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VA Guidelines - Manual Underwriting

VA Guidelines – Manual Underwriting

Second Chance

If your lender is unable to get an automated underwriting approval, or if you’ve been turned down with no explanation, it’s possible that it’s your lender, and not you, who is not qualified.

VA manual underwriting guidelines are designed to give an underwriter guidance and the guidelines for manually underwriting, and approving a loan application.

There are many lenders that simply do not manually underwrite VA loans. When choosing a lender, this is something that you want to research when you’re first applying for a VA loan.

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A lender that has the experience of manually underwriting a VA loan can give you a second chance if the automated underwriting system decision comes back with a refer/eligible finding, or if certain conditions are present at the time of underwriting.

If you are applying for a VA guaranteed loan, choose a loan officer that has experience with VA loans, and more specifically, VA manual underwriting guidelines.

VA Manual Underwriting

There are many reasons why a VA manual underwriting downgrade can happen.  In some cases, it could be that your loan officer or underwriter did not structure your loan properly.

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If your loan officer is inexperienced, or if their lender is not aggressive with underwriting their interpretation of the guidelines, your chances of receiving an automated underwriting decision significantly goes down.

System Override and Manual Downgrade

A system override and/or manual downgrade of an Accept/Approve to a Refer classification may be required if a particular loan application variable is revealed during loan processing.

A system override occurs when something appears on the loan application that triggers a requirement that an underwriter review the loan file.

A manual downgrade becomes necessary if additional information, not considered in the AUS decision, affects the overall insurability or eligibility of a mortgage otherwise rated as an Accept or Approve.

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Both system overrides and manual downgrades may be triggered by inaccuracies in credit reporting, by eligibility issues, when a case file cannot be documented according to the automated underwriting system findings, and for other reasons including the unlikely failure of the automated underwriting system to recognize a derogatory credit item.

Manual Downgrade – Credit Issues

Credit issues that appear in the file can trigger an automatic downgrade, and require your VA loan to follow manual underwriting guidelines.  Here are a few of the most common credit issues that will result in a manual downgrade.

Previous Mortgage Foreclosure:  A borrower whose previous residence or other real property was foreclosed on or has given a deed-in lieu of foreclosure within the previous two years is generally not eligible for an insured mortgage.

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There are some lenders that, with documented exceptions,  will manually underwrite the loan application and look for compensating factors if the foreclosure or deed in lieu occurs in less than 2 years from the application date.

Providing the foreclosure was completed at least two years previously and the risk-classification from the AUS is an Accept/Approve, no further documentation regarding the foreclosure is required.

Mortgage History:  Late mortgage payments during the most recent 12 months consisting of greater than 1×30 days late on a purchase or a rate/term refinance, or greater than 0 x 30 on a cash out refinance.

Bankruptcy:  Both Chapter 7 liquidations and Chapter 13 bankruptcies discharged within two years of loan application will require a manual downgrade. If your bankruptcy has been discharged less than one year is not eligible for a VA guaranteed mortgage.

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Providing the bankruptcy was discharged at least two years previously and the risk-classification from DU is an Accept/Approve, no further documentation regarding the bankruptcy is required.

Disputed Accounts:  If your credit report reveals that there are any disputed credit accounts or public records, the mortgage application must be referred for manual underwriting review.

Compensating Factors

When manually underwriting your VA loan, the underwriter is doing a combination of things.  In some cases, the underwriter is only looking for alternative documentation to satisfy a requirement of the automated underwriting decision.

Compensating factors will allow an underwriter to “offset” credit profile deficiencies by documenting that there are sufficient conditions that reduce the risk of default.

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Compensating factors may affect the loan decision.  These factors are especially important when reviewing loans which are marginal with respect to residual income or debt-to-income ratio.  They cannot be used to compensate for unsatisfactory credit.

Valid compensating factors should logically be able to compensate (to some extent) for the identified weakness in the loan.  For example, significant liquid assets may compensate for a residual income shortfall whereas long-term employment would not.

Compensating factors include, but are not limited to the following:

  • excellent credit history,
  • conservative use of consumer credit,
  • minimal consumer debt,
  • long-term employment,
  • significant liquid assets,
  • sizable downpayment,
  • the existence of equity in refinancing loans,
  • little or no increase in shelter expense,
  • military benefits,
  • satisfactory homeownership experience,
  • high residual income,
  • low debt-to-income ratio,
  • tax credits for child care, and
  • tax benefits of home ownership.

Don’t Take No For an Answer

If your lender is not approved to do VA manual underwriting on VA Guaranteed loans, you may be told you’re not approved without further explanation or options.

Should this happen, ask your lender if they are able to manually underwrite VA loans.  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.

