A common misconception with the VA loan program is the amount of ‘red tape” involved. However, this isn't the case. Many lenders can acquire your Certificate of Eligibility online, and in many cases eligible borrowers can also be processed without a manual underwrite or VA review.
Additionally, if the lender is approved under VA’s Lender Appraisal Processing Program (LAPP), the lender may review the appraisal completed by a VA-assigned appraiser and close the loan on the basis of that review. The LAPP can get borrowers to loan closing faster.
The bottom line is average closing times for VA loans rarely differ greatly from those for conventional loans.
Let’s take a closer look at the basic steps involved when using a VA loan to purchase a home.
Prequalifying for a VA Loan
To start the VA loan process, contact a VA-approved lender either online or via phone. A VA loan specialist will ask basic questions about the borrower’s financial history and homebuying goals to determine if a loan suits the borrower right now. Prequalification helps borrowers and lenders establish an immediate sense of eligibility and start building a foundation for the next stage, which is loan preapproval.
VA Loan Preapproval
The main difference between prequalification and preapproval is typically the verification of information. Preapproval shows lenders that a borrower is a capable homebuyer. The process requires effort from the borrower as paperwork collection and submission becomes important. Helpful VA lenders fill out chunks of the paperwork for you, as well as prepare and organize anything you need to complete. You may be able to do some or all of this process online.
When the lender receives the borrower’s documents, the borrower receives a preapproval letter that outlines anything the borrower must do to officially finish the VA loan paperwork. These conditions in the preapproval letter must be met in order for you to get to closing day and into your home.
Real Estate Agents and Home Hunting
Once a borrower has a preapproval letter, it’s time to find a real estate agent and look at homes. Some military buyers may want to seek out veteran-friendly real estate agents that better relate to military families’ particulars and understand the VA loan program thoroughly.
Make an Offer
It’s a thrill for military borrowers to pick their home, but there’s still some work to do: make an offer and agree on a contract with the seller. It’s imperative that borrowers work with real estate agents and loan officers who are knowledgeable about VA loans so the contract is properly drawn up to help veterans get the biggest bank for their buck.
VA Loan Closing and Processing
Before the loan closes, the VA lender orders an independent appraisal of the property. Along with assessing the property’s value, the VA appraisal helps assess whether the property meets the VA’s property condition standards. If there are problems (e.g. water damage, termites, leaky roof), they may need to be addressed before the loan process can move forward. Every situation is different.
An underwriter then closely combs through the entire VA loan package. The underwriter’s job is to confirm all information and make sure all documentation is in place. If anything is missing or is not on par with VA or lender guidelines, the underwriter requests what’s needed to make it right. When the underwriter approves a VA loan, there’s only a few things for the borrower to do: Prepare for your closing day, when you’ll sign a lot of final paperwork and get the keys to a new home.
Borrowers exploring their options with the VA loan program will learn that the Department of Veterans Affairs will not guaranty loans that restrict the borrower’s ability to sell or dispose of the property. Any condo, duplex, or other community-property arrangement must not have bylaws or association agreements that would prevent the VA borrower from freely selling that property.
Some condo projects have a clause in their association paperwork or other agreements, known as the “right of first refusal.” This clause can be trouble for those who want to get a condo project on the VA approved list. However, there are some cases where something may be viewed as a title restriction that may not necessarily interfere with the VA loan process.
According to Chapter Nine of VA Pamphlet 26-7, “VA may guarantee a loan on which a title restriction limits the sale, lease, or occupancy of the dwelling to persons based on age, including a prohibition against the permanent occupancy of the dwelling by children, provided such restriction complies with applicable Federal law.” The last portion of that sentence is key.
Also, “VA may refuse to approve a property with an age restriction if its operation would work an undue hardship upon the owner in the case of sudden, unforeseen events or be likely to result in an increased risk of loan default.”
Chapter Nine also mentions that title restrictions may not even require VA approval depending on what those restrictions might be. “Title to property involving reasonable encroachments, easements, servitude, and reservations for water, timber, or subsurface rights, generally do not require VA approval. However, they must be taken into consideration in determining reasonable value.”
Such restrictions may require additional review by the Department of Veterans Affairs. “If any of these restrictions impact the basic livability of the property, VA approval is required.”
And also, “Title conditions or limitations must be shown on the NOV and considered by the appraiser in determining the reasonable value of the property. If the lender discovers, prior to loan closing, title conditions or limitations not shown on the NOV, the lender must have VA review the conditions and determine whether the value assigned to the property is materially affected.”
If you are not sure about the effects of a specific title restriction or whether it is allowed or not, contact the VA directly for assistance.