June 17th, 2011 9:39 AM

Via Bruce Reichstein (VALoans.com - Expert VA Loan Officer - Agent Trusted Lender):

VA home loans have two different stages for the first time home buyer. The first is the initial stage where the borrower applies for VA loan eligibility, which is simply the process of submitting paperwork to the Department of Veterans Affairs establishing that the borrower is a veteran eligible for the benefit itself.

The second stage is the VA loan application process, where the borrower works with a lender to get VA loan approval.

VA loan eligibility should not be confused with VA loan approval. Eligibility simply indicates that a veteran meets all the criteria required to take advantage of the VA loan benefit. That criteria includes doing a minimum time in military service, which varies depending on when the member joined up. The nature of service is also a factor–minimum requirements differ for active duty military as opposed to Guard and Reserve members.

Since there’s no single set of requirements which apply across the board for all in uniform, the VA has set up the VA loan eligibility system as a way to make sure all loan applicants meet the requirements. Proof of service and other documentation is needed before the borrower can be considered eligible to use their VA loan benefit.

Just being eligible doesn’t mean the lender will approve a VA loan application. That application is the second stage and much depends on the buyer’s record of on-time payments, income and other factors. Because VA loans are not considered “credit score driven”, the lender can’t just look at the numbers on your credit report and decide whether you make a good risk or not. Instead of credit scores, your credit history is a very important factor in the decision to approve or reject a VA home loan application.

But the lender cannot process the paperwork for the second stage without paperwork from the first stage. Before the lender gets to your application, he or she must know you have VA loan eligibility. It must be in writing from the Department of Veterans Affairs before the loan paperwork can be reviewed.

VA rules state, “Before processing and closing a loan for an applicant, the lender must ensure the applicant is an eligible veteran. Lenders should never close a loan before they establish eligibility, since VA cannot guarantee a loan for an ineligible veteran.”

If you want to apply for a VA mortgage, the first step is getting your eligibility established, but you don’t have to wait to talk to a lender. Banks that participate in the VA loan program are equipped to help you get your VA eligibility paperwork and in some cases may be able to get it accomplished for you faster than you would on your own. There are exceptions to this–some borrowers must apply by mail–but your lender can tell you what applies in your specific circumstances.

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