Every year there are many veterans who use the VA Home Loan Guarantee Program to purchase a home. With this program qualified veterans can get a mortgage loan through a VA-approved lender.
Some qualified veterans can obtain this loan with no down payment, low closing costs, fewer fees or lower monthly payment than if they went to a traditional lender. The key to purchasing a home through the VA Home Loan Guarantee Program is to get pre-approved for the program first so that you know you are eligible and exactly how much of a home you can afford.
- How Long does it take to get Preapproved for a VA Home Loan?
- What is the VA Loan Process?
- What Credit Score is Needed for a VA Home Loan?
- Is it Difficult to get a VA Home Loan?
- Can you be Denied a VA Loan?
- What can I do if I am Denied for a VA Home Loan?
- Can I get a VA Loan with no Credit Score?
How Long does it take to get Preapproved for a VA Home Loan?
The average closing timeline for VA buyers is marginally different from conventional loans. Here we take a look at the average time to close and what factors play into that timeline.
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It’s an extremely common question for many first-time homebuyers: “How long will it take to buy a home with a VA loan?”
And it’s a tough one to answer.
Buying a home is a multi-step process, and everyone’s homebuying journey is different. But there’s a lingering myth that VA loans take forever to close. And that’s simply not the case.
In fact, dig into the numbers a bit and you don’t find much difference between VA and conventional loans.
For the first three months of 2019, the average conventional purchase loan closed in 47 days, compared to 49 days for VA loans, according to Ellie Mae
Let’s review five key factors that could affect the timeline of a VA loan purchase. Knowing the details of the VA loan process is important for you and your customers.
Factor #1: Are you preapproved?
PREAPPROVAL: It’s one of the best ways to shorten the waiting game. A “preapproved buyer” has met a lender’s basic requirements, and is likely to obtain a loan, provided that certain conditions are met. VA loan preapproval shows that a buyer is probably going to obtain financing, which eliminates a hefty amount of uncertainty and delays.
When should a buyer get preapproved? As soon as possible. Most lenders recommend getting preapproved months before starting the house hunt. That leeway gives potential buyers plenty of time to clear up eligibility problems before falling in love with a home.
Factor #2: Buyer/seller timelines
When do you want to move in? When does the seller want to move out?
Just because a home is on the market doesn’t mean the sellers are ready to move immediately. Perhaps the sellers want to stay until the end of the school year. Maybe they have to wait until their new home is complete.
And perhaps the buyer is in the same boat. Buyers and sellers have to agree on a closing date, and that date could either speed up or delay the entire process.
Factor #3: How long will the VA appraisal take?
A home purchased with a VA home loan is subject to a VA appraisal. And only a VA-approved appraiser can perform a VA appraisal.
VA lenders are responsible for ordering VA appraisals, which are completed in 10 days on average. But as VA appraisers are in short supply in rural areas, buyers should expect the VA appraisal to take longer in sparsely-populated locales.
Factor #4: Will any repairs be ordered?
The results of the VA appraisal can also either hasten or hinder the closing process.
If the VA appraiser makes a home “subject to” repairs, those repairs must be completed before the loan can close. Extensive repairs could push the closing date back by weeks or months.
The appraisal value can also affect the final timeline. VA loans can’t be issued for more than a home’s appraisal value. If the appraisal value falls below the purchase price, buyers have some thinking (and some delays) ahead. Buyers can either:
- Ask the seller for a price reduction
- Ask for a Reconsideration of Value
- Make up the difference in cash
- Walk away from the purchase
Factor #5: How long will underwriting take?
Post-appraisal, any VA loan file is subject to final underwriting. If an underwriter needs additional documentation or notices an eligibility problem, the closing date could change.
A word of advice for buyers: You’re extremely close to the finish line, so try not to panic. Be as helpful as possible during this phase, and you’ll likely be in good shape for a quick close.
What is the VA Loan Process?
The VA loan process has five key steps: Preapproval; the home search; getting under contract; underwriting; and closing.
For Veterans and military homebuyers, this journey doesn’t look much different than the process for other types of home loans. The big differences come in more when you look at the advantages VA loans offer, from $0 down payment and no mortgage insurance to flexible credit guidelines and the industry’s lowest average interest rates.
