Preparation is key for any activity. Knowing ahead of time what to expect can ward off potential problems and streamline the process. That's a key component for VA home loans as well, proper preparation. To help ensure a smooth VA loan closing, here are seven tips that apply to all VA home loan applications.
Determine Your Eligibility
The only way to truly know if you do indeed have your VA home loan eligibility is by obtaining your certificate of eligibility. Honorably discharged veterans are certainly eligible but there are others who may benefit from the VA home loan program.
If you're currently active duty with more than 180 days of service, you may qualify. If you have at least six years of duty in the National Guard or Armed Forces Reserves, you may qualify. A surviving spouse of a qualifying veteran who died as a result of a service related disability may qualify.
You can get your certificate of eligibility from the VA by visiting a regional VA center, by mail or online. If you're not sure if you qualify, getting your certificate of eligibility will tell you.
Various sources will tell you that up to 90 percent of all credit reports today have mistakes in them. These mistakes can be small ones such as misspelling your name or getting a previous address wrong. Bigger mistakes can be inaccurate information showing a collection account that doesn't belong to you or someone else's accounts are showing up on your report. Especially so if you have a relatively common name such as Robert Smith or a Thomas Jones.
There are several companies that provide you with a credit report, for a fee or a free report if you subscribe to their credit monitoring service or similar type. However, the three main credit reporting agencies that VA lenders use are Equifax, Experian and TransUnion. These three agencies collaborated to create a site that provides consumers a free copy of their credit report once per year. This site is www.annualcreditreport.com.
Watch Your Spending
Keep away from any significant purchases. When you're about to buy a home using your VA home loan benefit, it's no time to buy a new boat, car or anything else that adds to your current debt load. When you take on new credit just before applying for a VA loan, two things happen.
One, a credit inquiry appears on your credit report. Each time you apply for credit, whether or not you ultimately make the purchase, your credit score will fall. If you think your credit scores might be an issue, avoid any new credit applications until after your loan has closed.
Two, additional debt will affect how much you can borrow with a VA loan. Loan amounts are determined both by loan term, such as a 30 year or 15 year loan as well as the interest rate, but also by debt to income ratios. The higher the consumer debt, the lower the approved mortgage will be.
Know Before You Go
Find a good VA loan officer and get a full understanding of the VA loan process. At this stage, all you're doing is gathering information and there's no obligation on your part whatsoever. By speaking with a loan officer, you can find out how much you can qualify for as well as what your monthly payments can be.
Ask about closing costs and what will be needed when you go to your loan closing. There are certain closing costs that veterans are not allowed to pay, all others, you need an accounting for. You will also need a homeowner's insurance policy so contact a few insurance agents and get quotes on how much an insurance policy might be.
Is a VA Loan the Right Choice?
Sometimes, a VA loan is simply not your best choice. The main advantages of a VA loan is the zero down payment option and no monthly mortgage insurance. However, if you do have enough money for a down payment of say 10 or 20 percent, then a conventional loan might be your best bet. Why?
All VA loans, with the exception for VA loans issued to disabled veterans, have a funding fee. The funding fee can be anywhere from 2.15 percent to 3.30 percent of the loan amount, regardless of any down payment. If you have 20 percent down and this is your first home, by using your VA loan the funding fee is $2,500.