A VA loan is one of the most attractive mortgages on the market — if you qualify for it.
The benefits of these loans are significant: 0% down payment, no mortgage insurance, and competitive interest rates.
But you can only get one if you’re an eligible member of the military community. And the best way to find out if you’re eligible? A VA home loan preapproval.
What is a VA home loan preapproval?
A mortgage preapproval is key for any homebuyer — military service or not.
The preapproval process allows you to connect with a lender and find out how much they may lend you to buy a house.
May is the operative word here. Although the preapproval process does involve a thorough vetting (see what we did there?) of your finances, the lender can’t guarantee a number or approval decision until the loan is fully documented, the property is appraised, and the title search is complete.
For this reason, we recommend getting a full preapproval, not just a prequalification, from a lender.
The lender issues a preapproval after receiving your complete loan file minus the property itself. It’s a document saying that your are fully approved, pending a property, purchase contract, and appraisal.
This type of full-blown, pre-property approval inspires the most confidence in sellers and their agents.
Why VA loan borrowers need to get preapproved
A VA home loan preapproval is important because only certain borrowers are eligible. The U.S. Department of Veterans Affairs (VA) insures loans given by mortgage lenders to active-duty military servicemembers, veterans, and some surviving spouses.
The preapproval gives you an opportunity to do two things right upfront: find a VA-approved mortgage lender and make sure you’re eligible for the VA loan program.
How do you accomplish these? Well, you can start your lender search with Google. Just type in “VA lenders” and you’ll get a lot of results. You can also contact local mortgage companies, banks, and lenders to ask whether they offer VA loans.
And if you’re not sure how to choose a lender, we’ve got a guide for that. It’s really important that you work with a lender you trust, who has deep VA experience, and who has a history of closing loans on-time.
Verifying your VA loan eligibility
So that takes care of finding a VA lender. As for the second step, making sure you’re eligible, your lender can actually handle that.
They’ll request your Certificate of Eligibility (COE) from the VA to make sure you meet the minimum service requirements and that you have enough entitlement benefit available to buy the home.
You can request your COE on your own as well, by submitting Form 16-1880 (which you can download here) to the VA. But it may be easier to let your lender request it, since it’s essential to the preapproval process anyway.
VA loans are available to active-duty and veteran servicemembers of any branch of the military, including Reservists and those who have served with NOAA and the National Guard, as long as you completed the service minimums. You must also be in good standing as a current servicemember or have been honorably discharged if you’re a veteran.
Find out how much you can borrow
Verifying your eligibility is a crucial step in your VA loan application. But it’s not the only one.
Once a lender pulls your COE, they look at your finances to determine how much you can borrow.
VA loan requirements can vary slightly among lenders, since the VA gives them flexibility in deciding who qualifies. Most lenders will have minimum credit score requirements between 580 and 620, though some may go lower.
Typically, you’ll need a debt-to-income ratio (DTI) of 41% or less to qualify for a VA loan, though again, lenders can approve you with higher ratios if you have compensating factors, such as significant savings or great credit.
A loan officer will ask you for supporting documents to verify your employment and finances, including:
- Pay stubs
- Tax returns
- Bank statements
- Proof of income from disability payments, child support, or alimony, if you choose to use these to qualify
After reviewing your finances, the loan officer will issue a preapproval letter that tells you how much you can borrow. Then you can set your homebuying budget and start looking at properties.
|Here’s a tip: Look for homes with prices below your preapproval amount. In a competitive market, many homebuyers offer above asking price on a property. If you look at houses below your approved amount, you leave yourself some room to go above asking price as well.|
It’s also a good idea to figure out how much you’re actually comfortable paying for a monthly mortgage payment. Just because you’re approved for $400,000 doesn’t mean that’s what you have to spend. Opting for a less expensive home means a lower monthly payment and more cash on hand.
Open the door to your new home — literally
These days, it’s a seller’s market, which means there are often way more homebuyers than there are homes.
Sellers and their real estate agents don’t want to spend time showing homes to someone who can’t actually afford to buy when they have preapproved buyers literally and figuratively knocking down their doors.
A preapproval letter tells them you’ve already been vetted by a lender and encourages them to show you their homes.
Getting preapproved narrows your search only to homes you can afford, so when you fall head over heels for a house, you have a real shot at living out your happily ever after there.
What do I need to get preapproval for a VA home loan?
For VA home loan preapproval, lenders need information about your income, assets, debts, and credit.
VA lenders may require the following:
- Minimum credit score between 580 and 620
- Down payment if you do not have full entitlement and your partial entitlement is not sufficient to cover a down payment on a new loan
- Debt-to-income ratio (DTI) of 41% or below
- Proof of income
These are general guidelines, but lenders can set their own credit score and DTI guidelines, and some may be more flexible than others. Because of the variability, it’s smart to request mortgage quotes from at least three VA-approved lenders.
The lender may need other documents related to your service to process the loan, too, such as the following:
- DD-214: Discharge and Record of Separation document if you’re retired
- Commanding Officer Statement of Service: Confirms your service and expected length of service if you’re on active duty
- Proof of childcare expenses
Preapproved for a VA loan? Great! Here’s the next step.