Let’s take a deeper dive into the VA loan process, starting with the first and arguably most critical step – getting preapproved.
Step 1: VA Loan Preapproval
Getting preapproved for a VA loan is a foundational first step. Loan preapproval is important on a couple major fronts.
One, preapproval gives veterans and military buyers a clear sense of their purchasing power. Two, it shows home sellers and their real estate agents that you’re a serious buyer who can make a strong offer and get to the closing table.
In today’s real estate environment, home sellers expect to see offers from preapproved buyers. Some might not even consider your purchase offer without a copy of your preapproval letter.
So what does it take to get preapproved?
Typically, lenders will start by asking about your homebuying goals, your military service and your employment history before getting your permission for a hard credit inquiry. Credit score cutoffs for VA loans can vary by lender, but a 660 FICO score is a common minimum.
Prospective buyers who meet a lender’s credit score benchmark will then need to provide documents to verify key information. Document requests can differ depending on the nature of your income, your military service history and more.
Step 2: The House Hunt
With a preapproval letter in hand, you’re ready to start the most exciting stage of the VA purchasing process – the house hunt.
Finding a real estate agent who truly knows VA loans is critical. These are more specialized home loan options, and some properties can be a better fit for VA loans than others. Plus, VA loans also offer big-time advantages when it comes to things like closing costs, and veteran-friendly agents can help buyers get the most from their benefit.
Veterans United works to connect buyers with VA-savvy agents through Veterans United Realty, our national network of agents who understand the needs of military buyers.
Like the other government-backed mortgage options, VA loans are for purchasing primary residences you intend to live in full time. Veterans can look to buy a multiunit property (up to a four-plex) as long as they intend to live in one of the units.
Homes generally need to be in good shape. The VA appraisal process includes a look at the home in light of some broad property condition requirements, known as the Minimum Property Requirements. This a high-level look at a home and not as in-depth as a home inspection.
If the appraiser notes MPR issues, they may need to be addressed before the loan can close. VA buyers can ask sellers to pay for repairs and even cover the cost themselves if needed.
Purchasing a fixer-upper is possible with a VA loan, but they can present challenges for the VA appraisal process. Talk with a loan specialist in more detail if you’re looking for that type of property.
Once you find a home that you love, the next step is making an offer to buy it.
Step 3: Getting Under Contract
Your loan officer and a trusted real estate agent can help you craft a strong offer.
Your agent will look at recent comparable home sales in the area to help shape your starting point for a purchase price. Pricing and negotiation strategies can vary depending on the real estate market, the particular home and much more.
Veterans should talk with their loan officer and agent about closing costs before making an offer. VA loan closing costs can vary depending on a host of factors. Buyers can ask sellers to pay all of their loan-related closing costs and up to 4 percent in concessions, which can cover escrow expenses and much more.
Most prospective VA buyers will present a contract with several contingencies that cover certain events leading up to the loan closing. Common contingencies cover things like the right to have a home inspection and how to handle repair requests; how many days the buyer has to secure financing; how much earnest money will be deposited; and more.
The VA doesn’t require a home inspection, but they’re almost always a sound investment. The VA appraisal includes a look at the home in light of broad property condition requirements, known as the Minimum Property Requirements, but this assessment isn’t as in-depth as a home inspection.
Every VA contract features added protection for the veteran’s earnest money when it comes to the VA appraisal. There’s a special addendum that ensures VA buyers get their earnest money back if the property’s appraised value comes in low and the veteran decides to back out of the deal.
It might take VA buyers a couple rounds of negotiation to lock down a purchase agreement. Every buyer-seller situation is different.
Step 4: VA Loan Underwriting
The VA loan process jump-starts once you’re under contract to buy a home. Your loan team will send your contract and documentation to loan processors and underwriters so they can take a closer look at your overall purchasing picture.
The lender will also prepare to order the VA appraisal through the Department of Veterans Affairs. This is a cost that buyers typically cover up front, although it’s possible to seek a reimbursement from the seller at closing.
The VA assigns an independent, third-party appraiser to assess the property’s value and condition. Lenders have no control over the appraiser, their time line for conducting the appraisal, or their assessment of the property.
