How to get Preapproved for a via Home Loan: Navigating the home buying process can be complex, but obtaining a preapproval for a home loan is a crucial step that can make you a more attractive buyer in the competitive real estate market.
A preapproval letter from a lender verifies that you have been reviewed financially and are eligible for a loan up to a certain amount. This document can significantly enhance your credibility with sellers, showing that you are serious and ready to purchase.
In this comprehensive guide, we’ll walk you through the essential steps to get preapproved for a home loan, ensuring you’re well-prepared to secure your dream home.
Preapproval is a lender’s offer to loan you a certain amount under specific terms, based on a thorough check of your financial background, including your credit score, income, employment history, and debt-to-income ratio (DTI). This process not only affirms your financial stability in the eyes of sellers but also gives you a clear idea of what you can afford.
The Importance of Credit Score
Your credit score plays a pivotal role in the preapproval process. Lenders use this score to assess your creditworthiness and determine the interest rate on your loan. A higher credit score can lead to more favorable loan terms. Before applying, check your credit report for any inaccuracies and take steps to improve your score, such as paying down debts and avoiding new credit accounts.
Documenting Your Income and Assets
Lenders will require proof of income and assets to ensure you have the financial means to make your mortgage payments. You’ll need to provide recent pay stubs, tax returns, W-2 or 1099 forms, and information on assets such as savings accounts, investments, and other properties. Self-employed individuals may need to provide additional documentation to verify their income stability.
Understanding Debt-to-Income Ratio
Your debt-to-income ratio (DTI) is a key factor lenders consider during the preapproval process. It represents the percentage of your monthly income that goes towards paying debts. A lower DTI ratio indicates a strong financial position. Lenders typically prefer a DTI ratio of 43% or lower. Reducing your debt before applying for preapproval can improve your chances of approval.
Choosing the Right Lender
Selecting the right lender is crucial. Research and compare various lenders, including their interest rates, fees, and customer service. Consider both traditional banks and online lenders. It’s beneficial to get preapproval quotes from multiple lenders to compare offers and negotiate better terms.
The Preapproval Process
The preapproval process involves filling out a loan application and providing necessary financial documents to your chosen lender. The lender will then perform a hard credit check and evaluate your financial situation. Upon approval, you’ll receive a preapproval letter, which typically remains valid for 60 to 90 days.
Strengthening Your Application
To enhance your preapproval application, aim to maintain a stable employment history, save for a larger down payment, and manage your finances responsibly. Demonstrating financial stability and preparedness can make your application more appealing to lenders.
The Role of Preapproval in Home Buying
With a preapproval letter in hand, you can confidently search for homes within your budget, make stronger offers, and expedite the closing process. Sellers are more likely to consider offers from preapproved buyers, as it reduces the risk of financing falls through.
Next Steps After Preapproval
Once preapproved, it’s essential to maintain your financial stability and avoid any significant financial changes, such as changing jobs or making large purchases, as these can affect your loan eligibility. Continue your home search within your approved budget and work closely with your real estate agent to find your ideal home.
What the VA Does for VA Loan Pre Approval
Getting pre approved for a VA home loan means acquiring documents. The one you will hear most about is the COE (Certificate of Eligibility). The good news is, while you do need this important document to complete your application, it is not difficult. It’s just a one page form and it’s online.
The Certificate of Eligibility is exactly what it sounds like: it verifies to the VA loan processors and your private lender of your VA loan eligibility.
There is also a shortcut. If you’ve already got a private lender ready to work with you on your VA Loan, they can request a Certificate of Eligibility directly from the Department of Defense. There’s an online system called Web LGY that has this information online and it can be immediately downloaded. You can also do it yourself by using the VA’s eBenefits portal.
One point to remember is that the Certificate of Eligibility is not the same as an approval for the VA loan–but it’s close. Once you’ve got it, your lender and the VA will work out the rest of the details of the mortgage loan. You don’t need to be involved.
So the order is: Get your COE, get the loan approved by the private lender and then the VA will guarantee the loan. Simple, sort of.
