A guide to the VA loan preapproval process

A VA loan is a mortgage backed by the Department of Veterans Affairs (VA). If you’re eligible for it, a VA loan is one of the best mortgage programs nationwide, with more flexible qualification requirements and lower costs than conventional loans. And in many cases, you can get a VA loan with no down payment. Here’s a closer look at VA loan preapproval, the strict eligibility requirements, and how VA loan preapproval may fit into your home-buying journey.

Do you need a VA mortgage preapproval?

Before starting the VA loan preapproval process, it’s essential to understand what preapproval entails and whether it’s necessary for your home purchase. In many cases, you can buy a home without preapproval.

Preapproval means a lender has reviewed your finances and is willing to offer you a mortgage up to the preapproved limit, assuming you find a suitable home. With a preapproval letter from your lender, your offer is stronger than a comparable one without preapproval. Some real estate agents advise clients only to accept offers that come with a full mortgage preapproval.

If you’re very serious about buying a home and only need to find the right property, preapproval is likely worthwhile. If you’re unsure if you’ll buy in the near future, you may be better off skipping VA loan preapproval for now.

VA home loan preapproval: Defined and explained

Note: The terms preapproval and prequalification may be used interchangeably by different lenders. At Rocket Mortgage®, prequalified approval means your information was briefly reviewed but isn’t yet verified. Preapproval means your bank and credit information is reviewed, and verified approval means an underwriter approves you and can present a preapproval letter when making an offer.

Preapproval is a formal review of your credit, income, debts, and other factors used to determine if someone is eligible for a mortgage based on the lender’s guidelines. To be preapproved, you may have to submit financial statements and tax returns, and you should expect a hard pull on your credit, which may have a minor, temporary negative impact on your credit score.

Preapproval isn’t a final approval, but it’s a very strong signal that you’re well-positioned for approval in the near future. It doesn’t lock your interest rate or change the terms of your upcoming home loan. The primary purpose of mortgage preapproval is to demonstrate to sellers that you’re serious about buying a home and are likely to be approved for a mortgage, facilitating a smooth closing and transfer of ownership.

VA loan preapproval vs. prequalification

If you’ve received a letter or email that you’re “prequalified” for a mortgage, that isn’t the same as being preapproved. Knowing the difference between prequalification and preapproval can help you avoid potentially embarrassing or costly mistakes.

Prequalified means a lender has completed a brief, high-level review of your credit, and based on that information, they believe you may be a good fit for their mortgage program. Prequalification doesn’t include a thorough review of your income, assets, and debt-to-income. This can be helpful to know before applying for a mortgage, but it’s not a firm assurance that you’ll be approved.

Preapproval, on the other hand, is an in-depth evaluation of your ability to qualify for a mortgage, and is a strong indication that you’re a competitive buyer.

VA loan preapproval vs. Verified Approval

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

Rocket Mortgage Home Loan Experts are available to help you gather VA documents to help prove you’re eligible for the VA loan program based on your active service, veteran, or qualifying spouse status.¹

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. Final approval takes place after you have found the home you plan to buy.

Along with final checks on income, assets, credit, and employment status, final approval also includes a review of the property, including an appraisal. This assures that the home meets VA and lender standards and the loan isn’t worth more than the property.

How to get preapproved for a VA mortgage

In most ways, preapproval for a VA mortgage loan is similar to any other mortgage. In either case, the lender reviews your credit and other financial details to decide if you’re potentially eligible for a mortgage.

1. Meet the VA’s service eligibility requirements

To qualify for a VA loan, you have to meet service requirements established by the Department of Veterans Affairs. To prove you’ve met those requirements, you’ll get a certificate of eligibility (COE) from the VA, which you’ll give to the lender with your application.

For those currently on active duty, in the reserves of any service branch, including the National Guard, you meet service time requirements if you have spent 90 days on active duty with no break in service.

If you’re a veteran, active-duty service time requirements depend on when you served. For those who served from August 2, 1990, to the present, you meet the requirements for a COE if you’ve met any of the following:

• 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.

Surviving spouses can also qualify, even if they didn’t serve in the military themselves. As with active duty and veteran households, surviving spouses can reach out to Rocket Mortgage for help finding a copy of their COE from the VA.

2. Meet the financial requirements for VA loans

As with nearly any loan, you’ll need to undergo a financial review to receive a VA loan, and you’ll go through a similar process when getting VA loan preapproval.