The appraiser will look at recent comparable home sales when evaluating the home’s fair market value. Buyers will need the home to appraise for at least what they’ve offered to pay for it. If an appraisal falls short, the buyer and seller will need to renegotiate the purchase price or end the transaction.
If the appraiser notes repairs are needed to meet the VA’s Minimum Property Requirements, buyers can ask the seller to pay for those or even cover the costs themselves in some cases.
While the appraisal process is unfolding, buyers should be prepared for questions and requests for additional information from their loan team. The lender’s underwriters will be looking at financial, employment and other documents to make sure you have the willingness and ability to repay the loan.
The faster you get back to your lender with answers and information, the smoother this stage tends to go. Talk with your loan team if you have any questions or need additional explanation about an underwriting request.
Once the appraisal is finalized and underwriters feel good about your loan file, you’ll be considered “clear to close,” which means you’re ready to head to your closing day. Being “clear to close” is still not a guarantee of financing, but you’re just about there.
Step 5: Your VA Loan Closing
VA buyers will receive a Closing Disclosure shortly before their scheduled loan closing. This document allows buyers to compare their final closing costs and loan information to estimates they received earlier in the process.
Your loan officer will typically review this document with you. Be sure to ask if you have any questions about your costs and fees or anything else.
Lenders will often verify your employment and other key information one last time before your loan closing. Notify your loan team immediately if anything changes with your employment or income status.
It’s also important to avoid taking on new debt or moving money around once you start the VA loan process.
Buyers will often have a final walk-through of the property they’re purchasing. This allows you to make sure any repairs were completed satisfactorily; that items you didn’t want to stay behind have been removed; and more. Contact your real estate agent and lender as soon as possible if there are any problems.
When closing day arrives, you’ll sign final paperwork and get the keys to your new home.
What Credit Score is Needed for a VA Home Loan?
VA home loans are a benefit of military service, making homeownership possible for many service members and their spouses. If you’re wondering whether your credit score meets VA loan requirements, here’s what you need to know.
No minimum credit score
You read that right: The U.S. Department of Veterans Affairs, which insures all VA home loans, doesn’t require a certain credit score. But the private lenders that issue VA loans may have their own minimum credit score requirements, typically ranging from 580 to 660.
Is it Difficult to get a VA Home Loan?
VA loans are great mortgage programs for those who qualify thanks to their lower down payment amounts and less stringent lending requirements. But how easy or difficult is it to get approved for a VA loan?
Men and women who have served in the armed forces can buy a home with no down payment, rates below market, and no mortgage insurance. What better way to thank our veterans than make the American Dream of home ownership available to them?
It is a government program, though, and anything involving the government must be a mess of red tape and bureaucratic delays, right? That is what many people believe, so today is the day we pull the curtain back and explain just what is involved in getting a VA loan.
Why the VA loan process is easier than many other government programs
You should realize first that the Veterans Administration does not loan the money; the VA just provides a guarantee to the lender so they can make a loan with no down payment. There are a few additional steps for a VA loan, but most of them are quick and straightforward.
Here’s the process:
First, you’ll get certain documents together, just as you would for any other type of mortgage: bank statements, pay stubs, and tax returns. The VA also requires a Certificate Of Eligibility (COE) to show you are entitled to the loan guarantee.
To get this, you’ll provide your loan officer with a copy of your DD-214, the document you received when you were separated or retired from active duty. In most cases, your loan officer will be able to get your COE instantly online.
Sometimes the VA will take a little time to process the request, but this seldom takes more than a week. If you want to do this yourself, you can go to the VA Portal and follow the instructions on the site. It will be much easier (and probably faster) if you let a loan officer do it for you.
Next, you’ll apply for the loan just as you would a conventional loan. You’ll complete and sign your loan application and give your income and asset documentation to your loan officer.
If you are already in escrow to buy a home (or if you are refinancing your existing home loan), several things will happen behind the scenes: an escrow will be opened and the title company will prepare the preliminary title report. The loan officer will order the property appraisal through the VA loan portal online. With conventional loans, you would pay for the appraisal ahead of time; with a VA loan, you won’t have to pay until escrow closes.
