To thank veterans for their service, the Department of Veterans Affairs (VA) helps to guarantee VA home loans made by lenders like banks, credit unions and online lenders. When you start shopping for a home with a VA loan, you may find several lenders in your area that offer VA loans.
If the program seems like a good fit, you first need to apply for VA mortgage preapproval. This guide explains the preapproval process and offers tips for making the buying journey a little less stressful.
What Is a VA Home Loan?
VA home loans are a bit different from conventional mortgages because they’re a benefit of military service, exclusively for veterans, active military and eligible surviving spouses. With a VA loan:
- Your interest rate may be equal to or slightly lower than a conventional loan.
- The VA home loan program doesn’t require a down payment.
- You don’t have to pay for mortgage insurance. However, you will have to pay an upfront VA funding fee of 1.4% – 3.6% of loan value or $1,400 – $3,600 per $100,000 borrowed. If you don’t have it now, the fee can be added to your closing costs.
- You don’t have to worry about reaching a government-mandated minimum credit score. You may be able to qualify for a VA mortgage even if you don’t have a good credit history or you’re rebuilding your credit.
How Does VA Home Loan Preapproval Work?
Getting VA loan preapproval is an important step because it helps you understand how much you can spend on a home. Sellers also like to work with preapproved buyers, as they know there’s a good chance you’ll qualify for a mortgage.
While the process may vary by lender, the VA preapproval process usually goes something like this:
- Check your status: Confirm that you meet the eligibility requirements for a VA loan and obtain a Certificate of Eligibility (COE) from the VA.
- Do some recon: Research approved VA mortgage lenders online and speak with a loan officer at your local bank or credit union.
- Fill out the preapproval application: Once you’ve selected a lender, you’ll need to fill out a preapproval application form. You’ll also need to provide documentation related to your credit, income, assets, debt and identity.
- Sit tight: Wait for the lender to review the application and make a decision. It may take as little as one day depending on the lender.
- Find your home: Get a preapproval letter and start shopping for your new home with confidence.
Preapproval vs. Prequalification
When a lender preapproves you, they are telling you they are willing to loan you a specific amount of money to purchase a home. They’ll also let you know what kind of interest rate you can expect to qualify for. Preapproval isn’t the same as final mortgage approval, but most people who are preapproved end up getting a mortgage and closing on their loans.
Prequalification isn’t the same as preapproval even though some people use the terms interchangeably. When you get prequalified, the lender lets you know if you’re likely to qualify based on the information you provide, but they don’t verify that information.
The preapproval process is more detailed and carries more weight than prequalification. For preapproval, your lender will pull your credit report and verify the information you’ve provided about your income, debts and assets.
How To Get a VA Home Loan Preapproval Letter
The VA mortgage preapproval process is similar to the process of getting preapproved for any other type of mortgage, with a few important distinctions. To make the process easier, it’s best to start preparing as early as possible. Get ready for the preapproval process by doing the following:
Fill out your COE
For VA loans, you need to get a COE verifying that you meet the service requirements for this type of financing. You can obtain a COE by visiting eBenefits, logging in and submitting a request. You can also contact your regional VA loan office and talk to a VA loan specialist.
The requirements for a COE depend on the type of service you completed. For example, active-duty service members need to get a statement of service and have it signed by their commanding officer or personnel officer.
Depending on when and how you served, you may need to provide a copy of DD-214, a Points Statement or a Statement of Service. These documents help verify that you meet the minimum service requirements for a VA home loan program.
Get your financial documents together
When you fill out a preapproval application, your lender will confirm that all the information is accurate. In addition to your COE, they will ask for a variety of documents to help verify the information you provided about your income, assets and credit history.
To verify your identity, your lender will want to see a driver’s license and Social Security card. If you don’t have a driver’s license, bring your state-issued photo ID, a valid U.S. passport or other proof that you’re a legal resident.
Most of the required documentation relates to your finances. Be prepared to provide copies of 1 – 2 months of pay stubs and 1 – 2 years of W-2 forms and tax returns to help the lender verify your income. You’ll also need bank statements and other documents to prove the value of your assets.
You may also need proof of employment, like a signed letter from your employer, if you’re no longer a service member. If you’re self-employed, you’ll need to provide profit and loss statements and other documentation for your business.
During the preapproval process, the lender gets copies of your credit report from the three major credit bureaus. They’re looking for information on your debt load and payment history, and any evidence of previous foreclosures, bankruptcies, evictions or tax liens.
Some documentation requirements are specific to your circumstances. If you’re divorced, for example, you may need to provide a copy of the divorce decree. Borrowers with service-connected disabilities should also be prepared to provide a VA disability award letter, although your lender will verify this for you in most cases.
Pick a VA lender
As a reminder, the VA loan program requires that you use an approved lender. To make your costs as manageable as possible, the first thing to do is compare several lenders based on their advertised interest rates and fees.
Interest rates are important, but the lender with the lowest rate isn’t always the best lender for your needs. If you’re rebuilding your credit, for example, you’ll want to look for a lender that’s willing to work with applicants who have lower credit scores.
When you’re gathering intel on potential lenders, don’t forget about credit unions and online options. Traditional banks offer many types of loans, but they’re not the right match for everyone.
Submit your preapproval application
Now, it’s time to submit your preapproval application. It’s vital that you follow the instructions to the letter. Failing to provide requested information can lead to preapproval delays and make the process more frustrating than it needs to be.
If you give the lender everything they want, you may get your preapproval decision in as little as one business day.
Your VA home loan preapproval letter has arrived
You did it! You completed the preapproval process and have a shiny new VA mortgage preapproval letter in hand. Now, you can start shopping for a home.
The main benefit of preapproval is that you’ll know exactly how much financing you can expect to receive and what your interest rate will be, making it easier to find relevant listings.
Your preapproval letter also makes you a more competitive buyer than someone without preapproval or someone with prequalification. This lets sellers know you’re likely to qualify for a loan.
Just keep in mind, your preapproval letter won’t last forever. Most preapproval letters expire after 60 – 90 days, so make sure you get your letter when you’re serious about buying. Otherwise, you may have to repeat the process again.
March Into Your New Home With a Preapproval Letter
When you’re ready to make an offer, you need to fill out a formal mortgage application. An underwriter verifies the information and decides whether to risk loaning you money to purchase a home.
While underwriting is in progress, you don’t want to give the lender any reason to deny your application. Maintain your good financial habits by making payments on time, avoiding new debt and remaining employed.
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U.S. Department of Veterans Affairs. “VA Funding Fee And Loan Closing Costs.” Retrieved April 2022 from https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/
U.S. Department of Veterans Affairs. “Loan Volume by State – VA Home Loans.” Retrieved April 2022 from https://www.benefits.va.gov/HOMELOANS/lender_state_volume.asp