Marcus Marion, CMA™ Home buyers who use VA loans often think of the application and pre-approval as the first steps in the mortgage process. But in reality, the journey should start before all of that.
Before you even apply for a VA loan, there are certain preliminary steps you can take to maximize your chance for home-buying success. Here are seven of them.
1. Find out if you’re eligible for the program.
The VA loan process begins with research. And one of the first things you need to look into is your eligibility status. The U.S. Department of Veterans Affairs website offers detailed guidelines relating to VA loan eligibility.
This program is limited to military members and veterans, primarily. This includes active-duty military with at least 90 days of service, as well as National Guard and Reserve members with six years of regular service. Guard and Reserve members can also be eligible if they serve on active duty for at least 90 days.
2. Learn everything you can about the program.
VA loans offer a lot of benefits, including no down payment and no mortgage insurance. Even so, you need to research all of the nuts and bolts to determine if it’s right for you.
VA loan preparation is an in-depth learning process. You have to learn how these loans work, what benefits they can provide, and what requirements you have to meet.
To aid you in this mission, we’ve published a series of helpful guides relating to the VA loan program. You can use the search tool near the main menu to access our ever-growing library of tutorials and guides.
For starters, check out these helpful resources:
- The minimum requirements for borrowers
- Steps in the VA loan home buying process
- How long you have to serve to be eligible
3. Research other financing options.
The VA loan program has a lot to offer. But it’s not your only mortgage financing option. If you’re planning to buy a home in the near future, spend some time researching the other types of mortgage loans as well.
Like the FHA program, VA loans are a kind of government-backed mortgage. They both receive some form of insurance or guarantee from the federal government, which reduces risk for the lenders that offer these loans.
On the other side of the fence, we have conventional loans that do not receive any kind of government insurance backing. Conventional financing accounts for the vast majority of mortgage loans generated in the U.S. every year.
But for military members and veterans, the VA loan program is hard to beat. It offers flexible qualification criteria and the chance to buy a house with no down payment. As you research other mortgage options, you’ll begin to understand the value of this program.
4. Create a basic housing budget for yourself.
Budgeting is another crucial step in the VA loan preparation and research process.
Spend some time thinking about your housing budget. How much of a monthly payment can you comfortably afford, on top of your other recurring debts? What’s your maximum, and how much is too much?
Ideally, you’ll be able to answer these questions before you even apply for a VA loan or begin the house hunting process. Fortunately, the process itself is fairly straightforward.
Subtraction is the easiest approach to budgeting. Start by subtracting all of your non-housing recurring debts from your net monthly income (or take-home pay). Next, subtract an additional amount that represents savings contribution and lifestyle expenses.
The final number left over represents the maximum amount you could put toward your monthly housing costs. And you might even want to shave that down a bit more, so you can keep some emergency funds in the bank.
5. Start saving for closing costs and other expenses.
When budgeting, be sure to account for your potential closing costs. While the VA loan program allows you to finance the entire purchase price, it usually brings closing costs for home buyers.
These costs typically range from 2% to 5% of the purchase price, which can add up to thousands of dollars for a typical home purchase. So the best time to start saving is right now.
6. Weigh the pros and cons of making a down payment.
It bears repeating: Eligible military members and veterans can use a VA loan to buy a house with no down payment whatsoever. Even so, you should at least consider the benefits of making a down payment.
When you put money down on a VA-backed home purchase, you’re borrowing less from the lender. This results in a smaller monthly payment and less interest over the life of the loan. A down payment could also reduce your VA funding fee and help you get a lower rate.
7. Get up to speed on mortgage rate trends.
The mortgage rate assigned to your VA loan will depend on a wide range of factors, including your credit score and the loan structure (fixed versus adjustable). But it still helps to do some mortgage rate research, prior to applying for a VA loan.
For starters, check out the Freddie Mac website. Freddie Mac is one of the “government-sponsored enterprises” that purchase loans from lenders and sell them to investors. They also conduct a nationwide weekly survey of mortgage rates offered by lenders.
When you see mortgage rate updates mentioned in the news, they’re usually based on Freddie Mac’s widely-cited survey. It’s located here: https://www.freddiemac.com/pmms.
All of these VA loan research and preparation strategies have something in common. With all of these steps, you are researching relevant topics to increase your knowledge and product awareness. This will allow you to make smart choices, whether you use a VA loan or some other type of mortgage.
