VA Loan Guidelines | Working with a Mortgage Company with No Overlay
Did you know VA loan guidelines vary depending on the lender? Working with a mortgage company with no overlays will prevent chances of an underwriter denial. Some lenders advertise that they specialize in VA loans, but little do they say is they have VA debt-to-income caps, will not manually underwrite VA loans, or have the most common overlay – a minimum credit score.
VA loan guidelines are set to expand home ownership for Veterans and are not difficult to qualify for without mortgage company overlays. It is important to understand that a lot of mortgage companies set these standards just because they either do not have the resources to underwrite these types of loans or it is not their niche.
5 Examples of VA Mortgage Company Overlays
1.) Some lenders use credit score benchmarks, which vary lender to lender.
An example would be a lender looking for a FICO credit score of at least 600, 620, and 640.
2.) Not being able to do a VA manual underwrite.
In some cases, a loan is required to be manually underwritten that can be triggered by many factors. In order to determine if you qualify, you should go through the pre-approval process to determine your eligibility. If a Loan Originator or underwriter is inexperienced with VA loans, the chances of an automated underwriting approval can go down.
3.) Interest rate pricing overlays.
Nationwide Mortgage & Realty, LLC offers VA elite rates starting at 640 credit score, but also have loan programs for lower credit scores, manual underwrites, and willing to take the time and effort to help you obtain VA home loan financing. Your interest rate depends on the type of compensation (lender paid or borrower paid), the lender’s margin (bucket), and other pricing adjustments.
4.) Capping loan-to-value limits or VA debt-to-income ratios.
Some examples would be 43%, 47%, and 50% VA debt-to-income caps. Nationwide Mortgage & Realty, LLC goes off of the Automated Underwriting System (AUS) findings. No VA debt-to-income caps as long as there is an AUS approval, which vary by Veteran’s current situation.
5.) Having increased seasoning requirements on VA bankruptcy and foreclosure waiting periods.
Getting Started with the VA Loan Process
The VA loan process should start by a Veteran checking their eligibility for a VA guaranteed loan by obtaining a Certificate of Eligibility (COE) and gathering documentation required for underwriting and processing the loan.
You can ask a experienced VA Loan Originator to put together a list of documents required for underwriting and processing. An experienced mortgage Loan Originator should run the automated underwriting system during the pre-approval process in order to determine your eligibility.
Manually Underwritten VA Loans
Manually underwritten VA loans have AUS refer findings and a loan must be manual underwritten. Some key factors could cause a loan to be downgraded to a manually underwritten VA loan.
The automated underwriting system eligibility findings are determined by credit, capacity, and collateral. It is hard to determine what exactly is triggering the manual underwrite, but an experienced VA Loan Originator will be able to figure what could be causing this.
Just because one lender says that you do not qualify, does not mean another lender cannot close the loan. VA loans can be manually underwritten, but a majority of the lenders will not manually underwrite a VA loan.
Compensating factors can strengthen the case. Some examples of compensating factors include: strong credit history, conservative use of credit, residual income, low debt, being employed for a long time, lower debt-to-income ratios, liquid assets, sizable down payment, equity in homes in the past, no payment shock, child care tax credits, benefits from the military, strong home ownership experience, and other factors that increase the likeliness of a loan being approved.
Overview on VA Loan Guidelines for Credit
You should have 3 trade lines with a 12 month rating for a manually underwritten loan. A verification of rent (VOR), manually rated trade lines such as utilities, cell phone, or other trades lines may be acceptable.
Citing re-established credit will strengthen the case during the loan analysis.
A significant factor is the borrower’s recent payment history in the past 12 months, which will be evaluated and be a significant factor during the VA underwriting analysis when approving a manually underwritten VA loan.
When manually underwriting a VA loan, a verification of rent to determine the borrower’s most recent 12 months payments is required by either canceled checks, credit report references, written Verification of Rent (VOR). A Borrower and landlord cannot have an identity of interest when executing a VOR.
A letter of explanation is required for past due collection and charge offs, which often indicate a disregard for credit.
- This includes late or missed payments, public record and collection accounts, and delinquent payments.
- Repayment plans for collections and charge off will be included in calculating debt-to-income ratios.
Manually underwritten VA loans are still eligible for 100% financing.
Bankruptcy and Foreclosure VA Loan Guidelines
- Chapter 7 bankruptcy must be discharged for 2 years.
- Allowed to purchase in a chapter 13 bankruptcy with a 12 month satisfactory payment history and court approval.
- A foreclosure must be greater than 2 years from the date of the trustee’s deed.
Knowing that VA loan guidelines vary with mortgage companies can alleviate stress of getting a last minute denial or losing hope. Working with a mortgage company with no overlays will allow a Veteran have a better chance of getting approved for a loan.