The state of Washington is home to many military members and veterans. This means many residents could benefit from using the VA loan program, which is reserved for this particular group.
As a Washington-based mortgage company specializing in VA loans, we do our best to educate home buyers and mortgage shoppers about this unique loan program. Today, we’ll explore Washington’s VA loan closing process to buy a house.
Why Take Out a VA Home Loan?
Before we get into the details surrounding the VA loan closing process in Washington, let’s go over all the benefits to a VA loan:
No down payment is required.
The most significant benefit of a VA loan is that there is no need to come up with a lump sum of money for a down payment. Eligible VA loan borrowers can buy a home up to their respective county’s conforming loan limit without a down payment.
Compare this perk to conventional and FHA loans, which require buyers to make a minimum down payment of 5% and 3.5%, respectively. If you buy a home in Washington at the state’s current average price of $574,114, a 5% down payment would come to $28,705. That’s a hefty sum of money to have to gather to make a home purchase, which is something qualifying VA loan borrowers won’t have to worry about.
No private mortgage insurance (PMI) payments.
In addition to a down payment, conventional loan buyers must make PMI payments if their down payment is less than 20%. FHA loan buyers must make mortgage insurance payments regardless of their down payment size.
But with a VA home loan, no mortgage insurance is necessary. This can translate into thousands of dollars in savings compared to a conventional or FHA home loan.
Reduced closing costs.
No matter what type of mortgage you take out to finance the purchase of a home, you will incur closing costs. However, with the VA loan closing process, the fees and costs required to be paid are limited. Buyers can request sellers to cover all loan-related closing costs and up to 4% in concessions.
Lower credit score requirements.
Your credit score is instrumental in your ability to secure a loan, including a mortgage. But while conventional lenders may require excellent credit, you may not need a strong credit score to qualify for a VA loan.
The majority of VA lenders look for a minimum credit score of 620. In contrast, a higher score may be required for a conventional home loan, depending on the lender and your financial situation.
More flexible debt-to-income (DTI) ratios.
Generally speaking, lenders allow a DTI ratio of up to 41% of your gross monthly income. This ratio represents the share of your gross monthly income used to cover your monthly debt.
The higher the number, the higher the risk for the lender. That’s why lenders typically prefer lower DTI figures.
However, getting approved for a VA loan with a DTI higher than 41% may be possible, depending on your credit score and income. This flexibility can increase your purchasing power as a buyer looking to purchase a home and complete the VA home loan closing process.
What Does It Mean to ‘Close’ on a Home?
Let’s start with some basic real estate terminology. What does it mean to “close” on a house?
In this context, “closing” refers to the final step of the home-buying process. This is when the buyer signs all the paperwork needed to complete the transaction, finalize the home sale, and get the keys to their new place.
This is also when the home buyer pays their closing costs and down payment. When using a VA loan, you should receive an estimate of your closing costs during the application stage. You will receive a finalized summary of costs a few days before the closing. This is true for VA, FHA, and conventional mortgage loans.
Washington’s VA loan closing process is usually managed by an escrow or title company specializing in these matters. The escrow agent will gather and finalize all the paperwork needed to complete the sale. These days, a lot of mortgage documentation can be handled electronically, which helps to streamline the VA home loan closing process.
The goal is to tie up any loose ends relating to paperwork review, processing, and signature so that the home buyer can close on time and take ownership of their new house.
Steps in the VA Loan Closing Process
From the home buyer’s perspective, closing represents the final stage of the VA loan home-buying process. But it’s also the culmination of many other steps that come before it. So, to get a better sense of what happens at closing, we have to put it into a broader framework.
Here are the usual steps that lead up to the VA loan closing in Washington:
- Find a VA-approved mortgage lender licensed in Washington—like us!
- Obtain a Certificate of Eligibility (COE) from the VA and give it to the lender.
- Get pre-approved for a specific loan amount to focus your housing search.
- Make an offer on a house and agree on the final sale price.
- Deliver the signed purchase agreement back to your mortgage lender.
- Wait for the appraisal and mortgage underwriting process to be completed.
- Provide any additional documents that are requested, if applicable.
- Conduct a final walk-through of the home shortly before closing day.
- Review your “Closing Disclosure” to determine how much you need to pay.
- Attend the closing and review/sign all of the finalized documents.
- Pay your closing costs with a cashier’s check, certified check, or wire transfer.
- Get the keys to your new home!
As you can see from this list, many individual steps lead up to the VA home loan closing process. But in most cases, it happens in a timely fashion.
An analysis conducted by the Department of Veterans Affairs found that, on average, home buyers using VA loans can get from the initial application to the final closing in about 44 days. They also determined that VA loans are more likely to close successfully when compared to conventional and FHA mortgage loans.
The Average Costs for Home Buyers
In the state of Washington, VA, loan closing costs can include fees relating to mortgage origination, loan processing, document preparation, and title searches.
Many different people are involved in a typical real estate transaction in Washington. This includes home appraisers, escrow companies, mortgage loan processors, and underwriters. That’s why so many unique closing costs are associated with VA loans and other types of mortgages.
The amount you must pay at closing can vary due to several factors. On average, VA loan closing costs in Washington range from 2% to 5% of the home’s purchase price.
Home buyers in Washington who use VA loans can often avoid making a down payment. As already mentioned, that’s one of the key benefits this program offers. However, most borrowers still encounter closing costs, which can add up to thousands of dollars. So, it’s best to start saving money early on in Washington’s VA loan closing process.
How to Keep the Process on Track
As a home buyer, you won’t be involved in every aspect of Washington’s VA loan closing process. A lot of it happens without your direct input or participation. For example, there’s usually a lot of paperwork roundup and communication that happens “behind the scenes,” much of it coordinated by the escrow company.
But there are certain things you can do to help keep the VA loan closing process on track when buying a home in Washington. One of those proactive steps involves document submission.
During the mortgage underwriting process, your lender might request additional information. One typical example is a “letter of explanation” for a significant bank withdrawal or deposit. Handling such requests promptly can help keep your closing on track and prevent unwanted delays.
Good communication goes a long way, as well. In the days leading up to your VA loan closing process in Washington, stay in touch with your loan officer, real estate agent, and escrow company point of contact. Check-in to make sure everybody has what they need from you. You’ll hear from them if they do need something. But it never hurts to be proactive.