If you’re beginning to finally warm up to the idea of buying your first home, you might very well be surprised at how many people are involved and the steps it takes to get from shopping for a home to your final closing. And your observation will be correct. There are several parties involved especially as it relates to financing your new purchase and each will charge a particular fee for the service rendered. But just like anything that is new it does take some adjustment but knowing in advance what you can expect will not only help educate you about the process but make the overall buying experience a positive one. If you’re VA eligible, there are few things you need to know about that are slightly different compared to a conventional mortgage. Here are the steps involved when applying for a VA loan and heading to the final settlement table.
Speak with a Loan Officer
Don’t get too much further into the home buying process without first speaking with a loan officer with VA home loan experience. You can get a lot of information simply over the phone where you can get an idea about how much you can qualify for, what your monthly payments will be and the overall VA home loan approval process. Knowing this information, you can next work with your real estate agent to begin your search.
Your loan officer will encourage you to complete a loan application even though you haven’t even started shopping for a home. In addition, your loan officer will ask you to provide certain documents needed to take your loan application to the next level.
Documenting Your Loan File
Your initial conversation with a loan officer gave you a pretty good idea about payments and closing costs but before you get too far your loan officer will ask that you provide information about your income, employment and credit history. Lenders are required to verify your loan application through third party sources as well as to make sure you can afford your new mortgage.
You’ll need to find copies of your most recent pay check stubs covering a 30 day period. Lenders will review this income as well as compare the monthly income with your year-to-date totals. You can also expect to submit copies of your W2 forms from the previous two years. Lenders will need to verify an employment history of at least two years and your W2 forms will confirm this.
If you’re self-employed and don’t issue pay check stubs to yourself your lender will ask for copies of your two most recent federally filed income tax returns. Not only do you need to be self-employed for at least two years but the lender wants to see consistent year-to-year income. Income will be added up for the two years and then divided by 24 (months) to arrive at a qualifying income.
Preapprovals and Shopping for a Home
Once your loan file has been documented and application submitted, your loan officer can provide you with your preapproval letter. You’ll want this letter not only when you’re shopping for a home loan but most real estate agents won’t work with you with much due diligence unless they know you’re already spoken with a mortgage company. Further, not only have you spoken with a mortgage company but you’ve documented your loan file to the point where all you need is a property address.
Sellers want the same level of commitment as well and your preapproval letter demonstrates that commitment. The letter will essentially state that you have applied for a home loan, the application has been reviewed and documented and credit reports evaluated. What will not appear on your preapproval letter is how much you can qualify for. That information is strictly between you, your agent and your lender.
Consider this scenario—a seller just receives two offers during the course of an open house. Both offers are for the exact same amount which is what the property was originally listed for. Almost. The list price is $250,000 and Offer #1 is for $250,000 and Offer #2 is for $247,000. The sellers review both offers and decide to accept Offer #2, even though Offer #1 is for the full list price. Why would the sellers do that? Because Offer #1 doesn’t indicate the buyers have spoken with a lender much less submitting and documenting a loan file. Offer #2 only needs a completed sales contract. The seller is assured the buyers are qualified for financing.
The Lender Takes Over
Once your file is documented and you have a signed sales contract, you’ll provide a copy of the sales contract to your lender. The lender then orders a property appraisal from an appraisal management company who will manage the appraisal order and deliver the appraisal to the lender. Depending upon the local real estate market, this appraisal will take about a week to complete before being delivered to the mortgage company.
Once the loan file is complete, it gets transferred to their underwriter. The underwriter is the individual whose responsibility it is to make sure the loan meets all necessary VA guidelines.
You may also hear from the mortgage company while the file is being reviewed in the underwriting department. There may be some additional clarification needed or credit documents need to be updated. Credit and financial documents need to be 30 days old or less. Once the file has been fully approved and all conditions have been met, loan papers are ordered and you’re off to your closing.
At the Table
When your closing papers are delivered the settlement agent prepares your papers for closing and provides you with an estimated settlement statement for you to review. This document is referred to as the HUD-1 and will list the various third party fees needed to close your loan and how much you will need to bring to the closing table. Carefully review these numbers to make sure you’re comfortable with them. You will approve the document and attend your closing. At the closing, you will sign your loan papers which will then be delivered back to the mortgage company for review. Once the lender is satisfied the settlement agent followed all lender instructions properly, the lender releases the funds needed for your mortgage.