A 7-Step Guide to Navigating the VA Home Loan Process

Now might be the perfect time for veterans to buy a home: low housing prices, an $8,000 tax credit for first- time home buyers included in the stimulus package (offer ends December 1, 2009), and the opportunity to buy a home with no-down payment with a VA home loan.

The VA home loan is a program established to help veterans purchase a home with little to no money down, no private mortgage insurance, the ability to pre-pay without penalty, and a low fixed interest rate. It is an especially great program for first-time veteran home buyers, who may not have the money saved up for the 20% down payment that most conventional loans require. Keep in mind that a veteran is not automatically qualified for a VA home loan -- he/she must still be approved for the loan by a mortgage lender. For most counties the maximum VA home loan limit is $417,000, but for some the limit can be as high as one million dollars. 

For a veteran to purchase a home using the VA home loan benefit, there are several steps in the process.

1.    Get Certificate of Eligibility
2.    Get pre-approved for a VA home loan at any mortgage lender
3.    Talk to a realtor and find a house
4.    Make offers and counter-offers on the house to get under contract
5.    Make sure the house passes inspection and appraisal
6.    Get final lender approval on the mortgage
7.    Close the deal

The first thing every veteran must do before entering into the home buying process is obtain a Certificate of Eligibility, which states that he/she is a veteran eligible for the VA home loan.  Certificates of Eligibility can be obtained by completing VA Form 26-1880 [1] and submitting it with a document that shows proof of service (e.g. DD-214). Qualifications are listed on the second page of the form. Many lenders have the ability to view your Certificate of Eligibility online, which can be a great time saver.  It’s a good idea to check with your potential lenders ahead of time to see if they require a paper copy.

Before visiting a realtor and looking at houses, it is very important to get a pre-approval for a VA home loan from a mortgage lender. With most lenders, this is a short process in which you provide them with basic information that will allow them to estimate how much they would be willing to lend you. It is important to remember that this is NOT a loan approval -- it is subject to change/cancellation after a more rigorous check of your finances and credit history. This pre-approval will show sellers that you are a serious potential buyer.

Once you have a pre-approval for a mortgage, set up an appointment with a realtor to talk about homes that are for sale in the area that you like and that will fit your price range.  After you find a home that you like, have your realtor submit an offer to the sellers that is within your price range.  Remember that there are many fees that you will pay through the home buying process which you should factor these into your budget: home inspection, VA funding fee (waived for veterans with a service connected disability rating), and closings costs.  Ask your realtor and mortgage lender for estimates of all fees you will have to pay. Some of these fees can be rolled into your mortgage, and you can also ask the sellers to pay some of these fees. Once you and the sellers agree on a price and conditions, you are under contract which means that neither you nor the sellers can get out of the deal without penalty. At this point you will want to call your lender and lock in your interest rate so that you know exactly what your monthly payments will be.

Once you are under contract, the next step is to have a home inspection. Your realtor should be able to recommend a good home inspector in the area. The typical cost for a home inspection is around 0.1% of the selling price of the home (e.g. $300 for a $300,000 house). VA home loans require a termite inspection in addition to the traditional home inspection, and the termite inspection is typically reimbursed to the buyers by the sellers.  Another VA home loan requirement is a home appraisal. The VA will arrange for an appraisal of the house, because the VA will only back a loan that is equal to or less than the appraised amount of the house. So if the house appraises for less than what you are offering to pay for it, you will have to take out a second non-VA loan to make up the difference, or pay for it up front on your own. There should be a clause in your contract with the sellers that you can leave the deal with no penalty if the house does not appraise for the offered price.

After the inspection is complete and you and the sellers have agreed on any repairs, the next step is to get final approval on the mortgage from your lender. This will require you to supply them with several documents proving your identity, your income, your assets, your debts, and any other proof of your ability to repay your mortgage. There should also be a clause in your contract with the sellers that you can leave the deal with no penalty if your mortgage lending falls through.

The final step in the process is to arrange for closing. This is where you and the sellers will get together with your realtors and a closing attorney to do a final walk through of the house, sign all of the papers, and receive the keys. After this, the house is yours!

Whatever your financial situation may be, make sure you take the time to think everything through very carefully; purchasing real estate is a major commitment that takes a lot of thought and planning. Buying a house is not best for everyone, but right now there are many reasons why veterans should at least consider entering into the market.  The VA home loan is a great way to do it.

For more information on the VA home loan visit the VA website [2] or IAVA’s 2009 Issue Report, “Coming Home. [3]"

Matthew Marsh, an Iraq veteran, serves as an IAVA policy intern in Washington, D.C.