This guide covers preparing for a VA loan with a lender with no overlays. Preparing for a VA loan with a lender with no overlays during the coronavirus pandemic: The Veterans Administration is the government agency governing VA loans. VA home mortgages are the best mortgage program in the nation. However, not everyone can qualify for VA loans.

VA loans are only for borrowers who are eligible for VA loans with a certificate of eligibility (COE). The VA acts as a federal mortgage insurance company.

The VA will insure and partially guarantee lenders against losses due to foreclosure. This government guarantee by the VA is attractive to private lenders to originate and fund VA loans with no money down and 100% financing. There is no mortgage insurance on VA loans. There are no maximum loan limits on VA mortgages. Mortgage rates on VA loans are lower than conventional loans. Gustan Cho Associates are experts in originating and funding VA loans with no lender overlays.

Preparing For A VA Loan For Borrowers For Less Than Perfect Credit

Not all lenders have the same mortgage guidelines on VA loans. Lenders need to have all of their borrowers meet the minimum VA Agency Mortgage Guidelines set forth by the Department of Veterans Administration. However, lenders can have higher lending guidelines that are above and beyond those of the Veterans Administration called lender overlays. Lenders can have lender overlays on just about anything.

The VA does not have any minimum credit score requirements on VA loans. However, most lenders have minimum credit score requirements on VA home mortgages as part of their lender overlays.

Whenever a lender requires a certain credit score on VA loans such as a minimum credit score between 620 to 680, this is not due to VA Agency Guidelines. The minimum credit score requirements are due to the lender’s own lender overlays. Same with debt to income ratios. The VA does not have a maximum debt to income ratio cap on VA loans. However, most lenders will set a maximum debt to income ratio cap at 45% to 50% DTI as part of their lender overlays. Gustan Cho Associates is one of the very few national mortgage companies with no lender overlays on VA loans.

Preparing For A VA Loan During The Coronavirus Pandemic

The coronavirus pandemic changed the mortgage industry. The non-QM mortgage industry went through a total overhaul during the COVID-19 pandemic. Most lenders suspended specialty loan programs such as FHA 203k loans, down payment assistance loan programs, reverse mortgages, and one-time close FHA or VA Construction loans.

Most lenders have increased the minimum credit score requirements as part of their lender overlays. Gustan Cho Associates do not have LENDER OVERLAYS on government and conventional loans.

Over 80% of our clients at Gustan Cho Associates have been turned down by other lenders and come to us since we have no lender overlays on government and conventional loans. Gustan Cho Associates has zero lender overlays on VA loans. As long as the borrower can get an approve/eligible per automated underwriting system, we have no other lender overlays. Gustan Cho Associates just goes off the automated underwriting system (AUS).

Understanding What Lender Overlays Are

Lender overlays are higher lending standards that are imposed by lenders that are above and beyond the minimum VA Agency Guidelines on VA loans. In order to understand why not all lenders have the same lending requirements on VA loans is to understand what lender overlays mean.

If you get turned down by one lender due to bad credit, you can get approved with a different lender with no overlays on bad credit.

Since Gustan Cho Associates has no lender overlays, we are able to lend based on VA agency guidelines only. No other lender overlays above and beyond the minimum VA agency guidelines. Many borrowers and even real estate agents cannot believe a lender with no lender overlays like Gustan Cho Associates exists.

The Importance of Credit Scores When Qualifying For a A Loan

Credit scores play an important role in VA loans: The credit score is what determines the creditworthiness of the borrower. It plays a key role when qualifying for a VA loan. The credit score plays the biggest role when determining mortgage rates. The higher the borrower’s credit scores, the lower the mortgage rates. Credit scores will play a huge impact on the automated findings of the automated underwriting system.

Borrowers with an unstable credit history and multiple late payments or collections, this can hinder your chances of getting an approve/eligible per AUS.

Timely payments in the past 12 months are key to getting an approve/eligible per automated underwriting system. See our AUS BLOG for more information).  On-time payments on with all installment loans for the past 12 months and only 30 days late twice within the past 13 months to 24 months are important on manual underwriting. HUD allows for an occasional late payment on a credit card on VA loans. It is important to square up with any collections with the past 12 months with a pay to delete to get an approve/eligible per automated underwriting system. Non-medical collection accounts in the past 12 months can be a hard stop on qualifying on VA loans. For borrowers who cannot qualify for a VA loan now, one of our loan officers at Gustan Cho Associates will discuss re-establishing your credit so you can qualify shortly.

How Much Is Needed To Purchase a Home With a VA Loan

Lenders can offer 100% financing with no mortgage insurance at stellar low mortgage rates on VA loans due to the government guarantee. There are no down payment requirements on VA loans. Most of our borrowers at Gustan Cho Associates do not have to worry about closing costs.

The Veterans Administration allows up to 4% for home sellers to contribute to homebuyers via sellers’ concessions so buyers can cover their closing costs.

In the event, if the borrower is short on closing costs on sellers’ concession to cover closing costs, the lender can issue a lender credit to the borrower in lieu of a higher mortgage rate to cover all of their closing costs. Examples of closing costs include lender origination, title fees, escrows, prepaid, state and local taxes, homeowner association verifications, and even flood zone certifications. Closing costs can be gifted to the borrower by a family member. As stated above, Gustan Cho Associates does not have any lender overlays on VA loans. 

Mortgage Agency Guidelines Versus Lender Overlays on Reserve Requirements

RESERVE requirements on VA loans: Reserves are normally not required on VA loans unless it is stated on the automated findings or on manual underwriting. Reserves are liquid funds or capital that is accessible by a borrower after paying down payment and closing costs.These are additional funds need to be documented in your bank or retirement account.

Even if the lender does not require reserves, it is highly recommended homeowners have reserve funds in the event something goes wrong such as major repairs.

One month of reserves is equivalent to one month of total mortgage payment including principal, interest, taxes, insurance, and any homeowner’s association dues (PITIA). If your total mortgage payment is $3,000, then one month of reserves is equivalent to $3,000, three months of reserves are equivalent to $9,000. Retirement plans such as IRAs and 401k can be counted towards reserves. One month’s of reserves are required on manual underwriting.

Starting The VA Home Mortgage Process At Gustan Cho Associates

Applying for a VA loan with Gustan Cho Associates is very simple and streamlined. The team at Gustan Cho Associates are experts on government and conventional loans. We all work very hard. Both the licensed and support personnel is available 7 days a week, including evenings, weekends, and holidays. Gustan Cho Associates are one of the very few national mortgage companies that did not implement any lender overlays during the COVID-19 coronavirus outbreak. Even if you have been approved for a mortgage by a different mortgage company in the past it is important to get a second opinion. The team at Gustan Cho Associates is proud not to any lender overlay. Gustan Cho Associates are available seven days a week, including late evenings, weekends, and holiday. Give us a call at 800-900-8569 or text us for a faster response and get a personalized mortgage quote! Or email us at gcho@gustancho.com.