The Veteran’s Guide to Buying a Home With a VA Loan

Veterans have unique options when buying a home. Taking advantage of them could save money and help you qualify for a home loan. Use this guide from Loan Compass to understand your loan options as a veteran and learn how to buy your dream home.

Step 1: Prepare to Buy a Home

Learn Mortgage Essentials

The mortgage process is confusing. Start by familiarizing yourself with critical loan information like:

  • The difference between fixed rate and adjustable rate mortgages.
  • The difference between traditional banks, credit unions, mortgage lenders, and mortgage brokers.
  • How lenders calculate creditworthiness using credit score and debt-to-income ratio.
  • Current mortgage loan interest rates.

Check and Optimize Credit

Check your credit score through your bank or credit card company’s online portal or by using free services. Your credit score shows your overall credit rating. In general, your credit needs to be fair or better to qualify for a home loan. Higher credit scores lead to better interest rates and loan terms for buyers.

Your credit score is different from your credit report. A credit report details your credit history including adverse items like past-due debts, accounts in collections, or errors and fraudulent activity. Use your credit report to improve your score by correcting errors, paying outstanding debts, paying bills on time, and avoiding new credit applications. 

Set a Housing Budget

How much home can I afford? That’s the biggest question on most buyers’ minds. Before talking to a lender, make a budget to understand how a home fits into your finances. Factor the monthly mortgage payment as well as taxes, insurance, utilities, and maintenance. It’s best to keep monthly housing costs around 30% of your income to avoid overextending your budget.  You can calculate the maximum price of the house you can afford using our affordability calculator.

Step 2: Find Your Mortgage Loan

Understand the VA Loan Program

Veterans are eligible for VA-backed purchase loans to buy a home. VA home loans offer competitive interest rates, no down payment, and no private mortgage insurance (PMI) or mortgage insurance premiums (MIP), making this one of the best loan programs out there. It’s also easier to qualify for a VA loan so veterans with low income or credit scores can own a home. Check today’s VA home loan rates at PennyMac loans and compare them to rates for conventional and FHA loans to see how VA loans stack up.

Qualify for a VA Loan

Interested? Here’s how to qualify for a VA home loan:

  1. Find a VA-approved lender. Only lenders approved by the U.S. Department of Veterans Affairs can originate VA loans. Guaranteed Rate can originate VA loans and provides NO LENDER FEES and PREFERRED RATES through our exclusive partnership.
  2. Obtain a Certificate of Eligibility. Eligible veterans can request a COE from their lender or through the eBenefits portal. Obtaining a COE requires supporting documentation about your military service to verify eligibility.
  3. Get pre-approved. Pre-approval involves sharing financial details with a lender to estimate how much you can borrow. While not required, pre-approval strengthens purchase offers and avoids surprises during the mortgage underwriting process.
  4. Include a VA option clause in your purchase offer. Also known as the VA escape clause, this is a clause that allows buyers to void the contract without penalty if a property appraises below the purchase price.
  5. Order VA appraisal. After signing a purchase contract, your lender will order an appraisal from a certified VA appraiser. A VA appraisal checks that a property meets VA minimum property requirements (MPRs) and that the purchase price corresponds to the home’s appraisal value.

Consider State Programs for Veterans

In addition to the VA loan program, many states have home buying programs for veterans. State-specific programs include home loans for veterans, tax credits, and down payment and closing cost assistance. 

Step 3: Buy Your Dream Home

Hire a Real Estate Agent

The best real estate agent for veterans is a buyer’s agent with VA home loan experience, connections to VA lenders, and familiarity with veterans’ home buying needs. Request referrals from fellow veteran homeowners and ask about experience with VA loans when interviewing real estate agents.

Search Homes for Sale

Choosing your dream home is the fun part — and also one of the most stressful aspects of buying a home. Prioritize unchangeable features like location, lot size, square footage, and layout when choosing a home. Decide if you want a move-in ready home or if you’re open to fixer-uppers. Disabled veterans may be eligible for financial assistance for home modifications that meet disability-related needs. Learn more about housing adaptation grants for veterans.

Make an Offer

Your real estate agent will draft a competitive offer after finding the right home. A purchase offer includes the purchase price, contingencies (including the VA escape clause), and a timeline for closing. You may choose to make an offer lower than your maximum price to leave room for negotiations.

After submitting an offer, the seller may accept, decline, or counter the offer. Counter-offers and negotiations are common and may include changes to the purchase price, contingencies, repairs, furnishings and fixtures, or other contract details.

Close Your Loan

Closing on a mortgage loan is the most complex part of buying a home. Before closing, you’ll need to buy homeowners insurance, submit additional financial documentation, lock in your mortgage rate, and get an official loan estimate from your lender. This is also the period when you’ll order an appraisal and schedule a home inspection. Once everything is in order, you’re clear to close and officially purchase your home!

Buying a home is a complicated process, but don’t let that turn you away from becoming a homeowner. Veterans have great options for getting into a home even if you don’t have great credit or a down payment. For more help demystifying the home loan process, visit Loan Compass for simple directions for buying a home.

Guest post by Natalie Jones