous 2 year W2s
  4. DD214 & Certificate of Eligibility (COE)*
  5. Contact information on who will be able to fill out your Verification of Employment (ie: Commanding Officer, Boss, HR Dept, etc?)
  6. (if applicable) Disability &/or SS awards letter
  7. Most recent mortgage statement
  8. Mortgage note
  9. Home insurance policy
  10. Current utility bill

*If you do NOT have a Certificate of Eligibility (COE) within the past 6 months please apply here: https://www.ebenefits.va.gov/ebenefits/homepage