If you are a veteran that served enough time in the military and has an honorable discharge, you may have access to the VA loan benefit. This loan program provides 100% financing on most homes worth up to $484,350.
But can you just go to any lender to get this type of loan?
Unfortunately, the answer is ‘no.’ You can’t just go to any lender. You have to find a VA-approved lender. While this sounds hard, don’t worry, there are plenty of them.
What to Look for in a VA-Approved Lender
Now, you should know that you don’t need to use the first VA-approved lender that you find. Just like is the case with any other loan program, you are able to shop around and find a lender that suits your needs. VA lenders, just like any other lender, have different interest rates, fees, and even underwriting requirements.
When you shop around for a VA lender, consider asking them the following questions:
- How many VA loans have you underwritten?
- How often do you write VA loans?
- What is your turnaround time on VA loans?
- What are your closing costs?
- What would my interest rate be?
The answers to these questions can help you compare one VA lender to another one. This way you can choose the lender that suits your needs the most.
Do You Have Extenuating Circumstances?
The VA sets the underwriting guidelines for VA loans, but lenders are free to add to those guidelines if they feel it’s necessary. The VA has relaxed underwriting guidelines, including:
- 620 credit score
- 41% – 43% maximum debt ratio
- Proof that you’ll live in the home as your primary residence
- No defaulted federal debts
- Stable income and employment
- Proof that you are eligible for the VA loan program
The VA allows lenders to give you 100% financing on a VA loan. The above guidelines are rather risky for those that need 100% financing. Some lenders will counteract this by adding their own restrictions onto what the VA requires. For example, they may require a higher credit score or a lower debt ratio. The sky is the limit regarding what lenders can require.
If you come across a lender that won’t accept your situation, such as having a high debt ratio or low credit score, you can shop around with different lenders. You may find other lenders that have less stringent guidelines and even those that stick with the VA’s basic underwriting guidelines.
Know Your Interest Rate and Closing Fees
The two largest concerns when taking out a VA loan are the interest rate and closing fees charged. You want to know what both of these factors are before you agree to take the loan. Lenders are required to send you a Loan Estimate within three business days of applying for the VA loan. Use this Loan Estimate to determine what the loan will cost you.
Don’t make the mistake of focusing on the interest rate alone. Instead, look at the big picture. Are you getting a slightly lower interest rate, but is the lender charging you several points? You need to determine which way works out better financially for you. If you are going to stay in the home for the long-term, you may enjoy the lower interest rate because you’ll pay less interest over the life of the loan. If you know you will move soon, though, paying those points just to get a lower interest rate temporarily may not be the right choice.
Just as you would with any other loan program, shop around for the right VA lender. You may find some local and others you may find online. Do your due diligence and figure out what each lender has to offer. This way you can choose the lender that gives you the best loan at the best price.