12 steps for buying a house with a VA loan
Becoming a homeowner isn’t hard, but it is a process. While there are some specific steps pertinent to those using their VA loan benefits, the overall process is similar for all homebuyers.
And, the good news: It’s not complicated. In fact, 130,691 veterans and active-duty servicemembers purchased or refinanced mortgages with a VA loan in the first three months of 2019. If all of those fellow military members managed it, so can you.Find out your next step in the home buying process by connecting with a lender.
1. Work out what you can afford
This involves taking a close look at your household budget. If you are now asking, “What household budget?” then you need to get busy and make one. (The Federal Trade Commission has a good template or you can find financial apps online.)
Basically, you need to know where your money is going every month. This informs you of your potential buying power (aka how much house you can afford) and the monthly mortgage payment amount you can handle. Depending on what you find, you may choose to cut some non-essential items, so you can save and afford a nicer home. Or, you may decide to purchase a more modest one and maintain your lifestyle. Also, keep in mind that homeowners have extra expenses including property taxes, homeowner’s insurance and home repairs.
Creating a budget isn’t a requirement for loan qualification, but it makes you a more informed consumer. It’s like heading out in a disaster without a go-bag. Chances are, it won’t end well.
2. Get preapproved
Getting preapproved gives you “serious buyer” status in the eyes of sellers and real estate agents. It means you’ve talked to a mortgage lender who has run your finances. That includes establishing your eligibility for a VA loan, checking your credit, confirming your income, and working out how big a mortgage you can afford.
Once completed, the lender sends you a letter confirming your loan amount. This means sellers and agents take you way more seriously. And, gives you an advantage when negotiating the price, especially when up against other potential buyers who aren’t approved.
Don’t get confused between preapproval and prequalification. Prequalification is better than nothing, but it only means the lender asked you a few questions and relied on your answers (with zero verification) to estimate how much you can borrow. It’s way less credible than preapproval.
3. Shop for lenders
You may think a VA loan is a VA loan is a VA loan. But some lenders offer great deals and others less great — or flat-out bad. You really do have to shop around between lenders to find the very best deal for you. But, it’s not just us saying that.
Last year, the Consumer Financial Protection Bureau (CFPB) wrote:
Mortgage interest rates and loan terms can vary considerably across lenders. Despite this fact, many homebuyers do not comparison shop for their mortgages. In recent studies, more than 30 percent of borrowers reported not comparison shopping for their mortgage, and more than 75 percent of borrowers reported applying for a mortgage with only one lender. Previous Bureau research suggests that failing to comparison shop for a mortgage costs the average homebuyer approximately $300 per year and many thousands of dollars over the life of the loan.”
Lenders are required to send you a loan estimate detailing everything you need to know about the mortgage you’re being offered. The CFPB has an exceptionally helpful guide about how to read these — and how to compare them.
Read more: Questions To Ask Before Picking A Lender.
4. Find a reputable buyer’s real estate agent
Usually as a buyer, retaining a real estate agent costs you nothing. This is because sellers generally pay the buyer’s real estate agent’s commissions. Not every buyer has an agent, but it’s a good idea. Your real estate agent can be one of your greatest assets throughout the transaction. (Just don’t use the same one the seller is using. Their first duty is to the seller.)
A good real estate agent helps you with the following:
- Finding your dream home
- Negotiating the best possible purchase deal
- Completing the buying paperwork
- Guiding you throughout each step of the transaction
- Troubleshooting any issues
5. Find your home
This is usually the fun part. Though, depending on your local real estate market, it may take awhile. Think ahead about your future needs as well as your existing ones. Choose a home that meets your requirements for many years to come if possible and realistic.
Don’t be tempted by a quick-fix purchase with the expectation that you can move again in a few years. Buying and selling a home is expensive and the real estate market unpredictable — you don’t want to do it more often than you absolutely have to.
6. Make an offer
This is the moment when a good real estate agent proves most valuable. So listen to their advice.