In the current real estate market, chances are any house you fall in love with is going to have a lot of suitors (aka other homebuyers).
So how do you stand out? It all comes down to your offer.
Your real estate agent will help you write the offer, which you can strengthen by agreeing to pay for any fixes required after the appraisal. The appraisal is a mandatory part of the loan process, but it can be a touchy subject for sellers when it comes to VA loans.
VA guidelines require that a VA-approved appraiser inspect the property before a purchase finalizes. If there are any deficiencies on the property — such as torn-up flooring or other safety and livability problems — the seller will need to have those fixed before the loan can close.
That requirement can make sellers skittish about VA loans. They might even ask you to pay for repairs. We don’t recommend that. The seller could cancel your contract and sell the home to someone else for a higher price after you’ve made the repairs.
Talk over the issues with your loan officer and agent. There may be creative ways to get repair the issues, especially if they are minor.
Anticipate appraisal gaps
The VA also prohibits lenders from approving VA loan amounts that are higher than the home’s actual value. So if you put in an offer for $300,000, but the home appraised at $275,000, the lender can only let you borrow $275,000. You’ll need to pay the $25,000 difference before closing or, unfortunately, look for another property.
Now, not everyone has an extra $25,000 to put down on their house — nor do they want to.
Owing more on your house than it’s worth is known as being underwater on your mortgage. Instead of building equity, you’re paying more for a home than you could likely recoup in its value.
But if you decide you want to move forward, you can still get the loan as long as you can pay the difference in cash.
Because sellers are spooked by the possibility of an appraisal gap, you may want to submit Form 22AD with your offer. Form 22AD is essentially a commitment to put an additional down payment on the home to cover the difference between the home’s value and the purchase price. That can assure borrowers that they won’t have to drop the price if the appraisal comes in a bit lower than expected.
|Bottom line: Have a contingency plan for how you’ll handle a potential appraisal gap. Will you pay the difference in cash or move on to another home?|
Speaking of contingencies…
Because of the VA’s rule around not insuring loans that are larger than the home’s appraised value, your VA loan contract will include an “escape clause” if there is an appraisal gap.
The escape clause says you can walk away without penalty if the home appraises for less than the sale price. That means you won’t lose any earnest money you put down when you made the offer.
What to expect after your offer is accepted
Once your offer is accepted, it’s time to celebrate — sort of. The loan still needs to be processed, but in today’s hectic market, getting your offer accepted is a win.
Here’s what the homebuying process looks like after that:
You’ll send your purchase contract to your lender, who will review it and order an appraisal with a VA-approved appraiser.
The appraiser will determine the property’s value and that the house meets the VA minimum property requirements. Oh, and your lender will verify that the home is going to be your primary residence. You can only use a VA loan for a home purchase if you’ll live there full-time. The VA doesn’t allow borrowers to buy vacation homes or investment properties with VA loans.
At this point, the underwriting department will verify all of your financial information to move forward with the loan. If everything checks out, the lender will schedule your loan closing and issue your closing documents for your review ahead of signing the loan.
A few days later, you’ll receive your keys and officially become a homeowner!
What if my VA home loan preapproval application is denied?
Applying for preapproval and getting denied is undoubtedly disappointing. But your homebuying journey doesn’t end there.
Your lender can let you know which areas of your finances need improvement so you’re more likely to qualify the next time you apply.
If the lender requires a higher credit score, for example, you can raise it by paying off debts and paying all of your bills on time.
Finding out you have to wait a little longer to buy can feel like a setback. But knowing what you need to do to improve your odds, and acting on that, gets you that much closer to owning a home.
VA home loan approval FAQs
The preapproval process can take days or weeks, depending on the lender’s program. During preapproval, a loan officer might ask for information on your income, assets, and debts so their underwriting team can pre-vet the application.
It can be frustrating to wait for preapproval when you’re eager to start looking for homes, but it will be a huge help once you’re ready to make an offer.
You can apply for preapproval of a VA mortgage loan with a VA-approved lender. The lender will ask for documents related to your income, assets, debts, and credit history.
After running your application, the lender will tell you whether you’ve been approved and will issue a preapproval letter stating how much you may be able to borrow.
Many VA lenders require a credit score of at least 580, though some set a 620 minimum. But the VA allows lenders to use their discretion when setting guidelines and issuing approvals, so some are more lenient on their credit score requirements.
The amount you can get preapproved for depends on several factors, including your finances and your available VA entitlement benefit.
The lender will review your total income, assets, debts, and credit history. They usually want to see a DTI ratio of no more than 41%. The DTI ratio refers to all your monthly debt payments as a percentage of your gross monthly income.
Your certificate of eligibility indicates your entitlement. If you have full entitlement and this is the first time you’re using your VA home loan entitlement, you are not subject to loan limits. But if you’re on a second use of your VA loan benefit, or you have partial entitlement, you’ll be subject to your county’s loan limits.
I’m ready to for preapproval. What do I do?
The first step toward preapproval is applying with a VA lender. From there, you will learn how much you might be approved for and whether you need a down payment. Then you can start searching for your new home.
A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits. Fairway is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.