A VA loan pre-approval letter is a document granted by a VA mortgage lender that states that based on preliminary information such as the potential borrower’s credit, assets, and income, that they qualify for a VA loan of a specified amount.
It is different from a pre-qualification in that some or all of the submitted information is reviewed for accuracy before the letter is issued.
Having a pre-approval letter from your VA lender will show home sellers that you are a qualified buyer and may lead to your offer being more seriously considered.
Once you have obtained your VA loan pre-approval letter, you will then be able to begin making offers on homes you are interested in purchasing.
In order to get your VA loan pre-approval letter, your lender may require the following:
- At least one months pay stubs or LES (if still active duty).
- W-2’s and Tax Returns for the past two years.
- Two months bank statements for any/all assets.
- Your DD 214 form (if no longer on active duty).
- Statement of Service from S1 (if still active duty)
Your pay stub is needed to show that you are currently employed, as well as your current income. W-2 statements (for the past two years) then show how much you normally earn in a year.
If you are currently still on active duty, your Statement of Service must show a minimum of 12 months remaining on your contract.
Finally, your DD 214 form will enable your VA lender to decrease the amount of time necessary for processing your certificate of eligibility. Once again, this is not required, but it is generally a smart idea.
The reason why this is a smart idea is that the majority of direct lenders with the VA can put in an order for your certificate of eligibility, which determines whether or not you are eligible for a VA loan.
The process can be very quick as long as you turn in all these documents as soon as possible to your loan officer.
After your VA loan officer or lender has the described documents, he or she can submit your information in the VA loan analysis software to determine your eligibility. The calculation that will determine your eligibility is:
(Monthly Income) – (Proposed Mortgage Payment + Insurance + Taxes + Utilities for the house + Monthly Credit Card Payments Due) = Residual Income
Residual income is the amount of money that you have after you have paid the sum of your monthly bills. The VA will use their judgment after they have calculated your residual income to decide if you will have a satisfactory amount of money left over after you have paid your bills.
The VA has established various requirements for what your minimum residual income will have to be, such as what part of the country you live in, the size of your family, how old your children are, and various other factors.
When obtaining VA pre-approval letter, be aware that simply getting the letter does not commit the lender to giving you a loan. It just means the initial information has been reviewed. In order for the mortgage application to be approved additional information and documentation about both the borrower(s) and the property must be reviewed to be sure that all of the guidelines are met.