It’s a real estate agent’s job to get you the best deal and they should have the knowledge and expertise to achieve that. So leave the negotiations up to them. Of course, your real estate agent should talk through tactics with you. Basically, how to pitch an offer that won’t alienate the owner but will have you paying the smallest amount possible.
Your real estate agent will also advise you on any “contingencies” that should be included in your offer. These are items that allow you to walk away at no cost if certain eventualities arise like an inspection contingency (if the home inspection uncovers unexpected issues) or a finance contingency (in case your mortgage loan has problems). There may be others as well.
7. Pay earnest money
You’ll typically be expected to pay earnest money when your offer is accepted. Your agent can negotiate the amount, but expect to pay between 1 to 5 percent of the purchase price.
As its name implies, earnest money indicates to the seller that you’re a serious (aka earnest) buyer. This isn’t lost money, though. You’ll get it back either as a deduction from your closing costs, or if your closing costs are covered by a third party, you’ll be refunded the amount.
8. Get a home inspection
Home inspections aren’t required to purchase a home, but they’re highly recommended — especially if you’re buying an older home. A home inspection gives you a top-down evaluation of the home and property, including the roof and home exterior and shouldn’t be confused with a VA home appraisal.
Typically, you can back out of your offer and receive your earnest money back as long as there is an “inspection contingency” written into the purchase contract.
The VA home appraisal is required for a VA home loan and is arranged by your VA lender. It evaluates the property according to the VA’s minimum property requirements (MPRs) and is intended to protect you from purchasing a property that isn’t safe, sound, and sanitary; it also establishes a fair value of the property.
Read more: VA Appraisal & Home Inspection Checklist
9. Update your lender documentation
Every document used to approve your loan must be the most recent. Ultimately, your lender will ask for what it needs, but you can avoid delays by having it all ready in advance. Gather copies of your personal documents, including your latest pay stubs and bank statements.
You’ll also send a copy of the signed purchase contract to your lender. This allows your lender to order the VA appraisal and update your loan application with the address for your next home.
At this point, you may be asked to sign mortgage disclosure documents. These are sent to you by your lender and lay out the terms of your loan in detail — terms may have changed now that a specific home was found and purchase price agreed upon.
Read more: VA Mortgage Loan Document Checklist
10. Meet your lender’s underwriting conditions
Once it has all the required documentation, your lender submits your application to its underwriting department. This is the final step to officially approve your mortgage loan. It’s not uncommon for underwriters to request more information — called conditions — at this stage. Usually, additional documentation is all that is needed.
After the underwriter gives final loan approval, your lender sends your final loan documents to an escrow company.
11. Sign the final paperwork
You’ll likely go the escrow agent’s office to sign all the final paperwork. Review all the documents carefully. Compare your most recent loan estimate with the closing disclosure. (Closing disclosures provide a final breakdown of all your loan’s details, including “projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs),” according to the CFPB.)
If there are discrepancies between your closing disclosure and your last loan estimate, your lender must justify them. While some costs can increase at closing, others legally can’t. Call your lender immediately if something doesn’t look right.
If you need to pay any closing costs, you’ll pay those at this time too. Bring a cashier’s check or other certified funds to the escrow office when you sign your documents; your escrow company provides the total amount needed.
12. Monitor the status of your loan
Unfortunately, your loan is not complete when you sign the documents. Your lender could take up to a week or more to finalize your loan and transfer the money. Once the lender funds the loan, the seller and all other parties are paid. (The final step: when the transaction is recorded in your jurisdiction’s official records.)
You might think now’s the time to relax. You can, soon. But, not quite yet.
Few home buyers realize that lenders routinely carry out a second (or third) credit check before closing. If your credit score has taken a hit, your lender could cancel your loan — or increase your mortgage rate. That means no late payments, no new credit accounts, and low credit card balances.
One step at a time
If you’re just getting started, then consider a VA home loan. VA loans typically come with lower interest rates than most other mortgages. Ellie Mae’s Origination Insight Report shows they’re consistently lower than FHA and conventional loan interest rates. VA home loans also require zero money down and no continuing private mortgage insurance.See if you're eligible for a VA home loan.