VA Manual Underwriting Guidelines

VA Manual Underwriting Guidelines For VA Loans

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In this blog, we will cover and discuss the VA manual underwriting guidelines on VA loans. For individuals who have served in the military and are currently on active duty, the VA loan program stands as a powerful tool to facilitate homeownership. VA loans are the best mortgage loan program for owner-occupant primary homes. However, not all mortgage borrowers are eligible to qualify for VA home loans. One of the privileges of being a veteran of the United States Military is active and retired members can become eligible for VA home loans.

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Who Qualifies For VA Home Loans?

Active duty, retired veterans, and spouses of deceased veterans with an active certificate of eligibility (COE) can purchase a home with no mortgage insurance, no maximum loan limit, and less-than-perfect credit with 100% financing. Veterans with a certificate of eligibility can apply for a VA home loan at a VA-approved mortgage lender.

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Qualifying for a VA Home Loans

For individuals who are currently serving in the military or veterans who were honorably discharged, more than six years of National Guard or reservist service, the service one must include 90 consecutive days of active service during a war or at least 181 consecutive days of active service during peace, or be a surviving spouse of a service member killed in the line of active duty. In order to qualify for a VA loan, you will need a VA COE (VA Certificate of Eligibility), meet the lenders’ standards for credit and income, and live in the home you are buying.

Do All Mortgage Lenders Offer VA Loans?

The United States Veterans Administration (VA) does not originate, process, underwrite, fund, or service VA home loans. Private mortgage companies that are approved by the U.S. Veterans Administration offer VA loans with no money down at competitive mortgages. The United States government created VA loans to thank our brave men and women in uniform for the opportunity to purchase a home with no down payment.

One of the frequently asked questions is what is the purpose of the VA mortgage loan program? The main purpose of the VA loan program is to reward the brave men and women of the U.S. Armed Services eligible for a home mortgage loan backed by the United States Department of Veterans Affairs called VA home loans.

VA Loans Information

Alex Carlucci, a top producer at Gustan Cho Associates, and an expert in originating VA home loans and helping veterans with bad credit and credit scores as low as 500 FICO issued the following statement:

The main purpose of the VA home loan program is to help veterans finance the purchase of homes with favorable loan terms and at a rate of interest which is usually lower than the rate charged on other types of mortgage loans. VA loans don’t require private mortgage insurance. Borrowers are charged a funding fee that usually averages 1% to 3.6% of the loan, depending on your down payment. Fourth, VA loans can only be used to buy a primary residence, while conventional purchase loans can be used for primary residences, second homes, or investment properties.

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There are two different types of the underwriting system for VA home loans. When homebuyers with a certificate of eligibility meets with a loan officer to qualify and get pre-approved for a VA home loan, the loan officer will take the loan application, collect documents, pull a tri-merger credit report, and qualify the veteran. While most VA loans undergo automated underwriting, some situations necessitate manual underwriting. Manual underwriting involves a more in-depth review of a loan application, allowing borrowers with unique financial circumstances to be considered for a VA loan.

Once the loan officer has gathered all the proper data and feels the borrower meets all the agency mortgage guidelines of the Veterans Administration, the information is entered into the automated underwriting system, often referred to as AUS. The AUS is a highly sophisticated computerized system that will render an automated approval, or denial within seconds after all data has been entered. The AUS has the algorithm of every aspect of the guidelines of VA loans.

Approve/Eligible per AUS on VA Home Loans

Approve/Eligible means the borrower meets all the guidelines for a VA home loan approval

Refer/Eligible per AUS on VA Home Loans

Refer/Eligible AUS Findings mean the borrower may or may not meet the guidelines for a VA home loan approval but the AUS cannot fully confirm the eligibility of the borrower.
The AUS refers the file to a human mortgage underwriter for a manual underwrite.

Refer with Caution on VA Home Loans

Refer with caution is a polite way that the borrower does not meet VA mortgage guidelines of the VA.
Refer with caution normally gets rendered when the borrower may not meet the waiting period requirements after bankruptcy and/or foreclosure or other conflicting answers on the disclosure section of the 1003 mortgage loan application.

Check if You’re Qualified For an Automated or Manual Underwriting

How Does The Automated Underwriting System Work on VA Loans?

Alex Carlucci of Gustan Cho Associates explains about the automated underwriting system:

When a homebuyer who is eligible for a VA loan come to a lender, their information is entered into what’s called an Automated Underwriting System, or AUS. This is essentially a computer program that helps streamline the application process and let lenders know at the outset whether a borrower will meet credit and income requirements. One of the frequently asked questions we often run into is what would cause an underwriter to deny a VA loan? 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.

What Is The Automated Underwriting System?