• Credit score: The VA doesn’t set a specific minimum credit score for VA loans, but lenders often have their own. At Rocket Mortgage, we require a credit score of 580 or above for VA loans. It is worth noting that with a score of 640 or higher, you may be eligible for a larger loan and fewer restrictions with a cash-out refinance. Your credit score is based on information from your credit report, which you can get for free by law.
• Debt-to-income ratio (DTI): DTI tells lenders what percentage of your monthly income goes toward debt payments. To calculate your DTI, add up your total monthly minimum debt payments, including mortgages, car payments, student loans, personal loans, and credit card payments, and divide by your monthly income. The VA doesn’t require a specific DTI. Still, 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, as every situation is unique.
• VA funding fee: VA loans include a funding fee, which ranges from 1.25% to 3.3% of the loan value. The fee is determined by your down payment size and whether you’ve ever received a VA loan in the past. Purple Heart recipients who return to active duty and surviving spouses are typically exempt from paying the VA funding fee.
• Closing costs: VA loan closing costs are similar to those for other mortgages, typically ranging between 3% and 6% of the home’s purchase price. These costs often include recording fees, appraisal fees, your first home insurance payment, and pest inspections (which are sometimes required by the VA).  The largest VA-specific closing cost is the funding fee, which can be included in the mortgage. Reach out to your lender to learn more about the differences in closing costs and monthly payments if you’re considering including your VA funding fee in the loan balance.

3. Collect preapproval documents

For preapproval, you’ll need to provide the lender with a list of documents to prove your loan eligibility. This includes proof of income, assets, and identification.

• Certificate of eligibility: Your COE is the official document from the VA indicating that the borrower has met service requirements for a VA mortgage loan.
• Personal identification: Lenders will require a copy of a valid government ID, such as a driver’s license, passport, or military ID.
• Tax returns: You’ll typically need to provide your two most recent tax returns, including W-2 and 1099 forms.
• Proof of income: To prove your income, you’ll likely need to provide recent pay stubs to prove your income, in addition to the W-2 and 1099 forms from your taxes. Some lenders also require a letter or statement to verify employment.
• Asset statements: Bank and brokerage account statements prove you’re able to make your down payment and have sufficient cash flow to cover monthly payments.

This process can seem intimidating at first, but if you work through your documents one at a time, you’ll be done before you know it. Your lender can help guide you in the right direction if you’re unsure where to find specific documents or forms.

4. Find a VA-approved lender and apply

Not all banks and mortgage lenders are approved by the Veterans Administration to originate VA loans. 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. Your credit is pulled to verify debts, and we collect documentation on your 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 to demonstrate to sellers that you’re able to afford the offer, and you’ve already begun the mortgage process with a preferred lender. When you find your dream house, the preapproval letter puts you in a better position to have your offer accepted.

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

When does a VA loan preapproval expire?

Preapproval lasts for a specific time period. If you don’t have a home purchase underway by the time the preapproval expires, your lender will likely want to recheck everything to ensure that nothing has changed. After another review, you can get an updated lender letter.

Preapproval time varies from lender to lender. At Rocket Mortgage, VA loan preapproval letters last for at least 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:

• Improve creditworthiness: Making all credit-related payments on time and keeping credit card balances low are essential steps to increase your credit score. You can also check your credit report for errors so you can dispute anything you don’t recognize.
• Pay off debts: Paying off debts improves your credit score and debt-to-income ratio at the same time. That’s a win-win for your VA loan application. The less debt you have going into your mortgage transaction, the higher your approval amount can be because you’ll have more financial wiggle room if a higher monthly payment is needed.
• Allocate a higher down payment: One of the most popular benefits of a VA loan is that no down payment is required in most cases, but that doesn’t mean you can’t make one. The higher your down payment, the lower your monthly payment will be. A bigger down payment may help you qualify for a mortgage on a more expensive home.

The bottom line: Getting preapproved shows you’re a serious buyer

A preapproval letter or statement from your lender shows home sellers that you’re serious about making a home purchase, and that you’re likely in a good financial situation to be approved for a VA home loan. If you don’t have a COE yet, Rocket Mortgage Home Loan Experts are ready to help.

If you’re ready to get started with a preapproval or want to apply for a VA loan, you can get started with an online VA loan application today!

¹ This article is for informational purposes only and is not intended to provide financial, investment, or tax advice. You should consult a qualified financial or tax professional before making decisions regarding your retirement funds or mortgage.

Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.

Rocket Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.