Many times, individuals who should qualify have their application for a VA loan declined. If that happened to you, below you’ll find some information to help answer the question Why did my VA loan get declined?

Your VA Home Loan Benefit

VA manual underwriting is a little known, and under-used approach by experienced VA lenders that may turn a declined VA loan into an approved VA loan.

As a Veteran, or active duty member of the Army, Navy, Air Force, Marines, Coast Guard, or National Guard and Reserve, you may be eligible for a special home loan benefit that is not available to the civilian public.

If you’re already familiar with your VA home benefit, then you may know that you can buy a home with no down payment.  100% financing is the most common benefit of using a VA loan, and the one that most lenders advertise when trying to earn your business.

Applying for a VA home loan is similar in many ways to traditional financing like Conventional, FHA or USDA financing, except that there are additional qualifying requirements that could result in a VA loan declined.

Why Did My VA Loan Get Denied?

There are very big differences in how a VA loan is underwritten that increases the potential for your loan application to be denied. Not only do you have to meet service and discharge requirements, there are several other significant differences that determine your ability to qualify.

VA Loan Declined?

Active Military Income

If you are active duty, Leave and Earnings Statement (LES) has 78 possible fields that details your leave and earnings showing your entitlements, deductions, allotments, leave information, tax withholdings information, and Thrift Savings Plan (TSP) information.

If your loan officer is not familiar with reading a LES, it’s very easy to miss vital information or misinterpret information that could cause your loan application to be denied by an automated underwriting system.

Residual Income Calculation

Veterans may not have the same income verification challenges as active duty military personnel, however, there are still income calculations that are not required with traditional financing that inexperienced loan officer may not understand.

A residual income calculation is required for all VA loan applications that adds an extra layer of qualifying for Veterans looking to take advantage of their home loan benefit.

Residual income is a calculations that is required above and beyond the traditional debt to income calculation that is required for all loan applications.

Residual income takes into account your monthly income, your spouse’s income, state and federal taxes, credit card, auto and student loan payments, estimated utilities, childcare and child support, and your proposed mortgage payment including principal, interest, taxes, insurance, and homeowner’s association dues.

The result of this calculation will produce your VA Residual Income amount, which essentially represents the amount of disposable income you’ll have left over after paying all of your obligations for the month.

Manual Underwriting

All lenders and loan officers are not created equal when it comes to underwriting and approving a VA home loan.  There are a lot of moving parts with a VA loan, and an inexperienced loan officer can easily make a mistake that could result in your loan application being denied.

An automated underwriting approval uses an automated underwriting system (AUS) by either Fannie Mae (DU/DO – Desktop Underwriter / Desktop Originator) or Freddie Mac (LPA – Loan Product Advisor).

These automated systems make an underwriting decision based on what is entered into the AUS.  If your loan officer makes a mistake, or if the lender that they work for does not offer manual underwriting, you could be declined without explanation.

Experienced loan officers will tell you that one of the greatest benefits of the VA loan program is the ability to fight for your loan approval using manual underwriting and compensating factors.

The Veteran’s Administration has the ability to consider compensating factors to overcome areas of your application that may not meet standard underwriting guidelines.

Compensating factors are “positive” factors that may not appear on your application, or explanations for missing information or different challenges that would prevent you from receiving an automated underwriting approval.

Working with an Experienced VA Lender

At Uniforms, we specialize in matching you with experienced VA loan specialists that know how to navigate the unique, and sometimes challenging financial situations that military members can encounter during their time in the service.

If you’ve been turned down by another lender, the first thing you should do is question whether or not that lender specializes in VA lending.  Few loan officers and lenders understand how to use manual underwriting to fight for your right to use your VA home loan benefit.

You served our Country, now it’s our time to serve you.

Categories: VA Loans

Scott Schang

With 15+ years experience, Scott loves helping people with tough situations find mortgage solutions. NMLS #279893

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