A Complete Guide to Preapproval for VA Loans

Preapproval is a crucial first step for VA loan borrowers Getting preapproved provides you with a realistic assessment of your homebuying budget and shows sellers you are a serious buyer, This comprehensive guide covers everything you need to know about securing preapproval for a VA mortgage

What is Preapproval for a VA Loan?

Preapproval refers to the process of applying for preliminary approval for a mortgage from a lender. It is more detailed than just getting prequalified

During preapproval, the lender evaluates your credit, income, assets, and other financial details to estimate the loan amount you may qualify for. If approved, you receive a preapproval letter stating your estimated borrowing power.

This preapproval letter can then be presented with any offers you make on a home to show sellers you are qualified and ready to move forward. VA preapproval typically takes anywhere from a few days to a week.

Why Get Preapproved for a VA Loan?

There are several key benefits to getting preapproved before house hunting:

• Shows sellers you’re serious – Preapproval indicates you have already verified your finances and are prepared to move forward. Sellers often prefer offers from preapproved buyers.

• Gives you bargaining power – When you make an offer backed by a preapproval letter, it strengthens your negotiation position and makes your bid more attractive to sellers.

• Lets you know your budget – Preapproval provides clear insight into how much home you can realistically afford based on a detailed look at your funds.

• Speeds up the process – Since the lender has already reviewed your information, the loan process after getting an accepted offer can be quicker.

Especially in competitive housing markets, it is wise to have preapproval before viewing homes so you can be ready to make a strong offer when you find the right property.

Documents Needed for VA Preapproval

When applying for preapproval for a VA loan, you will need to provide documentation to confirm your financial situation, such as:

• Identification like a driver’s license
• Proof of military service like a DD214
• Income verification documents like W-2s and pay stubs
• Federal tax returns if you have self-employment or rental income
• Bank statements showing cash reserves
• Debt and credit information

The lender will let you know specific items needed. Provide these quickly so your preapproval can be processed faster.

VA Loan Preapproval Process

Here are the typical steps to get preapproved for a VA mortgage:

1. Review your credit – Your credit scores and report history are evaluated first. Minimum scores vary by lender but often need to be at least 620.

2. Verify income – The lender will confirm your employment and income levels to ensure reliable earnings. Gaps in employment may need explanation.

3. Assess debts – Existing debts like credit cards and loans are reviewed to calculate your overall obligations and borrowing ability.

4. Check assets – The lender verifies your cash, investments, and other assets to confirm you have funds for a down payment and closing.

5. Estimate homebuying budget – Based on the financial review, the lender estimates the loan amount and home price range you can qualify for.

6. Issue preapproval letter – If approved after the assessment, you get a preapproval letter stating your estimated maximum loan amount.

The preapproval letter has conditions you’ll need to fulfill for final loan approval. Make sure you understand all requirements.

How Long is a VA Preapproval Valid?

Most VA preapprovals letters are valid for 60-90 days. After this time, the lender may need to re-verify your financial details in case anything has changed.

Any significant changes to your credit, income, or assets can also invalidate the preapproval until reassessed. Be sure to limit major financial moves during this period.

Also, the preapproval states a maximum loan amount, but you shouldn’t necessarily rely on being approved for that full amount. Only make offers you are comfortable with.

Can a Preapproval Be Revoked or Denied?

Yes, it is possible for your mortgage to be denied even after getting preapproved. Some reasons this can happen include:

• Your credit score drops significantly

• You take on new substantial debts

• Your income or employment status changes

• The appraisal comes in lower than expected

• Issues or red flags appear in final underwriting

Since preapproval is not a guarantee, it’s important to avoid major financial changes before closing. Also be conservative when house hunting – don’t make maximum offers assuming you’ll definitely get that full loan amount.

alternatives to VA Preapproval

If you are having difficulty getting preapproved, some options include:

• Seeing if you qualify for alternative mortgage programs like USDA or FHA loans

• Looking into loan options requiring less stringent credit requirements

• Taking time to improve your credit score or lower debts

• Adding a co-borrower to the loan application to supplement income

• Increasing your down payment amount

• Exploring government assistance programs for homebuyers

For Veterans who don’t get preapproved, VA loans often remain possible with some work on credit, budgeting, and financial habits. Reach out to a lender to discuss what steps may improve your chances.

Should I Apply With Multiple Lenders?

It’s often wise to get preapproved with several lenders when seeking a VA loan. Each lender may offer different terms, so shopping around helps you compare:

• Interest rates and fees – Compare quotes to find the best deal.

• Loan amounts – Each lender may approve you for a different loan amount based on their underwriting.

• Options like IRRRLs or cash-out refinancing if you currently have a mortgage.

• Ease of process – Some lenders may require less paperwork or have quicker preapproval turnaround.

• Customer service – Consider reviews and word-of-mouth referrals when choosing lenders.

While multiple preapprovals can temporarily ding your credit with extra hard inquiries, it provides you with negotiating leverage to secure the best rate once you have an offer accepted.

Factors That Strengthen a VA Preapproval

To get the strongest preapproval letter possible, work on improving these areas:

• Credit scores – Scores above 680 or so get access to better rates which expands your buying power.

• Down payment savings – More cash reserves results in potential approval for a higher loan amount.

• Lower debt-to-income ratio – Keeping your DTI below 41% by paying down debts can help your preapproval chances.

• Clean credit history – Avoid late payments and collections which negatively impact your borrowing ability.

• Stable income – Solid employment history with adequate income improves mortgage eligibility.

• VA disability pay – This income stream can supplement other earnings to help you qualify.

Putting some effort into optimizing these areas prior to preapproval will pay off with access to better loan terms and more homebuying flexibility.

Can I Get Preapproved While Active Duty?

Active duty service members can absolutely get preapproved, but will need to provide a statement of service letter signed by a commanding officer rather than discharge paperwork like a DD214.

Talk with your loan officer about specific documentation needed. VA loans have flexible employment requirements so periods of PCS or deployment generally don’t impede the preapproval process for active duty borrowers.

A stable income and adequate time left on your current service commitment are bigger factors. Overall, preapproval while active can be very similar to the process for a Veteran borrower.

What Should I Look For in a Preapproval Letter?

When reviewing your preapproval letter, look for:

• Clear interest rate quotes.

• An estimate of total fees.

• The maximum loan amount for which you’ve been approved.

• An expiration date – make sure it will remain valid throughout your home search.

• All conditions you need to fulfill for final approval.

• Language affirming this is not a commitment of funds yet.

Carefully read and understand the preapproval terms before house hunting so you know the boundaries of your search. Ask your loan officer to clarify anything you find confusing.

Does Preapproval Impact My Credit?

When initially applying for preapproval, the lender does a soft credit check which has no impact on your scores. However, once you have an offer accepted, they will do a hard inquiry when processing the full mortgage application.

This causes a small temporary drop in your credit scores. The effect is usually less than five points and your scores rebound within a couple months. The damage is minor compared to the long term benefits of securing low mortgage rates.

The Bottom Line

Getting preapproved is a vital starting point in the VA loan process. Take the time upfront to submit documents, strengthen your financial profile, and obtain preapproval letters from multiple lenders. This provides critical insight into your true budget range and the ability to make competitive offers, putting you in a great position to achieve your homebuying goals.