Manually Underwritten – VA Loan Underwriting Guidelines
The loan process for a VA manually underwritten loan is like an Automated Underwriting System approved loan but may require more paperwork and documentation. The difference with VA refer eligible findings is the fact that the lender will take a closer look at credit, income, and debts.
VA loan underwriting guidelines still allow Veterans who had a rough financial patch to qualify for a mortgage but working with the right mortgage company makes a difference in the loan process.
Some loan specialists dismiss borrowers before even saying your loan must be manually underwritten because their company does do a manual underwrite for a VA loan.
VA Refer Eligible Findings
VA loan underwriting guidelines vary depending on the lender. Lenders use an Automated Underwriting System (AUS), which is an automated tool that lenders use to determine a risk assessment. The automated tool analysis risk factors to generate the following risk recommendations:
- Approve eligible results means there is an automated approval and the underwriter should follow the findings unless they have a VA overlay.
- Refer eligible findings trigger a manual underwrite.
- Refer with caution is a result that means that the risk recommendation exceeds VA loan underwriting guidelines.
AUS does not decide if the file is going to close – information still must be documented and meet underwriting standards.
VA Manual Underwrite Ratios
There are two housing ratios:
- The front-end debt-to-income ratio is the projected mortgage payment of the subject property divided by qualifying income.
- A back-end debt-to-income ratio is the projected mortgage payment plus all minimum revolving debt payments divided by qualifying income.
Even though the mortgage process is similar to a AUS approval, there is a cap on VA manual underwrite ratios. VA manual underwrite ratios are as follows:
- 41% unless there are compensating factors.
VA DTI manual underwriting guideline state that ratios can go higher if the underwriter’s supervisor signs off and lists the compensating factors for approving the loan.
VA DTI Manual Underwriting Guidelines – Compensating factors
Compensating factors increase the likeliness that a loan is going to be approved. Some examples include, but not limited to:
- Demonstrating the ability to pay debts on time.
- Being conservative when using consumer credit.
- Low minimal consumer debt.
- Being employed for a long time.
- Residual income.
- Military benefits.
- Home ownership tax benefits.
- Child care tax credits.
- Low debt-to-income ratios.
- Satisfactory homeownership experience.
- No payment shock.
- Larger down payment.
- Liquid assets.
Even when compensating factors are present, the past 12 month credit history plays a big role in a manually underwritten loan being approved and closing.
Lates in the Past 12 Months
In the past 12 months, a Veteran:
- Cannot have any 30-day housing payment lates.
- Maximum of a one 30-day late payment with other credit references.
- No major adverse or public records files.
On a case-by-case scenario, extenuating circumstances can override these guidelines.
What Can Trigger a Manual Underwrite
There are factors that can trigger a manual underwrite and here are some examples:
- Thin credit.
- Adverse credit.
- A bankruptcy in the past 24 months.
- Derogatory housing event.
- Other factors.