How Do I Get Prequalified for a VA Home Loan? A Complete Step-by-Step Guide

Getting prequalified for a VA home loan is an important first step for servicemembers and veterans looking to buy a home using their VA benefits. Going through the prequalification process shows sellers that you are a serious buyer and gives you a better idea of how much home you can afford. In this comprehensive guide, we’ll walk you through the entire process of getting prequalified for a VA mortgage, from gathering documents to calculating your monthly payments.

Why Get Prequalified for a VA Loan?

Before you start house hunting, it’s crucial to get prequalified for a VA home loan. Here are some of the key benefits:

• Shows sellers you’re a serious buyer: Having a prequalification letter in hand proves to sellers and listing agents that you have already looked into your finances. This gives you a leg up on buyers who haven’t taken this important step.

• Lets you know what you can afford: Going through the prequalification process gives you a realistic snapshot of your current finances so you know your true price range when shopping for homes. This prevents you from overextending your budget.

• Speeds up the mortgage process: Since you’ve already submitted documents and had key details verified during prequalification, the mortgage process moves faster once you’re under contract on a home.

• Locks in current rates Most lenders let you lock in current interest rates with your prequalification, This protects you if rates rise while you’re house hunting

VA Loan Prequalification vs. Preapproval

Before diving in further, it’s helpful to understand the difference between prequalification and preapproval:

• Prequalification is a basic preliminary step where the lender makes an initial assessment of what you may be able to afford based on the information you provide.

• Preapproval is a more comprehensive review where the lender verifies your financial details like income, assets, and credit. Preapproval typically involves submitting documents like pay stubs and bank statements.

For a VA loan, you’ll want to go through the preapproval process to get the most accurate picture of your finances. Let’s look at what’s involved.

Step 1: Check Your Credit

The first step is to check your credit scores and reports. VA lenders generally look for a minimum credit score between 620-640.

Order a free copy of your credit report from AnnualCreditReport.com and review it for any errors. Dispute any inaccurate items with the credit bureaus. This can boost your scores.

If your credit needs improvement, ask the lender about credit counseling or repair programs that may be available.

Step 2: Gather Key Financial Documents

To verify your finances, the lender will need to review documentation like:

• Recent pay stubs
• W-2s/1099s
• Federal tax returns
• Bank statements
• VA disability award letter (if applicable)
• Debt information (student loans, credit cards, car loans, etc)

Gather 2 months’ worth of these documents. Being organized will help speed up the preapproval process.

Step 3: Get Your COE

You’ll need a Certificate of Eligibility (COE) to prove to the lender that you qualify for a VA loan based on your military service.

You can apply for this on the VA website. Most lenders can also request it for you. Have your DD-214 discharge papers handy.

Step 4: Calculate Key VA Loan Ratios

The lender will assess your finances using two key ratios:

Debt-to-Income Ratio (DTI): This compares your monthly debt payments to your gross monthly income. Most lenders look for a DTI of 41% or lower for VA borrowers.

Residual Income: This is how much income you have left over each month after paying major debts. The VA requires a certain minimum residual income based on family size and region.

Higher ratios may be allowed with strong compensating factors like significant assets or a down payment.

Step 5: Review Loan Options

Talk with your lender about the type of VA loan you’re interested in:

• VA Purchase Loan – For buying a home
• VA Cash-Out Refinance – Taking equity out of your current home
• VA Streamline Refinance – Lowering your current VA loan rate/payment

Different loan types have varying guidelines. The lender can guide you on which fits your needs best.

Step 6: Get Your Preapproval Letter

At the end of the preapproval process, the lender will issue an official preapproval letter if you meet VA requirements. This detailed letter confirms:

• You are eligible for a VA loan
• The maximum loan amount you qualify for
• The monthly payment you can afford

Preapproval letters are typically valid for 60-90 days. Make sure to get re-evaluated if you don’t find a home within that timeframe.

Other Tips for VA Prequalification

Here are a few final tips when getting prequalified for a VA mortgage:

• Shop lenders – Compare multiple quotes to find the best VA loan terms.

• Look into down payment programs – Some states offer grants to help with the down payment.

• Consider adding a co-borrower – Adding a spouse or partner to your loan application can help you qualify for a larger loan amount. But their credit and income will also be factored in.

• Lock your rate – Ask the lender to lock in current interest rates to protect against a rise. Make sure there’s no fee for an extended lock.

Ready to Get Started?

Now that you know what’s involved, you’re ready to take the first step toward buying your dream home with a VA loan! Reach out to a lender to kick off the prequalification process and get shopping.