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How the VA Loan Program Works

How the VA Loan Program Works

How Does the VA Loan Program Work?For veterans, Veterans Affairs mortgages—more commonly known as VA loans—offer an easy path to home ownership. Since these loans require no down payment, they are very attractive mortgage options to service members who want to buy their first home. Learn how the VA program works before you apply, so you know what to expect.

Who is Eligible for a VA Loan?

Both current and former military members are eligible for Veterans Affairs mortgages. Current members need at least 90 days of active service, unless they were discharged for a disability with less than 90 days of service.

You don't need to make a down payment (although you can if you'd like to reduce your mortgage). You must have sufficient credit.

While you can buy many types of homes from manufactured homes or condominiums to lots—the home must be for your "personal occupancy." If you already have a home, you can use this program to refinance your existing mortgage or to make home improvements. While the VA does not give out the funds in a VA loan (private mortgage lenders do), they back the loans so you do not need to take out mortgage insurance. This saves you money over conventional mortgages with low down payments, which require supplementary mortgage insurance.

How to Apply for a VA Loan

Before you can apply for a VA loan, you must have identified a mortgage lender who accepts VA loans. It can make the mortgage approval process easier to become pre-approved. In a pre-approval, a mortgage lender reviews your financial portfolio and pre-approves you for mortgage funding up to a certain amount. This also helps you determine what price point you can reasonably afford. This can make any purchase offer seem more legitimate to sellers, as there's less of a risk of your funding falling through.

To get pre-qualified, you'll need to show the mortgage lender that you're eligible for the VA loan program by presenting them with a Certificate of Eligibility. Veterans must show DD Form 214 to receive their Certificate of Eligibility, while active duty service members, reserve members, and National Guard members can show a statement signed by a commanding officer that verifies their status.

Once you're pre-approved for a mortgage, begin searching for a home with the aid of a real estate agent. Make a home offer that contains what's known as a VA Options Clause as well as an Escape Clause. These clauses allow you to get out of the deal if the home you're interested in does not appraise for the value of the mortgage, or if you are unable to obtain the VA loan.

After your offer has been accepted, you can officially apply for the VA loan to get into your dream River North home. Once you submit the application through the lender, they will process the paperwork and grant your mortgage financing in the appropriate amount. Before you officially obtain the mortgage, the lender will have the property appraised to ensure that it's worth the value of your mortgage at minimum. If the home fails to appraise for the amount of the mortgage, the deal could fall through.

As long the appraisal goes well and you obtain your VA loan, it will hopefully be smooth sailing to the real estate closing. After the closing, you are officially a home owner subject to mortgage payment under the terms of your Veterans Affairs mortgage.

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