So you’ve gotten a certificate of eligibility for a VA loan from the VA . Does that mean that you are now a lock to be approved for the loan? The short answer is……hell no. Your COE is only half the battle. Who is eligible for a VA loan, and who qualifies for a VA loan are two totally different things. Stay tuned and I’ll explain why.
The first question we need to answer is how do VA home loans work. You may have heard the term VA loan guarantee before. This does not mean the VA is guaranteeing veterans a home loan. In fact, the VA isn’t lending you money to buy a home at all. Rather a bank or mortgage company is going to do that.
What the VA does is promises to pay off up to 25% of that loan if you were to default on the loan (this is called the VA guaranty), and the bank has to foreclose on the property. This takes away much of the risk (but not all) for the bank, and encourages them to make the loan. So when people ask is a VA loan guaranteed, technically the answer is yes. However, it’s guaranteed for the bank, not the veteran.
This is an important distinction to make. Your certificate of eligibility from the VA simply means that you’ve met all the service requirements to participate in the program, and that the VA will guaranty a loan on your behalf. And though this guaranty diminishes the risk involved with making the loan, it does not ameliorate that risk altogether. So who can get a VA loan? Veterans who meet the basic underwriting guidelines.
Most of these guidelines are outlined by the VA in their VA Handbook. This is the rule book that lenders must adhere to when writing VA loans for veterans. Lenders have the option of adding more guidelines on top of the rules laid out by the VA, but they cannot ignore any of the stipulations the VA sets forth; or else the VA does not have to guaranty the loan.
The good news for veterans is that the VA lending guidelines are some of the most forgiving and liberal guidelines of all loan programs. The best thing to do is talk with a lender and apply for a VA loan. It’s not necessary to contact the VA to get your certificate of eligibility. Lenders that offer VA loans are generally able to obtain the COE on your behalf.
Now that you know the difference between being eligible and qualifying, you may be wondering what type of credit ranking do you need to qualify for a VA home loan. Be sure to watch my video on “what FICO score do I need for a VA home loan” where I’ll be covering what credit score you’ll need to get a VA loan.
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