If this is your first time using your VA home loan benefit or your last, it’s important to know in advance how a lender will evaluate your loan application before you apply for a VA loan. What can you do to get your VA home loan pre approval?
Prequalification vs. Pre Approval
You may have heard either of these terms used in the mortgage industry and while they sound similar they’re really two different notions. A loan prequalification is nothing more than a general conversation with a VA lender about your ability to qualify for a home loan. A prequalification will cover important items such as your monthly income, employment, credit standing and current bills.
A preapproval takes the prequalification a bit further by verifying certain aspects of your financial profile; a prequalification is a conversation while a preapproval is a validation.
A preapproval can be issued after your loan officer reviews your pay check stubs, your tax returns and your bank statements. You may also be asked to complete a VA loan application that includes everything about your current financial profile. The only thing not required on the application is a property address.
VA lenders want to see a copy of your two most recent pay check stubs covering 30 days. The pay check stubs will show monthly income as well as year-to-date earnings. The lender will review the pay check stubs to make certain the year to date and monthly income amounts match up. If there appear to be any missing pay periods or any indication of part time work, the lender will need some clarification. You will also be asked to provide signed copies of your filed federal income tax returns along with copies of your W2s for the last two years.
While most VA loans require no money down from you, there will be additional closing costs you may be responsible for in addition to funds needed for homeowners insurance and property tax escrow accounts. Lenders will look at your most recent bank and investment statements verifying you have enough funds to close on a future transaction.
If you haven’t already, it’s time to get your Certificate of Eligibility from the VA. Your Certificate of Eligibility is evidence that you have VA home loan benefits available and the VA home loan guaranty will apply. To get your Certificate of Eligibility, you can log onto the VA website and request a copy of your eligibility certificate, or let your VA lender request it for you.
Before you get too far into the home loan process, you should review a current copy of your credit report. If it’s been a while since you’ve seen your report, you can get a free copy at www.annualcreditreport.com. This website is supported by the three main credit repositories, Experian, Equifax and TransUnion. Once received, review the report for errors or omissions. It’s not uncommon for a credit report to contain mistakes, so make sure the report reflects your true credit activity. This free report won’t replace the credit report that your VA lender will review, but you should review your credit report regularly to keep on top of any potential errors.
Most VA lenders require a minimum credit score of 600, yet there are lenders who accept a lower score using a method called “manual underwriting.”
If you do have a mistake on your credit report, your VA lender can help get the mistake corrected. VA lenders have business relationships established with credit reporting agencies and when one of their customers has a mistake, the lender can often have the mistake removed much more quickly than a consumer. As long as you can document the error and provide the documentation to the VA lender, the mistake may be corrected in a matter of days.
Once your loan application and documentation has been verified and reviewed by your VA lender, you will receive your VA home loan pre approval letter. This letter will show anyone you present it to that you have applied for a VA loan, the amount of home you can afford, and your credit, income, and assets have been verified and all you need to do next is find a property.
When you find a home you’d like to buy, your real estate agent will present the offer on your behalf. Along with your offer is your VA home loan pre approval letter. This letter lets the seller of the property know that you’re not only a serious buyer but your loan is essentially approved; all you need to do is find a place to buy.
Consider for a moment a seller that has three different offers, and your offer is the lowest. However, the other two parties don’t have a letter from a lender and they indicate they haven’t even applied for a home loan.
Do you think your offer will be favored, knowing the VA loan approval process is simply a formality? Of course it will.
The VA home loan pre approval process is part gathering paperwork and part mental preparation. The mortgage approval process can be intimidating for some but when it’s already been completed, it makes shopping for a home so much more fun!
Be ready. Be pre-approved.