The VA Home Loan Process

If you haven't bought a home in several years or if you're a first-time homebuyer, the home loan process can feel overwhelming. The good news? With a great Realtor and an experienced Lender, it becomes a heck of a lot easier. Still, potential homebuyers want to know how this process works and where to begin. That is exactly what this newsletter attempts to answer.

Let’s start with a flowchart of the major steps of the home loan process which holds true for most lenders you may come across when buying a home.

The process starts with applying for pre-approval and ends with you getting the keys to your new home! Of course, it is very likely you spoke with your Loan Officer to discuss your goals and timeline prior to applying, but the loan process I am sharing today starts when you apply for pre-approval.

Step 1:??Apply & Submit Documents

This is the best place to start because the information gathered on the application is very helpful in determining what your best loan options will be and how to structure your financing. Most lenders have an online application as well as the option to do it by phone or in person. Our application at Veterans United uses a SOFT credit check when you apply, which means it does not show up on your credit report and therefore has no impact on your credit scores. A HARD credit check should not be necessary until later in the process when you are under contract on a specific property.

Our application automatically pulls in your VA Certificate of Eligibility (COE) when you apply for a VA loan. I mention that because some veterans are concerned about getting the COE themselves, but that is typically not necessary. Our system also automatically generates a list of items needed to go with your application. This includes things such as ID’s, pay statements, VA award letters, etc. These documents can be uploaded directly into your secure account either online or through our myVU phone app. The more we can document early in the process, the less likely there will be any surprises later.

Step 2: Receive Pre-approval Notice

Once your application and documents are received and processed, your Loan Officer will discuss it with you, and if all is well, issue a Pre-approval Notice. For Veterans United, our Pre-approval Notice is sent to you in a detailed email as well as a link that you or your Realtor can use to print a Pre-approval Letter for any amount up to your max, any time you need one. This letter needs to be included with your offer to the Seller to confirm that you have already spoken with a lender and have obtained pre-approval. Now you are ready to start looking for your new home!

Step 3: Make Offers and Get Sales Contract

This is where your Realtor jumps into action and works with you to find your new dream home. While you are looking at properties, this is a great time to submit any other documentation that your lender has asked for. Once your offer is accepted by the Seller, be sure a copy of the signed sales contract is sent to your lender. Within a day or two of giving your sales contract to your lender, you can expect to receive an Initial Loan Estimate (ILE) as well as a full package of disclosures, usually sent digitally. The ILE shows the starting estimates for your closing costs, monthly payment, and cash due at closing. Some of those estimates will change throughout the loan process as new information is received, but it’s a helpful document to have early in the loan process to be sure you and your lender are on the same page when it comes to your financing.

Step 4: Complete Home Inspections

Now that you are under contract, it’s time to get your home inspected! Your general home inspection is optional on VA loans, but highly recommended. What is typically required for a VA loan is a Texas Official Wood Destroying Insect Report (WDI), better known as a “termite report”. Your lender will need a copy of the WDI report, and if there are issues, including “conducive conditions”, they may need to be remedied prior to closing. (Every lender is different in what they require, so always ask your Loan Officer what is needed based on your specific report.) Termite reports are typically not needed on new construction properties and on some condos that are not on the ground level.

If the property has a well, the well water will need to be tested by a local lab. If it has a septic system, it may or may not need to be inspected, depending on which Texas county the property is in. This link will get you a PDF document listing every county in Texas and if a septic inspection is required. Here is another link to a VA Inspections Cheat Sheet that provides more details on inspections for easy reference later when you need it.

Step 5: Lender Orders VA Appraisal

Once your inspections are completed, it is time for your lender to order your VA appraisal. It is ordered through the VA’s Lender Portal, and the VA randomly assigns an appraiser. The appraisers typically have ten business days to complete the appraisal. Those ten business days do NOT include the day it was ordered, nor weekends or holidays, and the actual due date is midnight on the tenth?business day. So, really, it could be Day 11 when you find out the appraisal is back. Sometimes VA appraisals come back a lot sooner, but typically they take a couple of weeks.

