As a service member or veteran, you’re no stranger to a challenge. So buying your first home should be a breeze, right?
Unfortunately, buying a home can present an unfamiliar set of difficulties for anyone. From learning new acronyms like APR and GFE*, to figuring out how to qualify for a mortgage, the whole experience is one big learning curve.
While VA-backed mortgages have their own set of complex terms and qualification requirements, using one of these loans can make it much easier to buy a home. Here’s how you can ensure a smoother homebuying process while using a VA loan:
Start with a preapproval letter
Want to get an idea of what mortgages you qualify for? Start by finding a few VA-backed lenders who offer loan preapproval. Loan preapproval gives you a sneak peak of what your loan payments will likely be, along with your interest rate and other important details.
Going through this step helps you in a few key ways:
- Determine if you qualify now or if you need to improve your finances first
- Get an idea of what your mortgage expenses will be
- Compare offers from different lenders
- Give lenders, realtors, and sellers confidence that you’re a qualified buyer.
Shop around
VA loan rates vary slightly across lenders. So if you want to find the best, most affordable loan, you’ll need to compare at least three quotes before signing — a step that can save you as much as $1,200 a year or $36,000 over 30 years. On top of that, you can use offers from one lender to negotiate lower rates and fees from another.
Just keep in mind that timing matters. If the lender conducts a hard inquiry, meaning they pull your credit reports to determine if you’re approved, your credit scores can lose a few points. To reduce the potential damage to your credit, make sure all of your applications happen within a 14-day period, also known as a rate-shopping period.
Include the extras in your budget
Most first-time homebuyers fail to budget for all of the expenses involved with buying a home. It’s natural to think that the loan payment will be your only expense, but that’s just the beginning of a long list of costs, including:
- Closing costs
- VA funding fee
- Moving expenses
- New furniture, appliances or other items for the home
- Monthly payments toward the loan principal and interest
- Homeowners insurance
- Property taxes
- Maintenance and repair costs
If you fail to account for these costs up-front, you could accidentally take on a loan that’s too pricey for your budget.
Fortunately the VA considers your residual income, which is the amount of money you’ll have left for necessities after you pay your mortgage and monthly debt payments, before approving you. But it’s still up to you to ensure that all of the costs are truly affordable.
Find a real estate agent with VA experience.
The VA’s home appraisal process can be tricky to navigate, especially if you’re looking to buy a fixer-upper or build your home. Before hiring a real estate agent, use the following tips to help you narrow your search:
- Ask the lender for referrals.
- Find out if your friends, your network or a trusted financial counselor have recommendations.
- Ask if the agent has a history with VA loans and with the type of home you want to buy/build.
- Check with the licensing or certifying agency to make sure the agent’s credentials are current.
- Compare the fees and commissions of several real estate agents.
- Look the agent up online and read their customer reviews.
Consider a power of attorney
Military members and their families have unique financial challenges. For example, managing your home and your mortgage can get complicated when you or your military spouse is deployed. To avoid problems, set up a power of attorney in advance, which allows a designated person to sign documents, pay your bills or make certain decisions about your day-to-day transactions while you’re overseas.
Remember that VA loans are a “forever” benefit
A VA-backed loan is not just a one-time benefit. You can use it to buy other homes in the future, or in some cases, finance more than one property at a time. Even defaulting on a VA loan does not automatically prevent you from obtaining another one in the future. You may have to pay back the amount of debt that was dismissed, but you’ve still earned the VA loan benefit through your service, and you can keep it and reuse it forever.
Want to learn more? Start a conversation with a certified housing counselor in the NFCC network to get help improving your credit, tackling debt and getting your finances ready for a VA loan.
* APR is “annual percentage rate,” or a broad measure of the cost of borrowing money, including all interest and fees paid to the lender.
GFE is “good faith estimate,” or an estimate of the closing costs, settlement charges and loan fees due at the closing of a home loan. Lenders are required by law to provide a GFE within three days of loan application.