It is often said that preparation for a VA loan needs to begin very early, as much as two years before you actually want to take the loan out. It has been in these articles more times than I would care to count, but what exactly does proper preparation for a VA loan entail? What do lenders mean when they say to get everything in order before applying for the loan? So for all you first-time buyers out there who are looking at all the information you can get on VA loans and want to know exactly what you need to do, I’m going to throw some verbs at you that you can immediately take action on. Some of these things are more complicated than just a single word, so make sure to read through the entire article to understand how these things work together and why they’re all important.
Figure out and plan a budget. Hopefully you already have a good grasp of how much income you bring in and how much of it you spend, but if not, then get a good grasp on it! If you have no idea how much it’s possible for you to be saving each month, it’s pretty difficult to know what price range of home you should be looking for. For example, many people would say that saving $50/week is pretty impressive. So let’s assume you make that your goal: save $50/week, or around $200/month. Now let’s assume you’re saving for a 10% down payment on a $200,000 home, so you’re saving up $20,000. At a rate of $200/month, it will take 100 months, or 8 years and 4 months to save up that much money. I’m going to go out on a limb here and say you want to buy a home sooner than that. Looks like saving $50/week isn’t going to cut it.
As an extension of the previous paragraph, you want to set a good goal, and know the price range of the home you are hoping to buy. You don’t have to have a specific home picked out yet, but you should know if you’re looking between $200-$300k, or $400-$500k, or something else. If you don’t know how much you’re shooting for, you don’t know how much you need to save, and if you don’t know how much you need to save, you can’t make plans to save enough. Find a free mortgage calculator that tells you your monthly payment and the total interest you’ll pay over the duration of the loan. This is part of educating yourself about the mortgage process. The lender will do their best to make sure you understand their commitment, but in the end it is (and should be) your responsibility to make sure you’re making a good choice for yourself and your family. You can’t drive without learning how first, and the same applies to buying a house.
Check your credit report and make sure it’s accurate. They usually are, with frightening accuracy, but knowing not only that it’s accurate but what score they give you is a very important part of getting ready for your home loan. Checking your credit report will allow you to make sure there are no signs of identity theft, and to see where you can improve. Depending on your score and the report backing it, it may be advantageous to buy a car that you need to make payments on to have that successful, flawless payment record on the report to push your score up. You’ll also want to get your credit card debt under control, and preferably completely paid off before you try to apply for a VA loan. The report only goes back 12 months, so if you’ve been late on a payment, you’ll want to wait at least a year after it before you apply for a VA loan.
If you are self-employed or a small business owner, you’ll want to make sure you have all the information they’ll want on paper. They’ll want proof of your income from the business, so if you’re paying yourself with partner distributions you need to provide a Pay Advice or something similar that shows the amount of the last pay period and the year-to-date amounts, as well as any taxes or anything paid on those amounts already. You’ll also want crisp, clean financial statements for every quarter for the last two years (they may not want all of them, but they might). Have those financials prepared by an accountant, because if you don’t, chances are the lender will ask you to go back and have an accountant do them.
Those are really the important things to do in preparing for applying for a VA loan. These are just starting points, and while this article is fairly short, completely fulfilling each step within will take some time.