How Does a VA Loan Work?
VA loans are a great benefit, but about a third of veterans don't know it's even available to them. And in the two-thirds that do know about the benefit, many avoid it because they've heard all the myths and they're misinformed about how they actually work.
So, how does a VA loan work?
If you've served in the military or National Guard, chances are you're eligible for a VA Loan.
Despite the name, you don't actually work with the Veterans Administration to get your mortgage when you use your VA loan benefits. The VA's role in the whole process is that they guarantee part of the loan, so banks are able to offer you better rates than if you applied for a conventional loan.
All you'll need to do to get started is find a lender who works with this type of loan. You can check with your regular bank or credit union or you can go with a company that specializes in VA loans, like Veterans United. Once you find your lender, the loan process is almost identical to getting a conventional loan. The main difference is that you will need to get a Certificate of Eligibility to prove that you meet all the requirements to get a VA loan.
Are there fees?
You'll likely save a lot of money by using a VA Loan, but in order to get one, you do have to pay a funding fee. This fee is used to offset any loans that go into default and is paid either upfront or wrapped up into your monthly mortgage payment. The amount depends on a couple of factors like your military category, disability status, and how many times you've used your VA loan benefits.
Getting a VA Loan: The Documents You Need
A VA Loan is a well-deserved benefit and a great way to afford a house. You might not need quite as high of a credit score to get a favorable rate like you would with a conventional loan. And you can probably get approved without strict income verification requirements. You may be able to put less money down and still avoid paying PMI (private mortgage insurance). Making homeownership affordable for veterans is important, which is why these mortgages are guaranteed by the government.
In addition to other requirements, to get your loan, you'll need two forms.
1. A DD-214 OR Statement of Service
There are two options for the first form. Which one you use depends on if you're on active duty, in the reserve, or have been released or discharged.
If you're no longer on active duty, you'll need your DD-214, otherwise known as your Certificate of Release or Discharge from Active Duty. If you can't find that form, you or your VA-approved lender can request a new one from the National Personnel Records Center.
If you're in the reserve or on active duty, you'll need a Statement of Service on official letterhead, signed by the adjutant, personnel officer or commander of your unit or higher headquarters. It should include all of your basic information:
Full name and date of birth
Social Security number
Rank, branch of service, and any previous discharge dates and types
Date you entered active duty
Name, title, and signature of the officer providing the statement
2. Certificate of Eligibility
Your COE proves to your lender that you're eligible for the VA loan benefit. You can apply for it yourself or your lender can apply on your behalf. Having your VA-approved lender apply is quicker: they can access it in a few minutes. You can also fill out a Form 26-1880, electronically or by hand, submit it, and wait for your COE to arrive.
Either way, once you've received your COE, you won't need to get another one, even if you end up borrowing from a different lender.
Once you have the right forms, you'll be well on your way to a home of your own. The VA Loan is a great benefit, and you've earned it.