A Guide To The VA Loan Preapproval Process

A VA loan is a mortgage backed by the Department of Veterans Affairs. For those eligible to take advantage, this is one of the best options out there. There’s often no down payment requirement and extremely competitive interest rates. Getting a VA loan preapproval can be the first step to getting into a home that works for you and your loved ones.

Do You Need A VA Mortgage Preapproval?

A VA mortgage preapproval isn’t required. But while it’s possible the shop for homes without preapproval, being preapproved for your home loan funding will give sellers and their listing agents confidence that you have the wherewithal to back up the offer you’re making.

Sellers are looking for certainty in their process as much as you are. Often, they’re looking to buy a home of their own and need to sell their current home to put toward the down payment and not carry two mortgage payments. For this reason, many real estate agents will advise sellers not to accept offers that don’t have a preapproval attached.

VA Home Loan Preapproval Vs. Other Approval Types

When it comes to a VA loan preapproval, you should be fully aware of what you’re receiving and the differences from other types of qualification or approval.

VA Loan Preapproval Vs. Prequalification

Preapproval and prequalification are often confused and used interchangeably. They’re not the same. A preapproval, whether for a VA loan or any other mortgage, involves a credit check to see your debts and gathering documentation on income and assets. A prequalification is just giving verbal or written estimates on these items to a lender. Preapproval is official.

VA Loan Preapproval Vs. Final Approval

VA loan preapproval looks at your income, credit and assets to help define the top end of your budget. A final approval takes place after you find the house. Along with final checks on income, assets, credit and employment status, you’ll need to have an appraisal done. This assures that the home meets VA safety standards and the loan isn’t worth more than the property.

VA Loan Preapproval Vs. Verified Approval

We mentioned earlier that there’s often confusion between the prequalification and preapproval. To ensure Rocket Mortgage^® clients are fully aware of what they’re receiving, we call prequalification a Prequalified Approval, and preapproval is a Verified Approval.¹ The only additional step to getting a VA loan preapproval is documentation showing you’re eligible.

How To Get Preapproved For A VA Home Loan

Many of the steps to getting preapproved for a VA loan are the same as they would be for any other, but let’s start with the VA specific requirements and go from there.

1. Meet The VA’s Service Eligibility Requirements

To qualify for a VA loan, you have to meet service time requirements established by the Department of Veterans Affairs. Minimum service time doesn’t apply if you were discharged due to a service-connected disability or you’re a qualified surviving spouse of a service member who passed while on active-duty or due to their service-connected disability.

For those currently on active duty, in the reserves of any service branch or the National Guard, you meet service time requirements if you have spent 90 days on active duty.

If you’re a veteran, active-duty service time requirements depend on when you served. We’ll give the requirements for August 2, 1990, to the present. If you served prior to that time, refer to the VA eligibility page. You meet the requirements if you’ve served for any of the following time periods:

• At least 24 continuous months
• The full amount of time (at least 90 days) during which you were called or otherwise ordered to active duty.
• You have to have served at least 90 days if you were discharged due to a hardship or force reduction.

2. Meet The Financial Requirements For VA Loans

• There are several financial requirements you should be aware of in order to qualify for a VA loan
• Credit score: There’s no specific credit score requirements for VA loans, but lenders often set their own. At Rocket Mortgage, we require a minimum qualifying score of 580 or better. It should be noted that with a score of 640 or better, you may be able to qualify for a higher monthly payment and fewer restrictions when taking cash out.
• Debt-to-income ratio (DTI): DTI is a calculation of how much of your monthly income goes toward paying debts including your mortgage, car payment, student and personal loans and credit card payments. The VA doesn’t prescribe a specific DTI, but if more than 41% of your income goes to paying debts overall, you’ll need to have compensating factors that include high residual income or a strong past credit history, among many other criteria. Work with your lender because every situation is different.
• VA funding fee: There’s a VA funding fee of between 1.25% – 3.3% depending on the size of your down payment (if any) and whether it’s your first or a subsequent use of your VA home loan benefits. This can be paid upfront or built into your loan amount. Those receiving VA disability, Purple Heart recipients who have returned to active duty and qualified surviving spouses don’t have to pay the funding fee.
• Closing costs: VA loan closing costs are similar to those for other mortgages, which typically run between 3% – 6% of the purchase price. The biggest VA specific closing cost is the funding fee and this can be built into the mortgage. There are also states or specific counties within states where the VA requires a pest inspection.

3. Collect Preapproval Documents

There are several types of documents necessary for mortgage preapproval, but the first in this list is specific to VA loans.

• Certificate of Eligibility (COE): A COE is your proof that you meet the service requirements or are otherwise eligible for a VA loan due to disability or surviving spouse status. You can get your COE by applying online or work with your lender.
• Personal identification: You’ll want to have your state-issued or military ID, passport or other form of identification to give the lender along with your Social Security number. This is just to verify that they’re dealing with the right person.
• Tax documents: As a general rule, it’s a good idea to have 2 years’ worth of tax returns, W-2s and/or 1099s on hand so that you can show your past income history.
• Proof of employment and income: It’s also necessary for lenders to verify your current employment, they do this through documents like pay stubs and bank statements in addition to contacting your employer.
• Asset statements: Lenders will need to verify the source of your closing costs and any down payment you might make. You may also be required to show reserves, meaning showing that you could make a certain number of months’ worth of mortgage payments if you lost income. This could be verified through things like bank statements and brokerage accounts with easily liquidated stocks.

4. Find A VA-Approved Lender And Apply

To get a VA loan, you’ll need to work with a VA-approved lender. Rocket Mortgage is VA approved and we can also help you apply for your COE, if necessary. The preapproval process is similar to any other loan with the exception that you’ll need to have your COE. So your credit is pulled to verify debts, and we collect documentation on assets and income.

5. Use Your VA Loan Preapproval Letter To Shop For Homes

Once you have your preapproval for your VA loan, you can attach it to offers you make on homes so that sellers understand you have the means to afford what you’re offering.

Verified Approval letters from Rocket Mortgage will show that we’ve verified your credit, income and assets. You can also edit the amount shown on your letter to be lower than your maximum so the seller doesn’t have to know exactly how much you’re approved for.

How Long Is A VA Loan Preapproval Good?

The length of time your preapproval is good is going to vary from lender to lender. After a certain length of time, your lender will want to recheck everything to make sure nothing has changed if you’ve been searching for a home for a long time.

What we can say definitively is that preapprovals for VA loans should last as long as any other preapproval. At Rocket Mortgage, that’s 90 days.

How To Increase Your Chances Of Getting Preapproved For A VA Home Loan

Outside of having your Certificate of Eligibility, increasing your chances to get approved for a VA loan works the same way it does for any other mortgage. Here are a few things you can work on:

• Increase your credit score: Making payments on time, paying off debt and not applying for new credit that you don’t need are all basic ways to get started. You should also check your credit report for errors so you can dispute anything you don’t recognize.
• Pay off debts: Not only will paying off debts improve your credit score, but the less debt you have going into your mortgage transaction, the higher your approval amount can be because you’ll have more room to take on a higher monthly payment if needed.
• Make a higher down payment: One of the selling points of a VA loan is that no down payment is usually required, but that doesn’t mean you can’t make one. The higher your down payment, the lower your monthly payment can be. This could help you qualify for a higher loan amount.

The Bottom Line

Having a preapproval for your VA loan will allow you to show sellers that you’re very serious about the offer that you’re making and have the resources to follow through. In addition to your COE, your lender will verify your debts, income and assets so both you and the seller can be absolutely certain of your offer.

If you feel like you’re ready, apply for a VA loan today!