The Book on VA Loans

Your Step-by-Step Guide to Using the VA Home Loan

 

 

Navigating Your VA Home Loan Benefit: A Step-by-Step Approach

 

For Veterans and service members, purchasing a home represents one of life’s most significant financial undertakings. However, various studies and surveys indicate that many homebuyers either overestimate their mortgage literacy or believe that a lack of in-depth knowledge won’t impede their journey.

Numerous military members and Veterans embark on the homebuying process without fully grasping the immense potential of the benefit they’ve rightfully earned. The time-honored VA home loan is widely regarded as the most advantageous lending option available in the current housing market.

“The Book on VA Loans” is designed to equip Veterans and military families with the tools to fully harness this powerful resource.1 This comprehensive guide meticulously details the VA loan program and the entire homebuying process, replete with practical advice and expert insights from national VA loan authority, Chris Birk.

 

This profound and essential resource provides Veterans with the education and confidence necessary to extract maximum value from their hard-earned VA loan benefit.

Presented in clear, direct language and enriched by the perspectives of previous VA borrowers, this book leads Veterans through every stage of their path to homeownership. This encompasses preparing your credit and finances, securing preapproval, navigating the contract phase, moving through underwriting, and culminating in your closing day.2

 

“The Book on VA Loans” offers over 300 pages of invaluable tips, guidance, and comprehensive explanations.

Here’s a concise overview of the critical knowledge you will acquire:

1. Preparing Your Credit & Finances

Chapter 2 focuses on readying your credit profile and financial standing for the responsibilities of homeownership. This section also provides a robust understanding of various home loan categories, outlining the distinct advantages and disadvantages of each.

Key takeaways include:

  • How credit scores are determined.
  • The specific type of credit necessary for VA loans.
  • Strategies for improving your credit score.
  • Initial costs associated with home purchasing.
  • Fundamental principles of home loans.

2. VA Loan Eligibility

Chapter 3 delves deeper into the criteria for VA loan eligibility and clarifies the types of properties you can acquire using your benefit. You will also gain insight into how VA loan entitlement operates and learn strategies for leveraging this benefit multiple times throughout your life.

Essential lessons covered:

  • Eligibility guidelines for Regular Military, National Guard, and Reserve members.
  • The process for obtaining your Certificate of Eligibility (COE).
  • Understanding the meaning and impact of VA loan limits.
  • Identifying property types that are not permissible for purchase with a VA loan.

3. Preapproval & Getting Under Contract

Upon completing Chapters 4 and 5, you will possess a solid understanding of the steps required to obtain a VA home loan preapproval and why this initial pre-qualification is such a vital stage. You will also learn practical advice for selecting and collaborating with a real estate agent, alongside tactics for crafting a compelling offer on a home.

Core learning points:

  • What documentation and criteria are needed for VA loan preapproval.
  • How lenders evaluate income, existing debts, and employment history.
  • Tips for touring properties and selecting homes that comply with VA guidelines.
  • A detailed examination of VA loan closing costs.

4. VA Loan Underwriting & Closing

Chapter 6 guides readers through the complex underwriting and final closing segments of the VA loan process. You will develop a clear understanding of how underwriting unfolds and what lenders scrutinize once you are under contract to purchase a home. Readers will gain insight into the VA appraisal process and how it safeguards Veteran homebuyers. Additionally, you’ll be introduced to the key documents and paperwork involved in your loan closing.

Key insights include:

  • A detailed look at the VA’s Minimum Property Requirements (MPRs).
  • Advice for ensuring your loan application remains on track.
  • What to anticipate on the day of closing.
  • Strategies for maintaining healthy financial habits after your home purchase.

5. Reusing Your VA Loan Benefit

Chapter 7 dispels one of the most common misconceptions about VA loans – the idea that they are a one-time benefit. In reality, this is a lifelong advantage that you can utilize repeatedly. Readers will discover how to acquire multiple properties with VA loans and gain a clear understanding of the two principal refinance options.

