Buying a home can be one of the most exhilarating yet frustrating times in anyone’s life. Finding the right home at the right time and then securing the right financing can seem absolutely exhausting, but fortunately, there are things you can do before even applying for a VA home loan that can make it much, much simpler. Here are five financials to get in order before you fill out an application.
One of the nice things about VA loans is the fact that you aren’t required to have a down payment, and unlike conventional loans, you aren’t required to pay for private mortgage insurance for a down payment of less than 20%, either. Nevertheless, coming up with a down payment is beneficial in many ways. Namely, the more you put down, the less you’ll have to pay interest on over time.
Though the VA doesn’t have any minimum credit requirements associated with the VA home loans benefit, individual lenders still do. The better your credit, the more likely you’ll be to get approved, and the lower the interest rate you can receive, too. Pull copies of your reports from the three major bureaus – Equifax, Experian, and Transunion – and check for inconsistencies or incorrect information. (It’s free once a year.) Even minor mistakes on your credit report can have a serious effect on your scores, so reviewing your reports before you apply is always a good idea.
Your debt-to-income ratio is another important consideration for lenders, and you’ll want to make sure that yours is acceptable. Simply put, this is the ratio between the amount of money you earn and the amount of money you spend, which ultimately shows your “disposable income” – and tells lenders whether you can comfortably afford your mortgage payments. Ideally, you should have about 30% of your income left after your monthly obligations. If you don’t, professional credit repair services can help.
Like a conventional mortgage, you’ll likely have to pay a variety of fees including an origination fee just to process the loan and then closing costs once you seal the deal. For the most part, these fees can be added to your loan amount, but depending on the lender, this may not be the case. Always ask your lender about extra costs and fees, and if possible, try to set aside the funds to pay them as they arise. It will save you from paying interest on them for the next 15 to 30 years.
Finally, you’ll need to provide your lender with numerous documents that prove your eligibility for a VA mortgage. These include not only your Certificate of Eligibility from the VA itself, but also bank statements, tax returns, pay stubs, copies of utility bills, and anything else that can help your lender of choice better understand your financial situation. In fact, your lender should provide you with a checklist that clearly shows everything you will need. Keep both a paper and a digital copy of not only this list, but also each individual document. Make sure your digital copies are stored in the cloud or on your computer and a flash drive or other removable media for safekeeping.
As you can see, there are several things you will need to do in order to prepare for a VA home loan from a financial standpoint. They are all incredibly important, and they are sure to save you plenty of money in the long run, too. Shop around and find the best possible lender with the best rates, then follow these steps to secure your mortgage quickly and easily.