Find a lender that is willing to fight for you and manually underwrite your VA home loan.  We are out there and don’t mind working extra hard to qualify Veterans for home loans.

Getting Your Questions Answered

All lenders are not created equal.  Most of the readers that find this site because they’ve been researching solutions to challenges, and have been told 10 different things by 10 different loan officers.

We’ve created this resource to help you sift through the endless opinions and articles that may, or may not directly answer your question correctly.

There are several ways to ask questions, and get expert opinions on this website.

  • Submit a Question:  On the bottom of this page, you’ll see a prompt that allows you to ask questions.  These questions come directly to me and are answered very quickly.
  • Leave a Comment:  Below every article is the option to leave a comment or question.  We see these comments and questions in real-time and the always answered, usually pretty quickly.

In addition to researching your questions and providing you with expert advice, I can also introduce you to a lender friend that I know has experience with your specific situation and can help.


About Your Expert

Scott Schang

A 20 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

Leave a Question or Comment About this Topic

  • Cc says:

    My lender says I dont qualify for manual underwriting because I had one late payment over the past 12 months

    • Scott Schang says:

      First and foremost, THANK YOU for your Service!

      One late payment in the past 12 months does not automatically disqualify you from using your VA home loan benefit. There are many factors that go into underwriting a VA loan, and this just sounds lazy to me if they said it was this one specific thing.

      Let’s get you a second opinion! Are you trying to buy, or are you doing an IRRRL refinance of an existing VA loan?

      Shoot me an email to scott@findmywayhome.com and let me know what State you’re in.

      I can introduce you to someone that I know and trust that has extensive experience fighting for Veteran’s benefits.

      Hope this helps?

  • Ashley says:

    Hey I am trying to find out we are going through a manual underwrite where he has submitted a application with a certain loan amount does this mean we are approved for this amount or is the lender just giving them a number they think we qualify for?

    • Scott Schang says:

      Hey there, it’s difficult to know for sure, but my best guess would be that is a loan amount that they think you would qualify for. If your loan officer has experience with VA loans, the loan amount may accurately represent the amount they are trying to get you qualified for. If the loan officer does not have a lot of experience, it could be a number they pulled out of the air.

      I would assume that your loan officer knows what they are doing if they are structuring this as a manual underwrite.

      I hope this helps?

  • Peter Van Dermark says:

    My problem I have been outside the States for over 7 years and therefore have no credit history. I have records here of 2 SUV purchases with records of all timely payments. I have receipts on home purchased. I also have my VA loan certificate with funding exempt but having a hard time finding a loan.

    • Scott Schang says:

      Peter, first and foremost THANK YOU for your Service! Unfortunately, as a consumer, your options are limited to the experience of the loan officer you’re talking to. Without having more information, I cannot make any guarantees, but I can tell you that it is not unusual for a Veteran to have limited credit history due to deployment.

      An experienced loan officer will help guide you through a manual approval if that’s even necessary. There are a couple of ways to solve the credit history challenges.

      Shoot me an email to scott@findmywayhome.com and let me know what State you’re in. I’ll introduce you to someone I know and trust that will exhaust all options and fight for your approval.

      Hope this helps?

  • Glen Horay says:

    Hi Scott. I’m hoping you can help me out. I’m selling my current house and making a large profit on it. unfortunately we had credit card debt that I went with a consolidation company with. That killed my credit score. (760-590). I have a derogatory payment on my report now from the missed payments for the past 90 days. I have NEVER missed a payment or had a late payment on anything in my life prior to this. It appears as though I can’t seem to get approved for a VA loan now even though my income is more than enough and I’m planning on being credit card debt free at the sales settlement with the proceeds from my house sale. Any help you could give would be greatly appreciated.

    • Scott Schang says:

      Hi Glen, I received your email, and I am introducing you to a close friend of mine in NJ that is an expert at VA loans, including manual underwriting. a 590 credit score would not prevent you from qualifying for a VA loan unless the lender has rules that are more strict than what VA allows. Talk to Evan. He’s very smart and he can definitely help you get pointed in the right direction.

      Hope this helps?

  • Kendrick says:

    Hi Scott, would you know of any va underwriters in the plano/Allen tx area? Was denied a home loan even after pre-approval, appraisal, walk through, successful completion of credit repair program through the lender. Denied for late payment in the last 12 months. Even that I’ve been current for the last 7 months. The late payments were due to a fraud mishap I went through and went to court and won a judgement. They still said that wasn’t enough evidence for the late payments. I felt the lenders never did enough to help and just denied us. Putting us in a bind to close at the last minute knowing they wasnt gonna approve me. Causing me to have to move into another apartment last minute.