The appraisal will arrive in a week to ten days, but your loan officer’s team will prepare your loan submission package and send it to the underwriter right away. The underwriter will approve the loan in a week or less.
VA loan timelines and demands are very similar to conventional loans
If you’ve every applied for a conventional mortgage, you may be thinking, “This is just like the loan I got a few years ago!” You’d be right. The different paperwork and procedures for a VA loan all happen behind the scenes—your part of the process is almost identical to that of a conventional loan.
There are some minor differences.
The lender will require a pest control (termite) report with clearance, showing that the property has no termites or dry rot. If there are health and safety issues with the property, like peeling paint or bare wiring, the appraiser will mention them in the report and they’ll have to be corrected.
The VA calls these “Minimum Property Requirements” (MPR). If you’re interested, you can read them on the VA’s website. The purpose of the MPR is to ensure that the veteran is getting a home that is safe and secure. If you have ever bought a home using a conventional loan, you probably paid for a home inspection—and asked the seller to correct any defects that the inspector noted.
If you are a veteran and have hesitated to get a VA loan in order to purchase or refinance a home because you thought it might be a bureaucratic nightmare, you may have changed your mind after reading this.
One more thing to consider: if you are planning to buy a home and have the required cash for a down payment (we’ll use 3% for an example), you’ll find that a VA loan will save you a great deal of money each month. To put that into perspective, let’s look at a $400,000 purchase.
As a conventional buyer, you’d put $12,000 down (3%) and pay over $2,500 per month including taxes and insurance. With the VA loan, you’d put ZERO down and have total payments of less than $2,200 per month.
Can you be Denied a VA Loan?
It’s important to remember that if you have been turned down for a VA Home Loan, it was by the individual lender and not the VA. This means there is a chance you could reapply with another lender. Before you do that though, you’ll want to find out the reason for your denial. Most denials come because of either issue with a credit history or not having sufficient income to pay for the mortgage payments.
Your lender will send you a letter within 30 days (required by law) informing you of the denial. However, the letter you will receive probably doesn’t go into any great detail as to why you got turned down. Try calling your lender and inquiring directly with them. If your denial came because of a credit history issue, you’ll want to pull a copy of your credit history, fix any errors, and attempt to begin repairing any low points in your credit.
What can I do if I am Denied for a VA Home Loan?
What should someone do if their VA loan application is in fact denied?
Get the Facts
When lenders decline a loan, they do so reluctantly. VA lenders make money by approving loans, not denying them so they’ll do what they can to get your approval. When they can’t, they’ll send what is called an Adverse Action notice.
This is an official form and required by law to provide you with a written explanation of why your loan was not approved. You’ll get this form in the mail but before you do, your loan officer will likely be the one who first gives you the bad news.
You need to first find out specifically, exactly why your loan was denied. Are your credit scores too low? Do you not make enough income to qualify? If your credit is impaired, you can begin the process of repairing it. If you can’t afford the monthly payments then borrow less, put more down or get a longer term loan.
The key is knowing exactly the cause of your declination. Without knowing, you can’t address the problem.
Overlays
Lenders must make sure the borrower has established an acceptable credit history. Borrowers must be able to prove their income and have enough money in the bank to cover closing costs associated with the loan such as for an appraisal and homeowner’s insurance. Whatever the VA requires, lenders must not only follow those guidelines but document the process.
However, some lenders create additional guidelines of their own on top of what the VA requires. VA lenders can’t subvert VA requirements in order to approve a loan but they can add additional qualifications making it more difficult to qualify for the loan. These additional guidelines are called “overlays.”
For example, while the VA doesn’t have a minimum credit score requirement, most lenders have settled on a minimum credit score of 640 in order to be approved. If you get a phone call from your loan officer with the bad news that your credit score is 635 and the minimum is 640, don’t think for a minute that you’re a lost cause. Other lenders have a 620 requirement.
If you get declined, find out why then call other lenders to see if they have a similar overlay.
Know Before You Go
Finally, in today’s world, there really is no reason to get turned down for a VA loan if you’ve already been preapproved. Before you ever go out shopping or consider a refinance, contact a VA lender and go over your situation.
