This ARTICLE On VA Derogatory Manual Underwriting Guidelines On VA Home Loans Was PUBLISHED On December 17th, 2019
VA Mortgages are the best residential mortgage program any borrower can get.
- The Department of Veterans Affairs (The VA) on behalf of the United States created and implemented VA loans for qualified members of the United States Armed Forces with a Certificate of Eligibility (COE) to be able to qualify for VA loans
- The VA and our government created VA loans to thank our servicemen and servicewomen for their service in serving our country
- VA loans offer select qualified borrowers to purchase a home with less than perfect credit
- There are no minimum credit score requirements to qualify for VA home loans
- This only holds true as long as borrowers can get an approve/eligible per automated underwriting system (AUS)
- VA Guidelines do not specify a maximum debt to income ratio with an approve/eligible per AUS
- There are countless borrowers at Gustan Cho Associates who closed on their VA loans with credit scores under 600 FICO and debt to income ratios exceeding 60% DTI
- The VA made mortgage agency guidelines lenient so all qualified borrowers can qualify for VA loans
- Recently, President Donald Trump signed a bill exempting maximum loan limits on VA mortgages
- VA and FHA are the only two loan programs that allow manual underwriting
- There are strict general manual underwriting guidelines
- However, the mortgage underwriter has a lot of say so and underwriter discretion on manual underwrites
In this article, we will cover and discuss VA Derogatory Manual Underwriting Guidelines On VA Home Loans.
Automated Versus Manual Underwriting On VA Loans
All VA borrowers need to have their mortgage application and supporting data run through the Automated Underwriting System also referred to as AUS. The AUS is a very sophisticated automated system that the loan officer uses to see what the AUS renders. The borrowers’ information, credit report, credit scores, asset, income, and other pertinent data is entered. Within seconds, the AUS will render the following decision:
Approve/Eligible:
- Approve/Eligible means the borrower is fully approved via AUS
Refer/Eligible:
- Refer/Eligible per AUS means the borrower may be eligible for a VA loan but the file needs to be manually underwritten
- The computer system cannot render an approval so it needs to get downgraded to a manual underwrite
Refer/With Caution:
- Refer with Caution means the borrower does not meet the necessary VA Agency Guidelines
There is not much difference between an automated versus manual underwriting. However, there is much more underwriter discretion on manual versus automated underwriting system approval.
Manual Lending Requirements On VA Derogatory Manual Underwriting Guidelines
Borrowers can get an automated underwriting system approval with late payments in the past 24 months.
- The AUS will render an automated approval with late payments in the past 24 months if the borrower has compensating factors and has a strong credit/financial profile
- However, with manual underwriting, timely payments are normally required for the past 24 months
- One or two late payments in the past 24 months is not a deal killer
- A lot is based on mortgage underwriter discretion
- A good letter of explanation is required
- The loan officer can help with writing a strong letter of recomMendation
Gustan Cho Associates have helped countless borrowers with late payments in the past 24 months on VA loans.
Major Difference Between Automated Versus Manual Underwriting On VA Loans
The Veterans Administration does not have a maximum debt to income ratio requirement on VA loans as long as borrowers can get an approve/eligible per AUS.
- However, mortgage underwriters will place a strong emphasis on DTI when manually underwriting borrowers
- Borrowers can get approved with a manual underwrite with debt to income ratios as high as 60% DTI
For an underwriter to sign off on a borrower with a manual underwrite, compensating factors are important.
What Are Compensating Factors On VA Home Loans
Mortgage underwriters will look for compensating factors on manual underwriting with borrowers with recent late payments in the past 24 months and/or high debt to income ratios.
Here are examples of compensating factors on VA loans:
- Down payment: Even VA does not require down payment on VA loans, borrowers who are willing to put money down is considered a compensating factor
- Reserves and history of saving
- Low payment shock from what the borrower is paying to what the new housing payment will be (PITI)
- Part-time and/or other documented income that has been seasoned for at least a year but not used as qualified income
- Low debt to income ratios
- Residual income
For more information about VA Derogatory Manual Underwriting Guidelines, please ask us in the comment section below.
Qualifying For VA Loans With A Direct Lender With No Overlays On VA Loans
To learn more about qualifying for VA loans with bad credit, derogatory credit, or manual underwriting, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com. We are national direct lenders with no overlays on VA loans. We just go off VA Agency Guidelines with zero overlays. Our team of mortgage professionals at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.