    • Scott Schang says:

      Hi Kendrick, Yes, I do – I have your email address, I’ll make an introduction now. Not sure what City specifically they are located in, but I have a good friend that is himself a Veteran, and is one of the foremost advocates for Veteran’s housing in the Country.

      Hope this helps?

      • Michael says:

        Hello Scott my wife and I are in a similar situation Kendrick noted above here in San Antonio Texas. We moved out of our home in Houston Tx with the understanding that a 3rd party company would take over the payments in 2012 to present. Well recently July-August 2019 the tenant fell ill and was in the hospital and was unable to pay those two months but the account is current to date… And now Smart Choice just notified my wife and I that we could not be approved for VA loan

        • Scott Schang says:

          Hi Michael, I apologize for the delay here. This is an interesting situation because it sounds like you may have hired the 3rd party to manage your property? I did have a situation one time where the VA was going to cover payments while a Veteran was relocated to a different State to work for the VA. A payment was not recorded properly, which caused problems when he was trying to buy his new home.

          Do me a favor, shoot me an email to scott@findmywayhome.com and let me know what State you’re in. Let me connect you with someone that I know and trust that fights for Veterans every single day. Just because a lender tells you no, doesn’t mean that’s the final answer.

          There are many lenders out there that choose to not work with Veterans with challenging scenarios. I don’t have enought information to know if that’s the case here, but I can at least offer you a second opinion from someone that I trust will tell you the truth.

          THANK YOU for your Service! I hope this helps?

  • rick says:

    i was told by my bank it was ok and to start packing. Idid home inspect pest inspect and passed va appraisel and says my DTI is 50.9. My credit score is 740 and im disabled so I get a steady check. I have paid rent of $1100 a month for 10 years. Put in escrow money and now with 4 days till closing they came back denied.

  • TT says:

    Good afternoon, I was denied a VA LOAN because of a chargeoff on my account for a car I cosigned for. (car was totaled). My car I got by myself was always on time never late and only have 6 months to pay off..I was wondering could I have gotten a manual underwrite?

    • Scott Schang says:

      Thank you for your question, and Thank you for your Service! I would definitely want you to get a second opinion from someone that is used to fighting for Veterans. VA underwriting guidelines are very much left to interpretation by the underwriter, and the VA will go out of its way to accommodate the Veteran.

      I would be happy to introduce you to someone that I know and trust that can help. Shoot me an email to scott@findmywayhome.com and I’ll connect you with an expert! Don’t forget to include what State you’re buying in.

      Hope this helps?

  • Kelly says:

    Where is the box to check “foreclosure due to natural disaster?”

    • Scott Schang says:

      This wouldn’t be a box, however, it might qualify for an extenuating circumstances exception that would waive the waiting period. If you would like an introduction to a loan officer friend of mine that has experience with VA manual underwriting, just shoot me an email to scott@findmywayhome.com and let me know what State you’re buying in.

      Hope this helps?

  • Natasha says:

    Good Afternoon, I am trying to figure out if this scenario is even possible with a manual VA underwrite. I was medically retired from the military (forced out within 90 days under honorable conditions), but had to file Chapter 7 Bankruptcy shortly after. I filed in September of 2017. Am I able to be qualified for a VA home loan for extenuating circumstances with an excellent LOE in September of this year? I know normally, for Chapter 7, it’s a 2 year wait, however one manual underwriter said that it is doable, but they haven’t gotten back to me about trying to go under contract prior to the year being up and closing after the year is indeed up. Please help!

    • Scott Schang says:

      Hi Natasha,

      Yes, this is doable, but it’s really going to come down to how hard the loan officer and underwriter fight for you. The underwriter would have to put together the LOE, and document all of the circumstances that led up to the one time “BK” event, and were completely outside of your control.

      I know some really, really experienced VA loan officers and lenders that specialize in manual underwriting. I would recommend that we try to get you a second opinion!

      If you would like help, shoot me an email with what State you’re in, and the best number to reach you – I’ll introduce you to someone that can help, and let’s see what they say.

      Hope this helps? And THANK YOU for your Service!

  • Bertha juarez says:

    My house is in foreclosure process but im trying to get a loan modification..do yo think is good idea ??

    • Scott Schang says:

      Hi Bertha,

      I think it’s a good idea to try to keep the home as long as you can afford it. I often see folks that are so emotionally attached to a house that they drag out the inevitable for years, eventually ending up in the loss of the home.

      You really need to determine whether or not a modification is going to change the circumstances that led you to falling behind, and defaulting on the loan.

      Another consideration is whether or not you have equity. You do not want the lender to incur the cost of foreclosure if you can sell the home and keep that money yourself.

      Does this help at all?