The Automated Underwriting System, AUS, is a tool lenders use on government and conventional loans. There are two types of Automated Underwriting Systems. One is Fannie Mae’s Desktop Underwriter, the DU. The second is Freddie Mac’s Loan Prospector, the LP. An underwriting system is an automated computer system that decides whether a person who wants a loan meets the minimum agency mortgage guidelines. These are for the Federal Housing Administration (FHA), Veterans Association (VA), United States Department of Agriculture (USDA), and Conventional Loans. If a loan doesn’t fit into the guidelines for Automated Underwriting, it would need to be manually underwritten.

Differences on Manual Underwriting on FHA Versus VA Loans?

VA and FHA are two of the loans that allow for manual underwriting. Manual underwriting consists of a professional underwriter actually going through your financial and credit information to determine if you qualify for a loan. The maximum debt-to-income ratio recommended for manual underwriting VA loans depends on compensating factors.

VA Manual Underwriting Guidelines

A veteran is any person who has completed a service for any branch of the armed forces and is honorably discharged. Private lenders issue a VA loan which is partially guaranteed by the Department of Veteran Affairs. This makes the lenders more willing to offer lower interest rates, lower or no down payment, and lower or no closing costs. The VA doesn’t require a down payment, but there is often a funding fee. Sometimes, a disabled veteran can be exempt. VA home loans are designed to help build a home, buy a home or improve a current one. There are also refinancing options available.

What are Compensating Factors on VA Home Loans?

Compensating factors are positive factors that reduce the lenders’ risk. Below are some examples of compensating factors.

If the borrower has shown a history of saving money.
The borrower has a good job history, longevity, or promotions.
The borrower has cash reserves of at least three months
There is a non-borrowing spouse with a full-time job
Two years out of foreclosure, short sale, or bankruptcy
Low Shock Payment, less than 5%
A Large Down payment

Debt-to-Income Ratio Manual Underwriting Guidelines

VA manual underwriting guidelines on debt to income ratio caps:

Zero Compensating Factors: Maximum Front End DTI 31%, Back End 43%
One Compensating Factor: Maximum Front End DTI 37%, Back End 47%
Two Compensating Factors: Maximum Front End DTI 40%, Back End 50%

Mortgage underwriters can go above maximum debt-to-income ratio caps for borrowers with multiple compensating factors. This holds especially true for VA loans.

Why Do Mortgage Lenders Use Manual Underwriting?

Lenders will use manual underwriting if a borrower will not qualify for a loan using the automated underwriting system. This could be because of a lower credit score or higher debt-to-income ratios. VA loans utilizing manual underwriting provide essential assistance for veterans and active-duty military personnel encountering distinctive financial situations. By understanding the circumstances that may lead to manual underwriting, the key guidelines, and the steps involved, borrowers can confidently navigate this process. The personalized assessment provided by manual underwriting recognizes the individuality of each borrower’s situation, offering a pathway to homeownership for those who may face challenges with automated systems. Remember, the VA manual underwriting process is designed to be thorough, fair, and focused on providing opportunities for veterans to achieve their homeownership goals.

Frequently Asked Questions (FAQs)

Q: What are VA Manual Underwriting Guidelines?
A: VA Manual Underwriting Guidelines are specific criteria that the VA established for manually underwriting VA loans when automated underwriting systems cannot be used.
Q: When are VA Manual Underwriting Guidelines applied?
A: These guidelines are utilized when automated underwriting systems fail to approve a VA loan application, typically due to low credit scores or complex financial situations.
Q: What factors are considered in VA Manual Underwriting?
A: Manual underwriting assesses various factors, including credit history, income stability, debt-to-income ratio, residual income, and compensating factors such as savings, job stability, and potential for increased earnings.
Q: What minimum credit score is necessary for VA Manual Underwriting?
A: While there’s no minimum credit score requirement, lenders may consider various factors beyond credit scores, emphasizing the borrower’s overall creditworthiness and financial stability.
Q: Can I use VA Manual Underwriting if I don’t meet the automated underwriting criteria?
A: If you need to meet the requirements of automated underwriting, VA Manual Underwriting offers an alternative path for securing a VA loan by allowing lenders to evaluate your application based on VA guidelines manually.
Q: What documents are needed for VA Manual Underwriting?
A: Documents typically include income verification (such as pay stubs or tax returns), bank statements, debt obligations, proof of VA eligibility, and other relevant financial records.
Q: Are there additional requirements for VA Manual Underwriting compared to automated underwriting?
A: VA Manual Underwriting may require more documentation and a more thorough evaluation of the borrower’s financial situation compared to automated underwriting due to the manual assessment process.

Here at Gustan Cho Associates, our Loan Officers are experts when it comes to VA Manual Underwriting Guidelines. Call us now at 800-900-8569 or text us for a faster response. You can also email us at alex@gustancho.com. We are available even during weekends and holidays!

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