If you are planning to buy a house through a VA loan, you will need to pass through various terms like prequalification and preapproval. Both terms play major roles in the home buying process and also help you better understand your budget and guide you through the process. Knowing your purchasing power shows sellers you are actually serious buyers with a solid bet of following through on your offer.
A lot of people confuse a prequalification with a preapproval. But preapproval and prequalification are two different ways by which lenders verify a borrower’s readiness for a home loan.
The main difference between both terms- a preapproval is a leader telling you how much they will lend you depending on tangible, proven information like your financial and credit history. A prequalification says how much a bank will lend you according to unproven information. You will be answering some questions about your income, employment, cash reserves, and credit score.
Then, leaders issue an estimate on how much financial you will get as per that information.
Preapproval and prequalification both of these should be the first steps you take, but when you get pre-approval, it can help you better understand your budget and guide you to the appropriately priced properties.
Along with checking your credit, leaders can ask you about your employment, your income, and your overall financial and home buying goals. Different lenders may ask different questions to begin the prequalification conversation. Here are some of the most common questions, lenders ask;
· Your desired loan amounts
· Your gross monthly income
· Your present and previous employment
· Your assets such as bank accounts and retirement funds
· Your monthly liabilities
· Any previous bankruptcies or foreclosure
Getting preapproved for a VA loan is a foundational step and loan preapproval is important on different major fonts. First of all, preapproval gives buyers a clear sense of their actual purchasing power. It shows home sellers and their real estate agents that you are very serious buyers, and you can make a strong offer.
In the current real estate market, home sellers expect to see offers from preapproved buyers. Some sellers might not even consider your purchase offer if you do not show a copy of your preapproval letter.
The best part is, VA loans do not need any down payment or private mortgage insurance. It comes up with very competitive interest rates and the borrowers can easily qualify for this kind of loan. Also, since these loans are backed by the government, the private lenders, mainly assume lesser risks and fewer qualification standards to comply.
Here is the complete process on how to get preapproved for a VA Home Loan;
Collect all your important financial documents, especially ones pertaining to your income, monthly expenses, and debts before applying for preapproval. In some other documents, you should have included your recent pay stubs and tax returns, and statements regarding any credit cards, loans, and investments.
Choosing and going with a VA mortgage lender will be the next step of the VA home loan process. Keep in mind that only approved mortgage companies can provide VA loans, and your best option can be those who have been in these mortgages for years. It will ensure you have the smoothest and most efficient loan process.
The next step is to fill out an application known as your VA lender’s preapproval form. It is also called prequalification.
In this form, you generally need to fill in details related to your income, debts, credit, and other finance-related information. In case, you are applying for this with your spouse, you will provide all the details of your spouse as well. Lenders use this information to evaluate your financial capabilities and potential risk as borrowers.
Before your VA loan is approved, you will need a Certificate of Eligibility from the Department of Veterans Affairs. There are two ways you can get your COE. First, log into your benefits portal and request your Certificate of Excellence yourself, a good VA lender can do this on your behalf. VA lenders can easily streamline the process and alleviate some of the hassles as well.
In the fifth step of the process to get pre-approved for a VA home loan, you will talk to a loan officer. It happens when you delve further into your finances and overall home buying goals. The VA loan office may have some follow-up questions regarding the form you submitted or other details related to your financial standing.
Talk with your loan officer if you have any questions about documentation needs. The faster you get this paperwork back to the lender, the faster they can go ahead to verify the information and give a green signal to your loan preapproval.
Generally, the loan officer will go through your paperwork, double-check your income, and major details.
After the lender and loan office reviews all your information and documents, you will get an official preapproval letter. The loan preapproval process builds towards an important final step for generating a preapproval letter. If everything seems to be fine the lender will issue a preapproval letter. While this letter is not a guarantee of financing, it comes with various conditions that need to be met.
But still, it is a strong tool that gives VA borrowers a clear sense of their buying power. It shows that you have been conditionally approved for your loans. The document also presents an estimated loan amount, you are eligible to borrow. The figure will help you to guide your home search.
Once you get your VA loan preapproval letter, make sure to include it in any purchase offer you submit. It will provide sellers more confidence in your offer and your ability to buy their home quickly without a lot of hassle. It presents you with a strong and serious buyer among real estate agents and home sellers.
In fact, some sellers and listing agents accept offers from only pre approved buyers.
Now, you have a preapproval letter, you are all set to begin your exciting stage of the VA purchasing process- the house hunt. Here, finding a real estate agent who understands VA loans properly is very important. You can have some more specialized home loan options and some properties can be a better fit for VA loans. Moreover, VA loans provide big-time advantages when it comes to things such as closing costs, veteran-friendly agents can help you get the most from them.
Just like other government-backed mortgage options, VA loans are basically for buying primary residences you intend to live in full time. Veterans can think of buying a multiunit property if they intend to live in one of the units.
Homes should be in the right shape. The VA appraisal process also covers a look at the home in the light of some broad property condition needs, it is known as the Minimum Property Requirements. It is a high-level look at a home and an in-depth view of a home inspection.
In case, the appraiser finds MPR issues, they need to be resolved before the loan can close. The VA buyers are free to ask sellers to pay for repairs and even cover the cost themselves if required.
The loan officer and real estate agents can help you in creating a strong offer.
The agent will go through the latest comparable home sales in the area that can effectively guide you to shape your beginning point for a purchase price. Generally, pricing and negotiation strategies vary as per the real estate market, the condition of the particular house, and more.
Always talk with your loan office and agent about the closing costs before you make an offer. The VA loan closing costs vary depending on different factors. Buyers can ask sellers to pay all their loan-related closing costs or just 4% in concessions that can cover escrow expenses and much more.
The VA Loan process begins when you are under control to purchase a home. The loan team will send you the contract and documents for loan processing as well as underwriters so they can take a closer look at your overall purchasing picture.
The lender prepares to order the VA appraisal through the Veterans Affairs Department. It is a cost that buyers cover upfront, it is also possible to ask for reimbursement from the seller at closing.
Now, VA assigns a third-party appraiser to evaluate the property’s actual value. Here, you do not have any control. The appraiser will check the recent comparable home sale to find the home’s fair market value.
In case, the appraiser finds repairs are the requirement to meet the VA’s Minimum Property Needs, buyers can ask the seller to pay for those expenses.
You will soon get a Closing Disclosure before your scheduled loan closing. It allows you to do the comparison at the closing costs and loan information to estimate you get earlier in the process.
Your loan office may review this document with you. Make sure to ask if you have any doubts regarding costs or fees or anything else.
Make sure to take a final walk-through of the property you are purchasing. It will let you ensure any repair works are done, the things you do not want have been removed, and more. Immediately contact your agent or lender if you find any problems.
At the closing, you will sign the final paperwork and get the key to your new house.