Take a look at your income, your debts and your credit. Answer all questions before you even get to the point of making an offer on a property. Most sellers today ask for a preapproval letter before reviewing any offer anyway, so it’s best to get all questions answered in advance.
If you submitted your application to a lender, supplied your documentation and your credit was reviewed, if you didn’t get your approval once you found a property, it’s likely your VA loan officer made a mistake somewhere or the information you provided on your application couldn’t be verified.
Try Another Lender
If you’ve been turned down for a VA loan, obviously, the first step is to address whatever factor lead to the denial – a missed payment, a delinquent account, etc. Once that is cleared up, returning to that same lender is an option – though you may want to take the opportunity to check the current rates and make sure you are still getting the best deal.
(Rates can vary by the day, and while one lender may have the “best rate” when you started the process, you may be able to lock in a better rate now elsewhere.)
Can I get a VA Loan with no Credit Score?
Bad credit does make securing an efficient VA home loan difficult, however, it doesn’t mean it’s impossible. While considering your eligibility, lenders also review your assets, debts, income, payment history, and employment history. Your credit score does matter, but it isn’t the only deciding factor.
No minimum credit score has been advised by the Department of Veterans Affairs (VA). However, the VA isn’t a lender. It just backs the loan in case the home buyer defaults later.
VA lenders mostly prefer a minimum of 620 FICO score, but the cutoff varies by the lender, the loan type, and other factors.
You can get a loan even if your credit score is less than 620, but you might need to pay a higher interest rate.
Credit Ranges for a VA Mortgage
FICO credit score ranges from 300 to 850. The ideal loan eligibility benchmark is 620.
These scores are categorized into different ranges (Excellent, Good, Fair, and Subprime) with some distinction in credit score categorization based on lender preferences.
- Excellent credit – Anything between 720 to 750 is considered an excellent credit score.
- Good credit is usually in the low 700s range
- Fair credit is ordinarily around mid to upper 600s.
- Subprime credit is below 620.
Veterans and military members who have “Fair” credit may be eligible for a VA loan.
It’s vital to know that lenders often see varying credit scores than what consumers see. Mortgage lenders have access to industry-specific scores. Consumers on the other hand use credit-monitoring tools which reflects a basic educational score.
It’s advised to closely examine your credit reports before you begin your home buying journey.
What Happens if You’ve had a Previous Bankruptcy or Foreclosure?
Bankruptcy and foreclosure are adverse factors on a VA loan file, but even if you have encountered one of these processes, you may still pass for a VA loan – even with the result being poor or bad credit.
There are two basic conditions:
- In cases where Chapter 13 bankruptcy has been filed, a service member or a veteran is required by the VA to have given on-time payments towards that bankruptcy for at least 12 months before they can apply for a VA home loan.
- In the case of Chapter 7 bankruptcies and foreclosures, service members and veterans will need to wait for two years following the bankruptcy’s release or the foreclosure. The wait can be extended if the default occurred on an FHA loan.
Remember, too, that your credit score can take a hit after negative events like bankruptcy or foreclosure. Sometimes it takes years to fully recover.
Read Also: Va Loan Multi-Family
Even if you’re beyond those bankruptcy and foreclosure waiting periods, you would still need to fit a lender’s credit score benchmark to move forward with a VA loan.
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Summary
Through your credit report, lenders can see many of your monthly debts. With debt and income information, lenders calculate a borrower’s initial debt-to-income (DTI) ratio. DTI ratios simply compare a borrower’s monthly income to their debts, including the potential mortgage payment.
Lenders do not establish a DTI ratio norm even though the VA likes to include borrowers with DTI ratios of 41 percent or lower. Since lenders’ standards vary, it is certainly possible to secure a VA loan with a higher DTI ratio, but it will depend on the rest of a borrower’s financial health.
Regardless, it’s possible to hit that 41 percent mark by lowering the sought-after VA loan amount. Lenders will often toy with the loan amount to lower the mortgage payment and thus the DTI ratio, giving borrowers more favorable chances of getting a VA loan.
Prequalification is the commitment-free, first step toward earning a VA home loan. Borrowers have the right to get prequalified and preapproved through countless lenders. Poor credit and high DTI ratios are still among the top reasons eligible borrowers are denied prequalification.
