How does a VA loan work?

The Department of Veterans Affairs does not make home loans. Lenders make the loans, and the VA guarantees them against default. In turn, lenders take the risk of financing 100% of the purchase price. If the loan goes into foreclosure, the VA repays the lender for its losses up to a certain amount. The VA Funding fee, typically financed into the loan amount, is the “insurance” that the VA uses to pay for any losses. Some veterans are exempt from this fee.

The process and steps for getting a VA loan are like a conventional home loan, although providing more accessible qualifications and additional consumer protections.

What are the benefits of a VA home loan?

  • No down payment
  • No monthly mortgage insurance
  • Limited closing costs
  • Lower interest rates
  • Seller, relatives, and interested parties may contribute to closing costs up to 4% of the purchase price.

What are the Qualifications for a VA Home Loan?

VA home loan program does not have the traditional income and credit requirements than conventional loans have. The VA loan program does not have a debt to income ratio limitations. However, lenders limit their risk exposure by applying additional restrictions over the minimum VA guidelines, such as credit score requirements and debt-to-income ratio limitations. Mortgage brokers typically will have access to multiple lenders offering VA loans. The program allows the Mortgage Broker to match you to a lender without those prohibitive restrictions. Not to mention rates and fees with a mortgage broker are typically much lower. A Mortgage Broker is often the best source to fit your specific VA home loan needs.

What are the steps for a VA Loan?

Obtain your COE Certificate of Eligibility
Provide your income and assets, and ID documents.
Get a pre-qualification letter
Shop for a home
Sign a purchase contract
The application is sent to the underwriting
Get a home inspection- recommended (condition of the home)
The appraisal (value of the house) and pest inspection are ordered for you.
Shop for homeowner’s insurance. (Paid at closing)
Provide any additional documents the underwriter request for final approval while waiting for the appraisal title work.

Once the loan is finally approved:

You would have received a final Closing Disclosure – A list of closing costs, prepaid interest, one-year insurance premium, and the required escrow balance with the exact fees and any credit from the seller or interested parties.
Prepare to wire any funds, if any, to the title company for the closing.
The lender wires the loan funds to the title company
Sign the closing documents, generally at the title company location

Move into your new home!

How to get a certificate of eligibility

YOu may obtain the COE online at, or we can do it for you through the lender’s VA portal. If it is unavailable online, we will call the VA center and get the assistance needed. Generally, with some additional steps, the COE is issued while we are on the phone with them.    

 What is the VA funding Fee?

The VA funding fee is a percentage of the loan amount paid by the Veteran to “insure” the loan against default. The funding fee reduces the cost to U.S. taxpayers since the home loan does not require monthly mortgage insurance. Some veterans are exempt from paying this fee, such as veterans receiving disability payments and active-duty purple heart recipients. The COE determines if the Veteran is exempt.

The VA funding fee can be paid in two ways:

Include the fee in the loan amount to increase the loan amount to pay for the funding fee
The Veteran may opt to pay the fee as part of the closing costs

Things to know about a VA appraisal

With conventional loans, sometimes the buyer is allowed to wave the appraisal. However, with VA loans, an appraisal is required. Not to mention it must be completed by a VA appraiser.
The appraisal determines fair market value, and the home inspection reviews the home’s condition.

The VA appraisal has two purposes.

To determine the fair market value of the home. The appraisal ensures the buyer is not overpaying for the home. In addition, it prevents the lender from putting the buyer in an upside-down position.

Ensure the property meets VA minimum property requirements (MPR). These guidelines ensure the home is safe and move-in ready.

An appraisal is ordered directly through the VA. In turn, the VA assigns the task to an appraiser familiar with the market area. The appraiser often has a time limit of up to 10 days to complete the appraisal—some exceptions to the rule.

What happens if the VA appraisal is lower than the purchase price?

You have several options:

Your agent can negotiate the purchase price down to the appraised value.
You may pay the difference between the appraised value and the agreed purchase price or a reduced price that may still be over the appraised value.
You may back out of the contract.

Note: (Guidelines require the base loan amount, excluding the funding fee, to be based on the lower purchase price or appraised value.)

What happens if the home does not meet the minimum MPR?

The seller may agree to repair the deficiencies before closing or provide funds to be placed in an escrow account to fix them shortly after closing.

Why get a home inspection?

The advantage of a home inspection is to find if the home needs repairs that you feel are required. The inspector looks at electrical, plumbing, and roof systems. As well as conducts a structural review.

A home inspection reviews the condition of the home
A home inspection provides reports you may provide to homeowners. Insurance companies may require a copy to determine the annual premium.

What happens if the inspector finds problems?

Your agent can negotiate with the seller to make repairs before closing. You may negotiate the price of the home down, or you may back out of the contract provided the contract has an inspection period and your decision is within that period.

Why do I need a pest inspection?

The VA wants to ensure you are buying a good and safe home. They require an inspection to detect if there are active wood-destroying organisms. A wood-destroying organism report is required (WDO report), commonly referred to as a termite report. If the report shows active WDO, a licensed pest company may be needed to treat active termites before closing the loan. The underwriter will determine if repairs are required should any damage be reported. Your agent and loan officer will walk you through this process. Termites are common, and often this is a standard process.

CharterStone Mortgage has over 25 years experience and we have seen almost every situation. We will guide you through every step the process. Not to mention we have closed VA Home loans is as little as two weeks.  

Information and programs may change without notice.  Charterstone Mortgage is not affiliated with any government agency. This is not an offer to lend. All applicants must be credit approved. Not all applicants are approved . 

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