VA Home Loans Overview
Jon Sheehan specializes in helping Southern California Veterans secure VA Home Loans and he makes sure they close on time, every time.
The following is a guide to help you understand the VA Home Loan and get started on your way to home ownership using your veterans benefits.
Overview of VA Home Loan information:
- The difference between a VA Guaranty and a VA home loan
- Uses for a VA loan
- How to apply for a VA home loan
- VA Loan Limits
- Documentation and Paperwork Checklist
- The VA loan funding fee explained
- Closing costs
- How Your Credit Rating and Current Debts Affect Your Loan
- How Your Credit Cards Affect Your Loan
- Your Debt-to-Income Ratio
- Bankruptcy Issues
- Past Foreclosure
- Short Sales
- Getting Approval of Your VA Home Loan
The difference between a VA Guaranty and a VA home loan
The Veterans Administration does not lend money or issue your VA loan. Instead, the VA offers a guaranty on your home loan equal to 25% of the approved loan up to the current year’s maximum. (In 2011 the maximum guaranty amount is $104,250 for a maximum loan of $417,000).
The VA Guaranty is protection for the lender in the event of default or foreclosure. The VA
guaranty makes your application for a home loan more attractive to the lender and allows you
to purchase a home for no money down in most cases. The lender works together with the VA;
when the paperwork is filled out and the loan is approved, the mortgage company is the agency
that lends you the money and collects your payments.
Uses for VA Home Loans
There are many uses for a VA home loan, including:
- Buying a home, condominium, or townhouse.
- Building a new home.
- Buying and improving a home at the same time.
- Installing energy-efficient improvements to a home.
- Refinancing an existing VA loan to get a better interest rate.
How to Apply For a VA Home Loan
You need a good credit rating to qualify for a VA home loan. While the VA does not require minimum credit scores, all secondary market investors have placed minimum credit scores on VA loans at 620. Your first step in the VA loan process should be requesting a copy of your credit report for review. You should know your credit score, the reasons for your score, and how your credit report will affect your loan application.
VA Loan experts recommend obtaining, reviewing and examining your credit report. This can help you learn how to maximize your credit score before filling out loan paperwork. Be sure to go over and calculate your debt‐to‐income ratio, which is crucial in the loan approval process. Once you’ve examined your credit and taken any recommended actions, the next step is to pre‐qualify for a specific loan amount by filling out the application form here, or calling Jon at: (951) 676-9640.
VA Loan Limits
The VA loan maximum limit is $417,000 for a no-money-down loan on a single-family home, but additional amounts are available to qualified borrowers.
Documentation and Paperwork Checklist:
The following items must be supplied in order for your loan to be processed in a timely manner:
- Uniform Residential Loan Application (as mentioned above).
- Borrower's Certification and Authorization (as mentioned above).
- Pay stubs for last 30 days or most recent Leave and Earning Statement.
- W-2s for the last two years for all borrowers and all employers.
- Original or online bank statements for the last two months.
- Purchase contract (if executed).
- Deposit check for $400, electronic payment can be arranged, for the VA appraiser.
- A Certificate of Eligibility or completed VA 26‐1880 (Determination of Eligibility) is required.
- Discharged or retired veterans need to supply a copy of DD214. Those still serving should furnish proof of current service with a current ID card and current reenlistment paperwork.
- Disabled veterans must complete a VA 26‐8937 form and attach a copy of the most recent VA disability award letter.
- If you pay or receive child support, supply divorce decree and proof of timely payments.
The VA Loan Funding Fee Explained
The VA Loan Funding Fee is required by law and varies according to the type of loan, military service status, and other factors. A first-time VA home loan borrower with a no-money-down loan currently pays an amount equal to 2.15% of the loan. This amount is subject to change depending on legislation and other factors. Some borrowers are exempt from the funding fee:
- Veterans on VA compensation for service‐related disabilities.
- Veterans who would receive compensation for service‐related disabilities if they didn’t draw retirement pay.
- Surviving spouses of military members who died in service or from service‐related disabilities.
Closing costs are not covered by your VA loan, but you can get similar results if you properly arrange your real estate contract. The loan amount will be whichever amount is less: the purchase price or the appraised value.
To add the amount of your closing costs to the VA Loan:
- Increase your offering price.
- Include a stipulation in the contract for the seller to pay closing costs and prepaid expenses equal to the amount you added to the offering price.
