What is a VA loan?

If you are a veteran and looking to buy a home, you have likely heard that a VA loan is a good option for you. However, most people, including real estate agents, do not understand how they work. In this article, we will go over the typical terms of a VA loan and what you need to know to get the most benefits.

What is a VA loan?

A VA loan is a mortgage to you that is partially backed by the United States Department of Veteran Affairs to help buy a home. They are not issued by the VA but are instead issued by private lenders and then a portion is backed by the VA against default. Consequently, lenders are more willing to offer favorable terms because they know they are going to get at least some of their money back in the event of a default. They can be used to either purchase a new home or refinance an existing one. 

VA Loan Qualifications

There are a few things you have to have done to qualify for a VA loan. This is because they are only available to veterans who have served a certain amount. You are eligible for one of these mortgages if you have met any one of the following conditions:

• If you have served 90 consecutive days of active service during wartime
• If you have served over 180 days of active service during peacetime
• You have at least 6 years of service in the National Guard or Reserves
• You are the spouse of a service member who has died in the line of duty or as a result of a service-related injury

After determining that you meet one of these criteria, you will then need to prove it using a Certificate of Eligibility (COE). This is a legal document that shows your lender proof of military service and the length of time served. To obtain this document you can apply in three different ways:

1. Contact a VA-approved lender and fill out the form through them
2. Use the VA’s eBenefits portal to apply online
3. Print out the VA Form 26-1880 and fill it out by hand, and then mail it in to your lender

How do you get a VA loan?

After you have determined that you are eligible for a VA loan from the above requirements and obtained your COE, there are then several more steps you need to follow to take advantage of the mortgage. These will be outlined below to help you make the process as simple as possible. 

• Prequalification - You first need to locate a VA lender to work with and apply through. To find lenders that may work for you, check out the link here. You then need to discuss with your lender how much of a house you can afford based on income, credit, and other financial factors. 
• Pre Approval - Getting preapproved will give you the power to begin shopping around for houses in your budget and begin to put in offers if you find a desirable home. All you need to do is verify your financial information with the chosen lender and see what they offer you. You will then receive a letter that explicitly tells you what you have been preapproved for and give you a budget for your new home. 
• Put in an Offer - This is the major step that gets you that much closer to owning a home. Once you have found the property you want, you and your real estate agent will draft up an offer for the house and submit it to the seller. This may go back and forth with the seller as negotiations take place, but hopefully, you will eventually reach an agreement. 
• The VA Appraisal - After the house is under contract, the lender will then conduct a VA appraisal of the property. They are not so much inspecting it, but instead, making sure it meets the proper requirements for a VA loan. They have to make sure that the house meets fair market value, as well as the following “minimum property requirements” as determined by the VA:
  • Safe mechanical systems with reasonable future utility
  • Adequate heating
  • Adequate roofing
  • Dry basement and crawl spaces
  • Free of termites, rot, and fungus
  • No lead-based paint

• Closing- If everything checks out, they will double-check all financial information. Once everything is ready to go, they will give you the go-ahead for closing. After all inspections, appraisals, and negotiations are finished, the only step left is to sign the paperwork and move into your new home.

Other Information

There are also a few other nuances that you need to be aware of when using a VA loan. First of all, they are only available for certain types of property. They are designed to help you buy a house that is “move-in-ready” and not something like a farm or fixer upper. Likewise, they may only be used for a primary residence and not for vacation homes or real estate investments. 

VA loans can be very advantageous when compared to other mortgages because you will get more favorable rates. If you qualify by meeting the necessary service requirements, it is recommended that you pursue a VA loan.