Can I Be Denied a VA Home Loan?

It’s estimated that one in every five Americans is a veteran. Among veterans, 79% of own their homes, compared to 63% of non-veteran homeowners. The VA home loan program factored significantly into the majority of those veterans’ home purchases. But what happens if you’ve been denied a VA home loan?

If you’re considering buying a home or have applied for a VA home loan and were denied, keep reading. In this article, we’ll look at the main issues surrounding VA loans, including the following:

  • Is it hard to qualify for a VA home loan?
  • Requirements for a VA loan
  • Why do VA loans get disapproved
  • What to do if your loan gets disapproved

Is It Hard To Qualify For A VA Home Loan?

A VA loan is a Department of Veterans Affairs (VA)-backed mortgage loan. It is available to eligible active duty service members, veterans, and certain surviving spouses. 

The VA doesn’t issue the home loan directly. This is done through approved lender partners, such as River City Mortgage.

Before your VA loan can be approved, a mortgage underwriter must verify your eligibility and verify that you’ve provided the required documentation.

Requirements for a VA Loan

Eligibility for a VA loan is based on each individual borrower’s duty status and service history. To confirm eligibility with your lender, you will need to provide a Certificate of Eligibility (COE) based on your duty status and service history. (If you don’t already have one, you can apply for a COE online).

In addition to the COE, you will need to meet the below requirements.

Prove You Have The Necessary Income To Pay Back The Loan

Typically, this requires two years of full-time employment and that your monthly debts, including housing costs, total less than 40% of your gross monthly income.

If your debts are 41% or more, you may need to provide a down payment or meet additional lender eligibility criteria.

Have Satisfactory Credit 

While the VA loan program doesn’t set mandatory minimum credit scores, each partner lender will have their own income and credit requirements. 

It’s important to note when considering your financial history that previous bankruptcies or foreclosures do not automatically mean your application for a VA loan will be denied. 

You may still be wondering, can I be denied a VA home loan? The right lender can help you determine if you meet all of these requirements and whether your VA loan may get denied.

Why Do VA Loans Get Disapproved And What To Do If It Happens To You?

All loans are conditional until they close, which means any loan can be denied at any point, up to issuing the funds. 

While lenders rely on computer programs to process your application, mistakes or omissions can occur despite everyone’s best efforts to be accurate.

Inexperienced lenders can also make mistakes that, although unintentional, can result in denied VA loan applications.

If your loan was disapproved, it could mean that a lender or loan officer used automatic vs. manual underwriting to reach the decision.

Automated underwriting is a commonplace occurrence for many lenders because of its ability to streamline manual processing, freeing time that can be spent helping borrowers. 

This automation can sometimes overlook personal situations that fall outside of the standard processing framework. These are situations where manual underwriting is preferred, in other words, an actual person, to do the underwriting for your mortgage. 

If your VA loan has been disapproved, asking for manual underwriting of your loan application might be the solution you’re looking for. 

How Does Automated Underwriting Work?

With automatic underwriting, your lender uses a computer program to assess your information. They will upload your loan information along with income, debt, and any other relevant data. 

The program uses a preset and existing definition to determine whether your application should be approved or denied. 

This can be a great asset for lenders for straightforward applications, allowing them to quickly evaluate an application(sometimes in less than 24 hours).

Why Do VA Loans Get Disapproved?

With automated underwriting, the computer program can’t always accurately assess the information it has been provided in certain specific scenarios. Sometimes, it hasn’t been provided the correct information it needs to assess the application accurately. This can happen for many reasons, ranging from simple typing mistakes to errors on your credit rating.

Another reason why VA loans get disapproved has to do with previous credit issues. 

If you have any outstanding issues or have experienced a bankruptcy or foreclosure, the automated system may put you in the “no” category. Previous credit issues, bankruptcies, and foreclosures do not mean an automatic denial for VA loans. 

The VA itself is exceptionally flexible regarding credit issues. For example, it will consider rental history toward validating a borrower’s credit rating, where conventional loans will not. In this scenario, automated underwriting might deny the application, but it could be approved once the application is manually underwritten. 

What to Do If Your Loan Gets Disapproved.

The first thing to do is to find out why.

  • If your credit score is too low, you can begin to take steps to boost your credit rating and reapply in the future. 
  • Is your income too low to qualify for the loan amount? Perhaps a less expensive house or more extended amortization period can reduce your monthly payments and offer a simple fix to the situation.
  • Was your application automatically underwritten? If it was, it’s time to ask that your application be handed over to a person for manual underwriting. This might mean you have to find a new lender, as not all lenders can, or are willing, to manually underwrite mortgage loans. 

Manual underwriting isn’t an automatic “yes” either. It just means that your eligibility needs to be manually calculated. In some instances, if your lender is not approved for manual underwriting on VA loans, they could deny your application. 

It’s important to remember that you have options, even if your application for a VA loan is disapproved. 

At River City Mortgage we provide you with a customized experience to help you find and process a loan that meets your specific needs.

If you have been turned down for a VA loan, or if your loan was previously approved and is now disapproved, do not take no for a final answer. Let the VA loan specialists at River City Mortgage take a look at your situation. 

We’re experts in VA loans, and we want to help you get the house you want. We’re ready to put in the extra effort and manually underwrite your application if that is what’s needed. Get in touch with us today.

Photo by Hannah Skelly on Unsplash

Further Reading