How to Use VA Benefits to Buy a Home

••• Thinkstock Images/Comstock/Getty Images

As a current or former member of the U.S. Armed Forces, you may qualify for a Department of Veterans Affairs – VA – home loan guarantee benefit. The VA doesn’t write the loan -- private lenders do, but it guarantees repayment of it. Because of this guarantee, terms are more favorable to veterans, including no down payment or mortgage insurance. This opens the doors to home ownership for many veterans.

Do your personal homework before meeting with a VA lender. Pull your most recent credit report from the three reporting agencies: Experian, TransUnion and Equifax. Don’t pay anything for the report, and don’t subscribe to any service they offer; just get the report and start analyzing it for errors. Write to the reporting agency if a discrepancy is found and expect to have it corrected within 30 days, with substantiation.

Pay your bills on time. Get a copy of your FICO score. Work to achieve a score of at least 620 in order to get a private lender’s loan approval. Minimize what you owe on credit cards to at least 25 percent of the credit amount extended. Limit your potential debt by cancelling excess credit cards. Use only those you need.

Calculate your debt-to-income – DTI – figure. This is the amount of monthly debt you have in relation to your monthly income. Multiply your gross monthly income by .41, the maximum back-end percentage allowed by VA lenders. For example: your monthly income is $7,000. Multipy by .41. Your monthly debts, including housing and all expenses should be no more than $2,870 to be within the VA DTI ratio for loan approval.

Meet with a local lender in your area that specializes in VA loans and has “automatic approval” status. Request a copy of your Certificate of Eligibility from the VA or ask the lender to get a copy for you. The certificate states you are serving in the Armed Forces or served and received a discharge under “other than dishonorable” conditions. Bring bank statements, asset statements, your credit reports, other income verification paperwork, pay stubs and the same information from your spouse, if the additional income is being considered for your loan. Get your loan pre-approval letter from the lender declaring how much you can borrow for a mortgage.

Ask for a breakdown of your lender’s settlement fees, as these can vary. Meet with a second VA lender to compare fees. Choose to work with the one that is most reasonable. Be prepared to pay a funding fee, or have it wrapped into your loan, as per all VA loan terms.

Work with a real estate agent experienced in writing purchase contracts for veterans. Make an offer on a house, condominium or mobile home. Be sure your offer includes the “VA Option Clause,” allowing you to withdraw from the contract without penalty if the VA appraiser finds the property’s cost exceeds its value. Also write in an escape clause, getting you out of the contract without losing your deposit if you aren’t approved for your VA loan.