- As long as the home appraises for the increased price, the closing costs will then be covered by the VA mortgage.
Some other anticipated costs include:
- A loan origination fee, usually about 1% of the loan.
- Title search.
- Title insurance.
- State and/or local transfer taxes, where applicable.
- Survey costs.
How Your Credit Rating and Current Debts Affect Your Loan
When you apply for a VA home loan, the lender checks your credit rating with the three major credit agencies. These include Equifax, Trans Union, and Experian. One important reason you should meet with a credit counselor before starting the VA loan process is to clear up any credit report problems that may be lurking in your file before the mortgage company does the credit check. Look for:
- Clerical errors or erroneous information that should be contested.
- Bad credit information connected to identity theft.
- Old credit issues that should no longer appear on your report.
- Gaps or missing information that affects your credit score.
How Your Credit Cards Affect Your Loan
One important factor many people aren’t aware of is how lines of credit affect your chances at getting a loan. Let’s use John Smith as our example. John has four credit cards with a $5,000 credit limit on each card. John carries a zero balance on three of the four cards, and carries a monthly balance of $800 on the fourth card. He pays his bills on time and is a good credit risk. There’s just one problem. John has a potential debt of $19,200. He could max out his credit cards at any time for a total debt of $20,000. This potential can affect his credit‐worthiness. A good financial advisor will tell you to limit your potential debt as much as possible by getting rid of unused lines of credit, paying off cards and canceling them, keeping only the essentials.
Your Debt-to-Income Ratio
The debt‐to‐income ratio is quite simply the percentage of how much debt you carry compared to your income. Your debt‐to‐income can be as high as 41% and still allow you to get approved for a VA loan. Recently paid off debts will take time to reach your credit report. If you are struggling to lower your debt‐to‐income ratio, try paying off excess debts as early as you can to accommodate the lag time between final payment and the update to your credit report. The more time that passes between your final payment and the credit check for your VA loan, the better.
If you have declared bankruptcy, you may still be eligible for a VA home loan. There are many factors that can work in your favor.
- Chapter 7 bankruptcies more than two years old may not affect your current application.
- Post‐bankruptcy credit that shows a history of good credit risk is very helpful.
- Circumstances beyond your control leading to a Chapter 7 bankruptcy are given a more favorable view.
- Chapter 13 bankruptcies require a full year of satisfactory payments and a letter from the Trustee or Bankruptcy Judge which states the new credit is approved.
If you have foreclosure on your credit record, you will need to furnish a complete history of the foreclosure including the circumstances. Past foreclosure is not an automatic disqualification from getting a new VA home loan, but the same criteria mentioned above for Chapter 7 bankruptcy issues will be applied to your case.
If you have a short sale on your credit report, you may still be eligible for a VA home loan. There are many factors that can work in your favor.
- Short Sales more than two years old may not affect your current application.
- Post Short Sale credit that shows a history of good credit risk is very helpful.
- Circumstances beyond your control leading to a Short Sale are given a more favorable view.
Getting Approval of Your VA Home Loan
The final approval of your loan is based on five basic principles:
- You are an eligible veteran with an available VA home loan entitlement.
- The purpose of your loan is allowed by VA rules and those of the lender.
- You have sufficient credit.
- Your debt‐to‐income ratio does not exceed 41%.
- You intend to live in the property.
Once you have been approved for your loan, you have several options that can help you over the course of the mortgage. Did you know there is no penalty for early pay‐off of a VA home loan? You can also extend the maturity date of a VA guaranteed loan to lower your monthly payments under certain conditions. You may also sell your property at any time as long as the buyer meets all requirements by the VA and the lender. You are not required to sell to another veteran.
Buying a home is a solid investment that grows in value over time. The process may seem intimidating in the early stages, but your loan officer is there to help guide you through the process. Don’t hesitate to ask questions!
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"Jon and his team were really the best people I have ever worked with, they got me the house that I really wanted in less than a month and I am first time home buyer with a zero background, Jon became my realtor, my appraiser, he did not only... Read more
Brandy Butts, USAFR
VA Loan Specialist
Jon Sheehan is a Mortgage Broker specialized in helping veterans and military retirees across Southern California secure VA and FHA home loans. With over 25 years experience, his expertise in the area of VA and FHA home loans means you can close in as little as three weeks.... and there will be no unexpected surprises at the last minute.