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VA Manual Versus AUS Underwriting For Borrowers On VA Home Loans

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VA Manual Versus AUS Underwriting For Borrowers On VA Home Loans

This BLOG On VA Manual Versus AUS Underwriting For Borrowers On VA Home Loans Was PUBLISHED On April 14th, 2019

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

  • Manual Underwriting is when a borrower cannot get an approve/eligible per automated underwriting system (AUS)
  • A borrower who gets a refer/eligible per AUS can qualify for VA Manual Versus AUS Underwriting
  • Manual underwriting means when the automated underwriting system cannot render an automated approval and needs a human underwriter to manually underwrite the mortgage loan
  • VA Manual Versus AUS Underwriting has its own guidelines
  • For example, VA does not have a debt to income ratio cap on automated underwriting system
  • As long as the borrowers meet the residual income requirements, the AUS may get a borrower an approve/eligible per AUS FINDINGS with debt to income ratios higher than 60% DTI
  • That is not the case with manual underwriting
  • The maximum debt to income ratio borrowers can get on a manual underwrite is 50% DTI with two compensating factors on a manual underwrite
  • Borrowers who get an approve/eligible per automated underwriting system with credit disputes can get the file downgraded to a manual underwrite if they do not want to retract the credit disputes

In this blog, we will discuss VA Manual Versus AUS Underwriting For Borrowers On VA Home Loans.

When Is VA Manual Versus AUS Underwriting Required

When a mortgage applicant cannot get an approve/eligible per automated underwriting system (AUS) and gets a refer/eligible per AUS, then the borrower will qualify for a manual underwrite on VA Loans. There are three different types of finding on an automated underwriting system (AUS):

  • Approve/Eligible which means that the borrower has a solid automated approval
  • Refer/Eligible which means the automated system cannot make a decision and needs to be manually underwritten by a mortgage underwriter
  • Refer/With Caution with means that the borrower does not qualify for a VA Home Loan

Other times when a VA Manual Versus AUS Underwriting is required is when borrowers with lower credit scores have outstanding credit disputes. Credit disputes during the mortgage process are not allowed. Credit disputes automatically discount the negative credit scoring formula. Therefore, when a consumer disputes a negative derogatory credit tradeline, their credit scores will go up. However, if consumers retract credit disputes, the opposite effect takes place. Retracting credit disputes will drop consumer credit scores. Borrowers with lower credit scores and active credit disputes may want to downgrade their file to a manual underwrite if they do not want to retract credit disputes.

VA During And After Chapter 13 Bankruptcy

Home buyers can qualify for VA Loans during a Chapter 13 Bankruptcy repayment plan via manual underwriting. There is no waiting period after Chapter 13 Bankruptcy discharge date with a manual underwrite. Any bankruptcies during a repayment plan or that has not been seasoned for at least two years from a discharged date needs to be manually underwritten.

VA Manual Underwriting Guidelines

Manual Underwriting does have a few hurdles versus automated approvals. One is debt to income ratio caps. VA does not have a maximum debt to income ratio requirement nor a minimum credit score requirements. However, with manual underwriting, the VA wants the cap the debt to income ratio to no greater than 50% DTI on manual underwrites as long as the borrower has two compensating factors. With no compensating factors, the maximum debt to income ratios on VA Loans is 31% front end and 43% back end. With one compensating factors, the maximum debt to income ratios on manually underwritten VA Loans is capped at 37% front end and 47% back end. If borrowers have two compensating factors, VA allows up to 40% front end and 50% back end debt to income ratios. Compensating Factors are positive factors viewed by lenders. Here are examples of compensating factors:

  • Low Payment Shock of 5% or less and/or $100
  • Second and/or other income with at least one-year seasoning that has not been used as qualifying income such as a part-time job
  • Reserves: One month’s reserves is required on manual underwrites: Three month’s reserves is considered compensating factors
  • Larger down payment shows strength and skin in the game of borrowers

Not all lenders offer manual underwriting. Borrowers who need to qualify for VA Loans via manual underwriting with an aggressive direct lender with no overlays on government and/or conventional loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We are available 7 days a week, evenings, weekends, and holidays.

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