Active Duty Statement of Service
There’s one hitch. If you are an active-duty service member and working toward a VA pre approval, you will also need an Active Duty Statement of Service. This is a document that helps the private lender determine that you have the income needed to make your monthly mortgage payments. Rather than a form or certificate, this is a letter from your commanding officer. There are samples out there of this letter so your commanding officer doesn’t need to create it from scratch.
These are the facts he or she will need to include in the statement/letter:
- Your name and Social Security number
- Your date of birth
- Which branch you served
- Your rank
- Your dates of active duty
- List of any time lost
- Type of discharge
- Are you eligible to return to service
- Name and signature of commanding officer
Pre Approval Process and the Role of Your Private Lender
So that’s what you need for the VA part of the loan pre-approval process. The rest of it comes from your work with your private lender. To get a VA mortgage pre approval, you need to submit a loan application and go through the mortgage pre-approval process. This takes time and effort to assemble and submit all of the necessary paperwork to your lender. Moreover, your lender will need time to conduct their evaluation. Here are the steps:
- Fill out the mortgage application for your lender
- Send them all required documentation
- The lender evaluates your documents
- The lender will provide you an estimate of how much you can borrow
- The lender gives you a pre-approval letter
Why jump through all of these hoops? Because with that last step, you will have a pre approval letter, and that means you are ready to make serious offers on houses you want. That can make all the difference and give you an edge in a competitive real estate market.
Pre Approval Documents You Will Need
Your lender will likely ask you to assemble a sizable list of documents and information you will need for your mortgage pre-approval:
- Typical information such as your full name, date of birth, address history, marital status, dependents, years of school attended, etc.
- Get a copy of your resume because they will want your employment history.
- Bring your Drivers License or State ID Card, or a copy of it.
- Your Social Security Number
- What type of loan you are looking at. In this case it’s a VA loan but they will also want to talk about the length of time and interest rate schedule for your mortgage.
- A private lender will typically ask about your down payment, but with most VA home loans, there is no down payment necessary (with a few rare exceptions).
- The private lender will do a credit check and will have a minimum credit score they are looking for.
- Bring last year’s tax returns. Some lenders might ask for the last two years.
- They will want to see your bank statements, typically the last two months.
- If you’ve got retirement or investment savings, they will want to see statements for the past quarter, including:
- 401k statement for retirement accounts
- W-2 Forms for the last year.
- Your two most recent pay stubs.
- Bring evidence if you have rental property income.
- They will want a record of your debts, things with monthly payments – student loans, car loans, credit cards.
- If you currently have a mortgage, your lender will want your most recent statement, the declaration page of the homeowners and mortgage insurance, a statement of your property taxes and any homeowners association dues.
- If you are currently paying rent, bring information about your payment over the last 12 months, and your landlord’s contact information.
- If you are divorced, bring the divorce decree and a record of any child support or alimony payments.
As we said, it’s worth getting all of this together so you have that VA pre approval letter in your hand when you go looking for a home.
VA Loan Pre Approval is Not the Same as Pre Qualification
If you’ve read about VA home loan prequalification for a mortgage, you might have it confused with pre approval. They are not equal. Pre-approval is a stronger, more reliable estimate. As you’ve seen, getting pre-approved for a home loan requires a closer look into your finances. This process will likely uncover any potential issues you may not be aware of and that’s a good thing to learn before attempting to borrow a large amount of money.
The pre-qualification process is not as thorough because it commonly relies on the assembly of self-reported information. It typically does not include pulling your credit report or reviewing financial documents. The lender will collect some basic financial information to determine how much you may borrow to purchase a home. The lender will provide you with a prequalification letter, but the prequalification letter is less valuable than a pre-approval letter because a lender has not yet verified your financial information.
In the current market, if you’re a serious buyer, you should try to get the pre-approval letter. It will make a difference with sellers.
Obtaining a preapproval for a home loan is a vital step in the home buying journey, offering a clear path to homeownership. By following these detailed steps and preparing your finances, you can improve your chances of getting preapproved and move closer to purchasing your dream home. Remember, the right preparation and lender can make all the difference in your home buying experience.