Was Your VA Home Loan Declined? Don’t Take No For An Answer
If your VA loan was denied, it’s possible that your loan officer made a mistake or the lender does not do manual underwriting on VA loans.
VA underwriting guidelines are for the most part written to give an experienced loan officer and underwriter every opportunity to build a case for extending credit to qualified Veterans.
In some cases, you will not get an automated underwriting approval, but that does not mean that you are not still eligible for a VA loan.
Automated vs. Manual Underwriting
Automated underwriting is an online portal that a lender uses to upload the loan application, income, assets, reserves, and all other vital qualifying criteria and it spits out a conditional approval or declines the application along with an explanation of why.
Manual Underwriting is available when you are unable to get an automated underwriting approval. A manual underwrite simply means that the automated method is ignored, and an underwriter will physically review all of your documentation and determine if you are eligible for a VA loan.
This is also common with FHA mortgages but unavailable for conventional financing.
Why do Veterans Have to Fight so Hard for Homeownership?
CLICK HERE to watch VA loan specialists Josh Lewis, Scott Valins & Jason Sharon discuss and dispel myths around your VA Home Loan Benefit!
My VA Loan Was Denied
A loan can be denied by the automated underwriting system for any number of reasons. It could be that something was input wrong. It could be because something was reported wrong on your credit.
It could be because there was a credit issue in the past that requires that your loan be automatically downgraded to a manual underwrite.
In any case, VA loans offer a lot of flexibility and options. Just because you are unable to get an automated underwriting approval doesn’t mean you are not eligible for a VA guaranteed loan.
Manual Underwriting Might Be The Answer
Manual underwriting is a different story. Manual underwriting means that a VA home loan underwriter has to physically calculate debt to income ratios, qualifying disposable income requirements, past rental payment history to name a few.
There are no exceptions with manual underwriting. Debt to income ratios strictly limit all of your monthly expenses, including proposed housing expenses to 41% of your gross monthly income.
This is pretty tight in terms of qualifying for a home loan when you consider that FHA DTI will allow up to 56% and conventional DTI 50%.
Manual underwriting does not mean that you will automatically qualify. This option is much more strict than automated underwriting and can help in some cases.
Don’t Take No For An Answer
Manual underwriting is not a magic bullet. In the overwhelming majority of cases, inexperienced loan officers or strict overlays are the reason for being denied for a VA loan.
If your lender is not approved to do manual underwriting on VA home loans, you may be told you’re not approved without further explanation or options.
Should this happen, ask your lender if manual underwriting is an option. It’s much more work for the lender and the underwriter, and may require much more documentation from you, the borrower – but don’t take NO for an answer…yet.
There are a LOT of call center lenders out there that prey on Veterans. The risk is just far too great that an inexperienced loan officer will make a mistake that could cost you sleep, time, and money. Experience matters.
My biggest fear is that when things get harder to do, some lenders will be unwilling to put in the extra time and energy to fight for you. We’re are not those lenders.
About the Author
Do You Have Questions About Qualifying?
Have Questions or Comments?
Hi….I’m frustrated because the underwriting department is has said that they will be declining the loan because they feel the applicant is short one month on a three year outlook regarding guaranteed income. Have to find a guideline under the area of “consideration” for this weakness in the loan. I’m a Realtor and I just read all of the VA underwriting guidelines, and I can’t say that I was able to find what I need. Closing is in one week!!!! Beckie
Lynnbushea – disputed accounts can certainly be causing an issue, and manual underwriting will not cure that. I can recommend someone to give you a second opinion if you like? I can’t really comment on why without reviewing the entire file and the underwriting results. It’s not unusual to get declined the first time, and then have to troubleshoot your way to an approval.
If you have confidence in your loan officer, give him a day to figure it out. If you would like a second opinion, shoot me an email with your contact information and I will make an introduction.
My email is ScottSchang@me.com
I’m trying to do a VA refi cash out in GA. My DTI is at 44%. The automated
underwriting process results labeled me a risk. The loan officer said he is unsure why it isnt being approved. He thinks maybe because I have a few accounts in dispute. He told me he will see what he can come up !!!!He hasn’t mentioned a manual underwriting… Any thoughts?