Crucial lessons include:

  • How to sell your current residence and use your VA loan benefit to purchase again.
  • Strategies for retaining your current home while acquiring another property with a VA loan.
  • A breakdown of the distinctions between the Interest Rate Reduction Refinance Loan (IRRRL) and the VA Cash-Out refinance options.

 

Navigating the VA Loan Process: Your Step-by-Step Guide

 

When you first begin your home and mortgage search, your trusted network – family, friends, and real estate agents – will likely advise you to explore your VA loan benefit. This is sound advice, as this loan offers numerous advantages that position it favorably against other options.

Understanding the step-by-step application process before you start searching for your ideal home is highly beneficial, as there is some preliminary work required before formally applying for a VA loan.

 

What Exactly is a VA Loan?

 

For a first-time military homebuyer, the term “VA loan” might sound complex, but it essentially refers to a government-insured home financing option. Crucially, the government does not directly provide the funds; instead, private mortgage lenders (banks, credit unions) are the ones who issue these loans.3

 

This distinction means that selecting a mortgage lender or bank with in-depth expertise in the VA loan process is paramount to maximizing your buying power. Unfortunately, not all lenders possess the necessary proficiency to navigate the intricacies of VA loans with ease.

As a military member, access to the VA loan is a hard-earned benefit for your dedicated service. While certain requirements apply, a significant number of active-duty personnel, Veterans, and their families leverage the advantages of the VA loan annually. Since its inception in 1944, as part of the Servicemen’s Readjustment Act by the U.S. Department of Veterans Affairs, over 25 million loans have been guaranteed.4

 

It’s also important to recognize that while the VA loan generally outperforms other options for military homebuyers, its use is not mandatory. Depending on your individual financial situation, homebuying goals, and prevailing market trends, you might discover that other conventional loan options better suit your needs.

(For a more comprehensive understanding, refer to resources like “Understand Your VA Home Loan Benefit”.)

 

How Does a VA Loan Differ from Other Loan Types?

 

A key differentiating factor of a VA loan is that the government insures 25% of the loan amount.5 This guarantee significantly enhances your attractiveness to private lenders. However, there are several other notable distinctions:

 

  • Certificate of Eligibility (COE): A COE is a mandatory document for a VA loan application.6 It serves to verify that you meet the VA’s specific criteria regarding time of service, duty status, and character of service. Most lenders can quickly confirm your COE status via the VA’s Loan Guaranty System, making this part of the process generally straightforward. Should issues arise, it typically indicates incorrect information filed with the VA. Qualified individuals can also request their COE directly online or by mail.7

     

 

Additional VA Loan Benefits and Differentiating Factors:

 

The VA loan is appealing for numerous other reasons, boasting distinct advantages over other mortgage products:

  • Department of Veterans Affairs Loan Guarantee: The foundational assurance that de-risks the loan for lenders.
  • Competitive Interest Rates: Often lower than conventional loan offerings.8

     

  • Zero Down Payment: A significant perk, enabling 100% financing for many qualified borrowers.9

     

  • Flexible Credit Score Requirements: While lenders set their own minimums (e.g., around 620), these are often more lenient than conventional loans.10

     

  • No Private Mortgage Insurance (PMI) Required: A major cost-saving difference compared to conventional and FHA loans.11

     

  • Reduced Closing Costs: The VA limits certain fees lenders can charge.12

     

  • Funding Fee Waived for Disabled Veterans: A crucial financial relief for qualifying disabled Veterans.13

     

  • No Prepayment or Early Pay-Off Fees: Provides financial freedom without penalty.14

     

  • Reusable Lifetime Benefit: This is a key differentiator – the VA loan is not a one-time use; you can leverage your VA home loan benefits multiple times throughout your life.15

     

(It’s worth noting that home sellers sometimes have misconceptions about VA loans. Learning how to debunk these myths can be beneficial.)

 

How to Apply for a VA Loan in 5 Steps

 

Once you’ve reviewed your credit reports and optimized your finances, it’s time to commence the VA loan application process.

