VA Guidelines Versus Overlays On VA Home Loans


This BLOG On VA Guidelines Versus Overlays On VA Home Loans Was PUBLISHED On January 10th, 2019

VA Loans is a government backed residential mortgage loan program only available to active and retired members of our Armed Services with valid COE.

  • Surviving spouses of qualified veterans are also eligible for VA Loans. VA Loans are originated, processed, underwritten, funded, and serviced by private lenders
  • Lenders love originating VA Loans due to the government guarantee
  • Borrowers who default and foreclose on their VA Loans, the U.S. Department of Veterans Affairs will partially guarantee the loss sustained by lenders

This is why lenders can offer 100% financing and very low mortgage rates on VA Loans.

Choosing VA Lender With Bad Credit

Many borrowers do not understand the concept of VA Guidelines Versus Overlays.

  • What is the difference?
  • All lenders need to meet minimum VA Guidelines set forth by Department of Veterans Affairs
  • However, each lender can have lending standards above and beyond those of VA
  • This additional lending requirements and standards are called lender overlays
  • This is the reason why every lender may have different VA Lending Guidelines
  • Gustan Cho Associates is one of the very few national lenders with no overlays on VA Loans
  • We do not have any overlays period on VA Loans
  • As long as borrowers meet minimum VA Guidelines and get an approve/eligible per automated underwriting system, we will approve and fund the VA Loan
  • Over 75% of our borrowers at Gustan Cho Associates Mortgage Group are folks who either gotten a last minute mortgage denial or are stressing over their VA Mortgage Process with another lender

VA loan guidelines are set by the Department Of Veteran Affairs.

Typical Lender Overlays

There is a big difference between VA Guidelines Versus Overlays. It is important for borrowers with less than perfect credit to understand VA Guidelines Versus Overlays.

Most lenders have overlays on VA Loans.

  • VA does not have a minimum credit score requirement
  • VA also does not have a maximum debt to income ratio requirement
  • However, most lenders require a 620 to 640 credit score on VA Loans
  • Most lenders will have debt to income ratio caps set between 41% to 50% when the VA does not mandate a DTI cap
  • The Team at Gustan Cho Associates recently closed a borrower with a 580 credit score and 60% DTI
  • This is because we got an approve/eligible per automated underwriting system
  • The borrower has plenty of residual income and very low DTI
  • Outstanding collections and charged-off accounts were seasoned for over 24 months
  • This borrower was viewed very favorably by the automated underwriting system that it rendered an automated approval
  • Other lenders have overlays on not being able to do manual underwriting
  • A large percentage of our business at Gustan Cho Associates are VA and FHA Manual Underwriting borrowers

VA and FHA Loans are the only two loan programs that allow manual underwriting.

VA Manual Underwriting Guidelines

 There are times when the Automated Underwriting System (AUS) findings cannot render an approve/eligible.  When the AUS renders a refer/eligible per AUS, the file can be downgraded to manual underwriting. There is no debt to income ratio caps if the borrower gets an AUS Approval.

However, there are DTI Caps on VA manual underwriting.

  • The maximum VA debt-to-income ratio for manually underwritten loans with no compensating factors is 41%
  • DTI can go up to 50% with compensating factors
    • Some examples of compensating factors include:
    • timely credit history for 24 or more months
    • conservative utilization of credit by borrowers
    • substantial residual income
    • low debt to income ratios
    • job longevity
    • reserves and liquid assets
    • sizable down payment
    • equity in homes in the past and history of savings
    • little to no payment shock (5% or less payment shock and/or less than $100)
    • child care tax credits
    • benefits from the military
    • history of homeownership experience
    • other factors that provide strength and ability to repay of the borrower
  • Established credit tradelines
  • Verification of rent with low payment shock

VA Guidelines On Bankruptcy And Foreclosure

There are mandatory waiting period after bankruptcy and/or housing events to qualify for VA Loans:

  • Chapter 7 bankruptcy must be discharged for 2 years
  • Allowed to purchase in chapter 13 bankruptcy repayment plan with a 12-month satisfactory payment history with Trustee Approval
  • Chapter 13 does not need to be discharged
  • There is no waiting period after Chapter 13 Bankruptcy discharged date
  • 2 years from the date of the trustee’s deed after foreclosure and/or deed in lieu of foreclosure
  • 2 years from short sale date

Borrowers who need a direct VA Lender with no overlays, please contact us at Or call and/or text us at 262-716-8151. The Team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

This BLOG On VA Guidelines Versus Overlays Was PUBLISHED On January 10th, 2019

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