How Does a VA Loan Work

By Shiromi Nassreen

VA loans are only offered to those that have served Active Duty in the United States Armed Services who are purchasing a home that they will be residing in.. VA loans mean that a portion of the loan is guaranteed by the US government if the purchaser is unable to complete the terms of the loan. This is known as the entitlement. The entitlement can vary between thirty-six thousand and sixty thousand dollars depending on the amount of the loan. Other major benefits of the loan are that VA loans offer 100% financing with no down payment and no Private Mortgage Insurance. VA loans offer competitive interest rates and the seller has to assume the closing costs. However, the buyer does have to pay a funding fee for the loan. The funding fee will vary based on whether or not the buyer places a down payment and how large a down payment is made; whether the buyer is a first time VA user or has used the VA loans service before and whether or not the buyer is in the Reserves or National Guard. The funding fee can be as much as 3% of the price of the house and can be rolled into the loan.

For a buyer to get a VA loan they must first qualify for the loan. The buyer must fill out a Certificate of Eligibility which the applicant will need to submit to their local VA eligibility center along with a copy of their DD214 showing proof of service. Once the VA has issued a Certificate of Eligibility the applicant can put together banks statement, copies of pay and verification of employment and take it to a VA approved lender who can pre-qualify the applicant for a VA loan. This process will work similarly to the conventional loan as far as credit checks. It is not necessarily easier to get a VA loan than a conventional loan. When the applicant has found a house to buy and the purchase agreement has been signed, the VA will need to do an appraisal which is usually done through the VA approved lender. Once the appraisal has been approved, the buyer can close on their home.

Some seller's do not wish to deal with VA loans because they used to have the reputation of taking longer to close than a usual loan. However, nowadays, VA loans take as long as a conventional loan to close. Some sellers are concerned that since the buyer is limited as to what fees they have to pay, the sellers will end up paying all of the closing costs. However, a seller can make up that cost when negotiating the contract. If a seller has to pay three thousand dollars in closing costs, they may be able to ask the buyer to pay part of the closing costs or add the three thousand dollars into the counter-offer.

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