MarcGarcia ScottSchang Marc, can you send me your contact information to ScottS@BroadviewMortgage.com – I will introduce you to a friend of mine that can do manual VA underwriting in SC
ScottSchang MarcGarcia
I live in the greenville, SC area.. PS the credit score VERY close to 700
MarcGarcia Thank you for the question! It’s very difficult to comment on scenarios like this because there is always more to the story – and it sounds like your lender isn’t being real clear about what specifically you can do fix this issue. The best thing you can do is to get a second opinion and hope that another lender can better explain the challenges, and lay out a game plan for when you would be able to qualify. I understand the Job issue, but I think that could be resolved with a letter of explanation and possibly a solid verification of employment from the new employer stating that probability of continued employment is good.
What State are you in? Let me see if I can help point you in the right direction and get you a second opinion here.
OK.. just got declined from someone who did my refi on a home which I sold in the begining of the year.. At first the problem was my wife’s credit, so we removed her out and then now they said we are at risk, what exactly does that mean? and why am I at risk? (so that I can fix the issue).. “overall credit rating” was the reply. At a 7% debt to income ratio, could not get approved for a $180K loan.. The only “potential issue” is my job I was just recently employed last week after a 9month unemployment. But have 19 years experience in the same field with verifiable information. Any thoughts as to why??
Scott- We were just asked by underwriting to explain why our 2012 W2’s do not match our 4506 transcripts. I was employed with a company for 5 years and worked on a volunteer basis for another company since Oct 2010. I started doing more work for the company that I volunteered for in Jan 2012 and they started paying me cash. In Aug I decided to leave the company I was with for 5 years to work onsite at the company I had been working for on the side. I only started receiving a paycheck from the new company from Aug on (before that it was cash). I did not receive a W2 from this new company, but I did from my old company and this is what I filed with the IRS. When asked for a W2 from my loan officer for my new company my employer generated one for the entire year (including the cash that had been paid, but none of this income was reported to the IRS by my employer). Now underwriting wants to know why the W2’s don’t add up to the amount on the transcripts. Without reporting this additional income we are $23k short of what we actually make every year. Will our loan be denied due to this? If so, is there any recourse?
Amber1516 Hi Amber, your question relates to your debt to income ratio (DTI) – I do not know if the $23k will be enough to skew your DTI out of eligibility. One challenge may be, if you report the cash on your tax returns, but your employer did not, it may appear as self employment income, which would not be eligible to use. If this drop of income makes you ineligible to buy, you may want to discuss with your employer and your CPA/Accountant how you can report this income and pay taxes on it.
What State are you trying to buy in?
Scott – We are buying in Missouri. Would my last years income that I claimed on my taxes affect my current DTI? According to our loan officer the issue the underwriter is having is that my current employer generated a W2 that wasn’t accurate and wasn’t filed with the government. Should that affect our loan approval? If so, are we able to apply with another lender and completely omit the W2 that my employer generated just to verify my current income?
Amber1516 you would have to show 2 year’s employment in the same line of work. I would think that you could use last year’s reported income from your w2 and your YTD from your pay stubs from the new employer as long as it’s being done above board (taxes being paid and reported to the IRS) and as long as it’s in the same line of work as your previous employer. You shouldn’t have to switch lenders to do this. Unless, of course, your current lender simply doesn’t know how to figure this out.
What about those of us with poor credit for example I use myself. I recently applied and was denied because my score is 521, (464,521,586) so they took my middle score. I have been told I will not get approved until I reach a 620, they are supposed to help me repair my credit as well but the guy in charge of my case has not returned my calls.
@denied0311 You’re a jump away from the 620 you need. In my experience, many times bad credit is the result of not knowing how to build good credit. The middle score is right, all underwriters will do this. If you send me an email to ScottS@BroadviewMortgage.com I can refer a company to you that might be able to help your credit. I have personally used this company and completely trust them. Not hearing anything back is not good news. It sounds like you have a lot of work to do and it’s going to take time. It would be great if you had a lender in your corner along the way to help. What State are you in?
I’m trying to buy a house right now and my DTI is at 48%. The automated underwriting process is labeling me a risk. The loan officer said he is going to work it and see what he can come up with, so I don’t know if this is the manual underwriting he was referring to or not.
@DakotaJustice It’s difficult to say why your loan is not being approved without seeing the automated underwriting recommendations. Moving to a manual underwrite will definitely result in a more strict debt to income ratio. I would be happy to review the findings and see if we can offer some explanation or guidance. Send me a private email and let’s see if we get you some answers