Common Mistakes Veterans Make When Applying for a Mortgage


If you’re a U.S. veteran in need of a mortgage, you may be wondering what options you have. While you could always apply for a conventional mortgage, you may want to consider a VA loan.

With a VA loan, you’re able to buy a home with no down payment. You may also be eligible for a more competitive mortgage rate on a VA loan.

But in the course of applying for your mortgage, there are certain blunders you might fall victim to. Here are three you should definitely do your best to avoid.

1. Not understanding how a VA loan funding fee works

While a VA loan doesn’t require a down payment, there are costs involved that you’ll incur. When you sign a VA loan, you’re required to pay a funding fee that’s calculated as a percentage of your mortgage amount.

The amount of the fee will depend on whether it’s your first time using a VA loan and if you’re making a down payment on a home. If it’s your first time using the VA loan program, your funding fee will be 2.15% if your down payment is under 5%. If it’s your first use and your down payment is 5% or more, your funding fee is 1.5%. And if it’s your first use and your down payment is 10% or more, your funding fee is reduced to 1.25%.

If you’re looking at your second VA loan (or a subsequent loan to that), your funding fee will be 3.3% with a down payment of less than 5%. Otherwise, you’ll follow the fee schedule just listed — 1.5% for a down payment of 5% or more, and 1.25% for a down payment of 10% or more.

More: Check out our picks for the best mortgage lenders

So let’s say you’re signing your first VA loan and are buying a $300,000 home you’re mortgaging completely — meaning, you’re putting no money down. Your VA funding fee will come to 2.15% of $300,000, or $6,450. And while you will generally have the option to roll your funding fee into your loan rather than have to come up with the money at closing, it’s an expense you should be aware of.

2. Not checking your credit score prior to applying

There are no specific credit score requirements for VA loans. Each lender can ultimately determine what score it finds acceptable.

But if your credit score isn’t so favorable, you may be denied a VA loan. Or, you might get stuck with a higher mortgage rate that leads to more expensive monthly payments.

That’s why it’s so important to check your credit score before applying for a mortgage. And if your score needs work, try to boost it prior to your home loan application.

One potentially quick way to raise your credit score is to review your credit report for errors. Correcting a mistake that reflects poorly on your borrowing history could put your score in much higher territory.

If it’s your first time applying for a mortgage, you may get an offer on your first go-round. But as exciting as that is, don’t rush to accept the first loan offer you get. Instead, shop around.

RELATED: Best VA Loan Lenders

You never know when one lender may be willing to offer you a more competitive interest rate on a mortgage than another. So contact a few different mortgage lenders to compare your choices.

But try to do your rate shopping within a couple of weeks. Normally, each time you apply for a loan, a hard inquiry is done on your credit report. And for each of those inquiries, your score usually drops by about five to 10 points.

However, if you apply for multiple mortgages within a two-week period, they’ll generally be regarded as a single application for hard inquiry and credit scoring purposes. To put it another way, if you rate-shop quickly, you might have only one five- to 10-point hit to your credit score — not five or six.

It’s natural to fall into the above traps in the course of applying for a mortgage. But do your best to avoid them so you can walk away with the best deal possible and steer clear of added costs that throw your home-buying budget off course.

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