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VA Loan Tips To Help You Buy Your Dream Home
Dated: August 12 2019
VA Loan Tips to Help You Buy Your Dream Home
Using your VA loan benefits to purchase a home is exciting, but if you are a new first time home buyer pointers along the way.
Tip 1: It's OK Not to have your Certificate of Eligibility in Hand
You don't need to have your VA Certificate of Eligibility to start the VA loan process. It's common for lenders to get this document for you a little later down the road. By all means, you can certainly obtain yours if you're concerned about your entitlement amount or just feel better having proof of your benefit. Using the VA's eBenefits portal is typically the quickest way when possible to obtain your certificate of Eligibility.
Tip 2: Closely Review Your Credit Report
Your credit profile will play a crucial role in your ability to land a home loan and the type of rates and terms available. Before you pursue loan prequalification, get a free copy of your credit report from Annual Credit Report.com (this truly is free and requires no credit card information or monthly credit monitoring). Examine it with an eagle eye for errors, which can be anything from accounts that aren't yours to reporting errors regarding late payments. About a quarter of all credit reports contain errors serious enough to derail a home loan, according to the U.S. Public Interest Research Group.
Tip 3: What's Your True Credit Score
Your free credit report will not contain your credit score. This is something you have to pay to see, and as far as mortgages go it's often best to not waste your money. That's because lenders see different scores than consumers, and they use a formula weighted especially for mortgage lending. What your loan specialist pulls can and often does look different from the "consumer" score you shelled out money to see. The only way to really know where you stand is to have a lender pull your credit.
Tip 4: Not a One-Time Benefit
Once you earn the VA home loan benefit, it's yours for life. This isn't a one-time lending option or a program exclusively for first-time homebuyers. You can use these benefits over and over again.
Tip 5: Pre-approval is Key in the Home-buying Process
There isn't a ton of sense in looking for homes before you've got a clear idea of what you can afford and how much a lender is likely to extend. VA loan prequalification and preapproval will help with exactly that. Preapproval in particular is important in that it shows sellers you're a serious candidate who's likely to make it to closing day. A prospective VA homebuyer with a preapproval letter is a welcome sight among home sellers and real estate agents.
Tip 6: Stick With Your Budget
Your preapproval amount isn't a suggestion. It represents the ceiling of what you can afford based on your current financial situation. It's easy to get caught up in the excitement of the home search. But remember: Just because you're preapproved for up to $250,000 doesn't mean it's in your best interest to purchase a $250,000 home. Homeownership comes with an array of new expenses, from homeowners insurance and property taxes to maintenance costs and more. VA loans have some safeguards in place to help veterans avoid becoming "house poor," but it's something you should consider from the outset.
Tip 7: Find a VA-Savvy Agent
VA loans are an incredible benefit for those who've proudly served our country. They're also a specialized product that some real estate agents and lenders are more familiar with than others. You don't want an experienced agent in your corner when the time comes to utilize these hard-earned benefits.
Tip 8: Shop Around
It's always a good idea to compare costs, VA loan rates and terms from multiple lenders. Those don't always have to be the deciding factors, although they'll certainly play a significant role. It's true that a "hard inquiry" on your credit can cause your score to dip a few points, but it doesn't happen every time.
Tip 9: You Will Need Money Up Front
Most VA homebuyers purchase without making a down payment. It's also not uncommon for the seller to pay all of your closing costs. But you'll still need money up front to cover things like an earnest money deposit, the appraisal and a home inspection.
Tip 10: Don't Change Jobs or Make Big Purchases During the Process
Once you're under contract on a home change is not your friend. Lenders need to see stable, reliable income streams that are likely to continue. A job or career change during the loan process can derail your purchase. Likewise, lenders want to make sure your credit profile and assets remain steady while you're waiting for the underwriting process to wind down and the issuance of a clear-to-close. Putting a bunch of furniture on a credit card or buying things like a car or a boat before your loan closes will set off serious red flags and may kill your loan immediately.
Tip 11: Foreclosures Need to Be in Good Shape
You can absolutely use your VA home loan benefits to purchase a foreclosure or short sale. But properties that are in disrepair or that have sat vacant for a while may prose a problem. We mentioned earlier the VA's Minimum Property Requirements, which are broad health and safety issues that need to be met to satisfy the VA appraisal process. Some foreclosures are in better shape than others. Homes in need of repair or renovation will likely trip the MPRs, and at that point it's tough to get a bank or a seller to make repairs on a foreclosure, which must be completed before the loan can close. Again, these aren't fixes that you as the buyer can pay. You'll want to make sure any foreclosure you're considering is likely to make it through the VA appraisal process -- this is where a VA-savvy real estate agent can make a huge difference.
Tip 12: If You're Buying a Condo, Start Looking Now
Condos are another acceptable property type for your VA benefits. The only potential wrinkle is that the condo development needs to be on the VA's list of approved condominiums. Thousands already are, but it's possible the one you've fallen in love with isn't yet. It's possible to get condo developments added to the VA's list, but that process can take time because the department needs to review condo documents and other information. So if you're interested in purchasing a condo keep this in the back of your mind, especially if you've got a tight timetable for purchasing.
Tip 13: Save Several Months of Reserves For a Multi-Unit Property
Qualified VA borrowers can purchase up to a four-unit property provided they live in one of those four as their primary residence. But in some cases you may need several months of reserves in the bank when purchasing these types of properties. Reserves are basically extra cash on hand equivalent to the cost of your total monthly mortgage payment including taxes and insurance. So if the mortgage payment is $1,500 per month and a lender wants you to have at least three months of reserves, you would need $4,500 on hand as a safety net.
Tip 14: Have Two Years of Tax Returns if Employed by Family or Family-Owned Business
Self-employed veterans will almost always need to provide at least two years of tax returns to properly document their income to a VA lender. That's just the nature of self-employment, which isn't always stable and reliable. But you'll also likely need two years of tax returns if you work for a family-owned business or are otherwise employed by a family member. Lenders want to see a consistent, sustained pattern of income over time, especially given the potential conflict of interest.
Tip 15: Child Support Can Be Counted as Income
You may be able to count as effective income any child support you receive, but it'll likely need to meet some lender requirements. Generally, lenders are going to want to see a sustained pattern and a likelihood that the support will continue for at least a few years after the loan closes. You'll likely need to have been receiving it for at least three months if not more. On the flip side, if you pay child support that outlay will be counted in your debt-to-income ratio and residual income calculations.
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