(Consider getting our free guide: “What to Know About Your Finances Before Buying A Home.”)

1. Secure Your Loan Pre-Approval:

In today’s housing market, sellers almost universally expect to see a home loan pre-approval letter before seriously considering your offer.16 This document signals your commitment to the buying process and confirms your financial readiness. Pre-approval also indicates the maximum home price you’re approved for by lenders. However, always remember that you ultimately decide how much you are comfortable spending, regardless of the approved amount.

During pre-approval, your lender will run your credit report, typically looking for a minimum score of approximately 620. They will also discuss your homebuying objectives, military service history, and other employment details. After confirming you meet the credit score threshold, they will request additional information to thoroughly assess your financial capacity to repay the loan.

A crucial caution: This is not the time to incur new debt, such as a car loan. Taking on significant new debt can dramatically alter your debt-to-income ratio and negatively impact your ability to qualify for a VA loan.

(For more information on credit scores, explore resources like “7 Steps to Help Rebuild Your Credit Score,” “Can I Buy a Home with Bad Credit?,” and “Myths (and Realities!) of Managing Your Credit Score.”)

You will also need to submit several documents to your lender to substantiate your purchasing power. Typical information requested includes:

  • Driver’s license and military ID
  • Statement of Service (for active duty personnel)
  • A few months of Leave and Earnings Statements (LES)
  • DD-214 or Reserve/Guard points statements
  • Pay stubs and W-2s for the past two years
  • Recent bank statements
  • Disability award letters (if applicable)

2. Begin House-Hunting:

Although you’ve likely been Browse real estate listings for a while, securing pre-approval means you can now officially embark on the quest for “the one.” The most effective strategy involves collaborating with a knowledgeable lender and an experienced real estate agent.

It’s essential to remember that VA loans have Minimum Property Requirements (MPRs) that homes must meet to be eligible for financing.17 A VA loan appraiser is required to inspect any property you are interested in to verify it meets these MPRs.18 Your real estate agent can often provide an initial assessment and alert you if they anticipate difficulties in meeting the MPRs for a property in its “as-is” condition.

 

While it’s possible to negotiate with the seller to make necessary improvements to satisfy MPRs, be aware that purchasing a “fixer-upper” with a VA loan can present considerable challenges.

Here are some examples of what appraisers look for concerning MPRs:

  • The home must be a primary residence.
  • You can only purchase a multi-family unit (up to a four-plex) if you intend to reside in one of the units.19

     

  • The property must be residential in nature.
  • The property must offer sufficient space for suitable living, including adequate areas for sleeping, cooking, and sanitary facilities.20

     

  • The electrical and plumbing systems must be in good working order and demonstrate a reasonable lifespan for future use.21

     

  • The house must possess safe and adequate heating systems.22

     

  • Safe access from the street is a mandatory requirement.23

     

(Interested in foreclosed homes? Find answers on whether you can buy them with a VA loan here.)

3. Make a Home Offer and Go Under Contract:

When you find the house that fulfills all your requirements and brings a smile to your face with every photo, your next step, with the assistance of your agent and lender, is to craft a strong offer and proceed to go under contract. While every situation is unique, most offers typically share these common components:

  • Closing Costs: These represent a substantial part of a home sale.24 It’s crucial to calculate these fees and determine how they will be structured into your VA loan. While it’s possible to request the seller to cover your closing fees, this will most likely be a point of negotiation.

     

  • Contingencies: You’re probably familiar with a home inspection contingency, but your agent may suggest other types of contingencies based on your needs. These could specify the amount of earnest money required, who is responsible for necessary repairs, closing dates, and more.
  • Earnest Money Protection: VA loan contracts incorporate a unique protection for buyers’ earnest money. This distinctive feature stipulates that VA buyers are entitled to a refund of their earnest money if they withdraw from the deal after the appraisal reveals the home’s value is lower than the agreed-upon sale price.25