VA Agency Guidelines Versus Mortgage Overlays By Lenders

This Article Is About VA Agency Guidelines Versus Mortgage Overlays By Lenders

The Department Of Veterans Affairs (The VA) is the federal agency that sets VA Mortgage Guidelines.

  • VA Loans is the best home loan program available in the United States
  • However, not everyone can qualify for VA Loans
  • To be eligible, borrowers need to be active and/or retired members of the U.S. Armed Services with a valid Certificate Of Eligibility (COE)
  • The VA does not originate, fund, or service VA Loans
  • Private lenders who are approved by the VA originate and fund VA Mortgages
  • The role of the Department of Veterans Affairs (the VA) is to partially guarantee the lender the loss sustained in the event a borrower defaults and forecloses on their VA Loans
  • Due to this VA guarantee, lenders can offer eligible borrowers VA Loans with 100% financing at very low mortgage rates

Difference Between VA Agency Guidelines Versus Mortgage Overlays

What is the difference between VA Agency Guidelines Versus Mortgage Overlays?

  • All lenders need to meet the minimum federal VA Agency Guidelines set forth by the Department of Veterans Affairs
  • However, lenders can have their own lending requirements that are above and beyond those of the VA
  • These higher mortgage lending guidelines required by lenders that are above and beyond those of the VA is called lender overlays
  • This is why not all lenders have the same mortgage lending guidelines on VA Loans
  • Gustan Cho Associates is one of the very few national direct lenders that have no lender overlays on VA Loans
  • We just go off the minimum VA Agency Guidelines

As long as the borrower has an approve/eligible per the automated underwriting system (AUS), the borrower is set to go at Gustan Cho Associates.

Why Lenders Have Different VA Guidelines?

Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify for VA Loans at other lenders due to their lender overlays. Alex Carlucci, a senior loan officer at Gustan Cho Associates, is one of our top experts on VA Loans.

Here is what Alex Carlucci says about VA lender overlays:

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 homeownership 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.

Gustan Cho Associates Mortgage Group is one of the very few national lenders with no overlays on government and conventional loans. If a borrower can get an approve/eligible per AUS with a 500 FICO and 60% DTI, we can approve and close the loan. We have zero overlays and will just go off the automated findings.

Common Lender Overlays Imposed By Lenders

What are the typical lender caps by lenders

The VA has lenient mortgage guidelines.

  • There are no minimum credit score requirements on VA Home Loans
  • There is no maximum debt to income ratio requirements
  • The VA recently announced they have eliminated maximum loan limits on VA Loans
  • So borrowers can qualify for $1 plus million dollar VA Loans

Here is what Alex Carlucci says on VA Loans:

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. Other overlays are many lenders do not do manual underwriting. 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. Gustan Cho Associates offers VA elite rates starting at 640 credit score. We also have loan programs for lower credit scores, manual underwriting, 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. There are no loan limits on VA Loans. There is no minimum credit score requirements or maximum debt to income ratios. Gustan Cho Associates goes off of the Automated Underwriting System (AUS) findings. No VA debt-to-income caps as long as there is an AUS approval, which varies by Veteran’s current situation.

We have closed borrowers with 500 credit scores and 60% debt to income ratios. As long as you can get an approved/eligible per automated underwriting system and can meet the conditions, we will not just close on your VA Loan but will close it on time.

Qualifying For A VA Loan With A Direct Lender With No Overlays

Not all lenders have the same VA Guidelines. Borrowers with less than perfect credit need to understand the VA Agency Guidelines Versus Mortgage Overlays. Just because one lender says no does not mean the borrower cannot qualify for a VA Loan with another lender:

  • Many borrowers are told they need a 620 to 640 credit score to qualify
  • This is not the case
  • The VA has no minimum credit score requirement
  • However, lenders can impose their own minimum credit score requirement
  • The VA does not have a maximum debt to income ratio cap
  • However, many lenders will require borrowers not to exceed 41% to 50% debt to income ratio
  • Outstanding collections and charged-off accounts do not have to be paid to qualify for VA Loans
  • Gustan Cho Associates has no minimum credit score requirement nor maximum DTI Caps on VA Mortgages

Alex Carlucci lists the steps in starting the VA Qualification Mortgage Process and further explains VA Agency Guidelines Versus Mortgage Overlays:

The VA loan process should start by checking their eligibility for a VA guaranteed loan by obtaining a COE and gathering documentation required for underwriting and processing the loan. There is a list of documents required for underwriting and processing. The loan officer will run the file through the automated underwriting system during the pre-approval process in order to determine your eligibility. Manually underwritten VA loans have AUS refer findings and a loan must be manually 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. The Loan Officer will be able to figure out 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, childcare tax credits, benefits from the military, strong homeownership experience, and other factors that increase the likeliness of a loan being approved. 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 the past due to the 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 charged- off will be included in calculating debt-to-income ratios. Manually underwritten VA loans are still eligible for 100% financing.

Gustan Cho Associates is a mortgage company licensed in multiple states with no overlays on VA Loans.

Minimum VA Agency Guidelines Versus Mortgage Overlays

What are the minimum VA guidelines and mortgage overlays

Here are the minimum VA Agency Mortgage Guidelines:

  • There is a two-year waiting period after Chapter 7 Bankruptcy, foreclosure, deed in lieu of foreclosure, short-sale to qualify for VA Loans
  • Borrowers can qualify for VA Loans during Chapter 13 Bankruptcy Repayment Plan after a 12-month satisfactory payment history with Bankruptcy Court Trustee Approval
  • There is no minimum credit score requirement
  • There is no maximum debt to income ratio requirement
  • There is no maximum loan limit on VA Loans
  • Outstanding collections and charged-off accounts do not have to be paid

For more information about the content of this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at The Team at Gustan Cho Associates Mortgage Group is available 7 days a week, evenings, weekends, and holidays.

This ARTICLE On VA Agency Guidelines Versus Mortgage Overlays Was UPDATED On April 30th, 2021.

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