For the first-time VA home buyer to the veteran using the VA home loan benefit to buy yet another property, there's plenty of advice on how to get approved, what documents to gather and how to overcome certain speed bumps along the way. Yet you can get very good advice from the other direction, from circumstances under which your VA offer or VA loan might get turned down. That's not your goal, but these situations provide some useful tips on what you need to avoid in order to secure an easy approval.
AVOID: Using an Inexperienced VA Lender
Most every mortgage loan officer in the country has the ability to take a VA loan application from a prospective borrower. However, that doesn't necessarily mean the loan officer works for a lender that approves VA loans. There are very few restrictions for accepting a VA home loan application but plenty of them for lenders who aspire to become VA-approved mortgage companies.
While VA loans are similar to other mortgages in terms of monthly payments and term options, there are a few guidelines unique to VA loans. If a loan officer isn't familiar with the various "quirks" in VA lending, it can turn out to be quite the disaster.
For example, the VA mortgage program has specific residual income requirements that other loans do not have. Residual income is the amount of money left over each month after all the bills are paid. VA loans require the borrower cash flow by a specific number each month in order to receive an approval.
This residual income varies based upon the location of the property, the loan amount and the number of individuals in the household. Not knowing about this one requirement can mean a loan application being turned down well into the application process. And there are other VA-specific guidelines as well.
AVOID: Using an Inexperienced VA Agent
When making an offer with a VA loan, unless your real estate agent is experienced with the VA process, your loan approval may never make it past the sales contract. Historically, VA loans restrict certain closing costs the veteran is allowed to pay. In the past, it was typically the seller of the property that paid the VA costs in many instances.
As well, it was widely known that the VA could take weeks or even months to issue an approval. Sellers were reluctant to accept a VA offer knowing the property could be tied up for an extended period of time. That's certainly not the case today but the notion is still around.
If your agent is unaware of how to properly prepare a VA offer with closing costs and timeliness in mind, your offer could be declined at the outset.
AVOID: Buying a Distressed Property
This one takes a bit more scrutiny but does require some discussion. First, VA loans may be used to purchase a foreclosed property or make a short sale offer, as with any other loan. However, with regards to the property's condition, you have to be aware that the VA appraisal has minimum property standards the home must meet. As well, the seller of the property may offer the home "as is" and will not make any requested repairs. Say that you make an offer that is accepted then your property inspector finds that the stair railing is missing and steps need replacing. Under an "as is" agreement, it is you, not the seller, that will be required to fix the problems before the loan can be approved, hardly a likely event.
Foreclosed properties may also limit your access to the home for an inspection. Property owners who are foreclosed upon were obviously under some very serious financial circumstances and home maintenance might have been an issue with appliances and physical defects in need of repair. Foreclosed homes may be listed well under market, just go with your eyes wide open and consider paying for two inspections and not just one.
Don't Provide a Preapproval Letter with the Offer
Finally, one of the best ways to thwart a purchase is to fail to provide a preapproval letter to the seller along with your offer. Your preapproval letter tells the sellers that you mean business and you have already applied for a VA mortgage.
Your preapproval letter will list the items the lender has reviewed when issuing the letter including your credit, your income and your cash to close on the transaction. Besides, shopping with a preapproval is so much more fun knowing that all you need to do is find a property to buy.