How Does A VA Loan Work?

VA loans work a bit differently than conventional mortgages. The Department of Veterans Affairs (VA) does not make or originate loans but backs a portion of each loan against default. This backing, or guarantee, is what gives private lenders the confidence to extend $0 down financing and advantageous rates and terms.However, from a process perspective, VA loans work fairly similarly to most other mortgage options, but with a few caveats. A typical VA loan process works something mentioned below:

  1. Get Prequalified- Find a VA lender and prequalify to get an estimate of how much house you can afford based on your income, credit, entitlement, and other financial factors. Prequalification is a basic first step that paves the way for a much more powerful step – VA loan preapproval.
  2. Get Preapproved- Loan preapproval is a major step and puts you in the driver’s seat to spring into action when you find a home you love. Lenders will verify income and financial information to get a clear sense of your purchasing power. The end result is receiving a preapproval letter. These letters show real estate agents and home sellers you’re a strong and serious buyer who has what it takes to get to closing.
  3. Put in an Offer- When you and your agent find the perfect VA loan-approved home, it’s time to craft an offer and negotiation a contract with the seller. It’s important to find a VA loan-savvy agent you trust that also knows the ins and outs of VA loans.
  4. Go Through the VA Appraisal and Underwriting- Once under contract, your lender will order a VA appraisal of the property. The VA appraisal is not a home inspection, but a VA requirement to ensure the property meets fair market value and the VA’s minimum property requirements. Around the same time, underwriters will evaluate your income, financial and related documents along with the appraisal once it’s finalized. If everything checks out, you’ll be issued a clear to close and move on to your loan closing.
  5. Closing- You’ll sign all kinds of legal documents and paperwork at your loan closing.  VA loans tend to require additional requirements and can be more time-consuming.   Start early and don’t procrastinate.  The benefits will be worth it.