Step 6: Lock Interest Rate with Lender

This is typically when we discuss locking in your interest rate, but it can be locked as soon as your contract is received by your lender and input into their loan origination system. Every lender may have different ways of doing this, but typically your Loan Officer will send you rate lock options and then discuss with you the pros and cons of various rates, with higher rates paying you a lender credit and lower rates costing you “points”. This is broken out as its own step because it is such an important part of the process. Until your interest rate is locked, it remains “floating”, meaning it is not guaranteed and will likely change daily. We typically recommend locking your rate if you are 30 days or less from your closing date, but every situation is different and your unique situation should be considered.

Step 7: Get Initial Loan Approval

Texas home purchase contracts have a financing deadline in the Third-Party Financing Addendum. That deadline is a certain number of days from the date the contract is executed. The goal is to have Initial Loan Approval on or before that date. Loan approval is what happens when your loan application, along with all of the documents you submitted to your lender, are put in front of an Underwriter, to determine if you meet the requirements for the loan you have applied for. After a thorough review, the Underwriter issues “conditional” loan approval since at this point your lender is still likely waiting on the appraisal and perhaps some remaining conditions from you before submitting for final loan approval.

*Note that this process is slightly different for a new home that has yet to be built or is still under construction. In those cases, your lender will typically get Initial Loan Approval long before ordering the appraisal and the rate lock won’t typically be done until 30 to 45 days before closing. This varies by lender.

Step 8: Lender Receives VA Appraisal

When the appraiser uploads the VA Appraisal Report to the VA Lender Portal, your lender gets a notification that it is available. Typically, your Loan Officer or Loan Processor will then send you, the homebuyer, a PDF copy of the appraisal report. Lenders are not allowed to send the report to anyone other than you, the homebuyer. However, you are welcome to forward it to your Realtor or anyone else you wish to share it with. (Stay tuned for a future newsletter on the VA appraisal dispute process which may be used to dispute the appraised value in the VA appraisal report.)

Step 9: Get Final Loan Approval

In this exciting step of the process, the lender’s Underwriter reviews the VA appraisal and any remaining conditions to issue Final Loan Approval, which is also known as a Clear to Close (CTC). It’s not time for the big party yet, but this is especially great news for you! Around this same time, or sometimes a couple of days earlier, an Initial Closing Disclosure (ICD) is sent out for your review. This is like your Initial Loan Estimate; however, the format is different, and it shows the most up to date information. What is on the Initial Closing Disclosure is NOT the final numbers, but it’s the best estimate prior to finalizing the numbers with the title company.

Step 10: Review Final Numbers with Lender

Once your lender obtains Final Loan Approval, they will send closing instructions to the title company to prepare for closing. The title company sends back a preliminary closing disclosure and goes back and forth with your lender until they balance. Once everything balances, you, the homebuyer, will receive a copy of the Final Closing Disclosure (FCD). The FCD will tell you exactly how much is due from you at closing as well as your exact monthly mortgage payment. Sometimes that amount is negative, meaning you will get money back when your loan is funded.

Once you have a copy of the Final Closing Disclosure, review it right away with your Loan Officer. Ask questions if anything does not look accurate to you or does not make sense. Be sure the monthly payment is what you expected and that cash due at closing is also what you anticipated. If money is due, then you will need to get a cashier’s check or send a wire directly to the title company. Contact the title company directly by phone to obtain the wire information. Do NOT accept wire information by email. At this point you should be ready to close!

Step 11: Sign Closing Documents

In Texas, documents are typically signed at a title company, but sometimes they are done offsite with a notary. Once all documents are signed, they are sent back to the lender’s funding team for review. If anything is missed, they will notify the title company to get it rectified. If all is good, the lender will issue a funding number which will get you to the last step of the process.

Step 12: Fund Loan and Get Keys

If all parties sign in the morning, or early afternoon, you will likely get funding the same day. If either party signs documents late in the day, you may not have funding until the next business day, which happens sometimes. Once the funding number is sent by the Lender, the home purchase is complete and you are handed the keys to your new home. Congratulations!

In Summary….The VA home loan process is not that different from other loan programs; however, there are parts that are unique to VA loans, which have been included in the breakdown of the VA home loan process above. Once you are under contract, the rest of the process typically takes 30 days or less, but varies by lender. Lenders who frequently handle VA loans tend to close them faster. Find your dream home today, and you could be living in your new home just a month from now. What are you waiting for?

(Go here to download a PDF copy of the VA Home Loan Process flowchart for easy reference and use with your VA buyers in the future.)?

Got questions about VA loans?

Great, just email?[email protected]?or call/text 512-357-7762.