Derogatory Manual Underwriting Guidelines on VA Home Loans
This article will cover derogatory manual underwriting guidelines on VA home loans. 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 United States Armed Forces members with a Certificate of Eligibility (COE) 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 the to purchase a home with less than perfect credit.
VA Guidelines do not specify a maximum debt-to-income ratio with an approve/eligible per AUS. There are countless borrowers at FHA Bad Credit Lenders 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.
There are no minimum credit score requirements to qualify for VA home loans. This only holds as long as borrowers get approve/eligible per the automated underwriting system (AUS). 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 the following paragraphs, we will cover VA derogatory manual underwriting guidelines on VA loans.
Automated Versus Manual Underwriting On VA Loans
All VA borrowers must have their mortgage application and supporting data run through the Automated Underwriting System, also referred to as AUS. The AUS is a sophisticated automated system that the loan officer uses to see what the AUS renders.
VA loans are the best mortgage loan program in the nation. Eligible homebuyers with a valid certificate of eligibility are eligible for a 100% financing home loan program with a VA loan with no annual mortgage insurance premium and no maximum loan limit.
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 Per Automated Underwriting System
The key to getting an approve/eligible per the automated underwriting system on VA loans is to have timely payments in the past 12 months. There are no minimum credit score requirements on VA loans.
There is no maximum debt-to-income ratio cap on VA loans. With no mortgage insurance premium and maximum loan limit, VA loans are hands down the best mortgage loan program for homebuyers in the United States.
Not everyone is eligible to qualify for a VA loan. Only active and retired United States Armed Services members with a valid certificate of eligibility are eligible for VA loans. Approve/Eligible means the borrower is fully approved via AUS.
Refer/Eligible Per Automated Underwriting System
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 means the borrower does not meet the necessary VA Agency Guidelines. There is not much difference between automated versus manual underwriting.
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 a strong credit/financial profile. However, manual underwriting normally requires timely payments for the past 24 months. One or two late payments in the past 24 months are 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. FHA Bad Credit Lenders have helped countless borrowers with late payments on VA loans in the past 24 months.
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 approve/eligible per AUS.
Mortgage underwriters will strongly emphasize DTI when manually underwriting borrowers. Borrowers can get approved with manual underwrite with debt-to-income ratios as high as 60% DTI.
Compensating factors are important for an underwriter to sign off on a borrower with a manual underwrite.
What Are Compensating Factors On VA Home Loans
Mortgage underwriters will look for compensating factors in manual underwriting with borrowers with recent late payments in the past 24 months and high debt-to-income ratios. Here are examples of compensating factors on VA loans:
- Down payment: Even VA does not require a 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 the new housing payment (PITI).
- Part-time and 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.
Please ask us in the comment section below for more information about VA Derogatory Manual Underwriting Guidelines.
Qualifying For VA Loans With A Lender With No Overlays On VA Loans
To learn more about qualifying for VA loans with bad credit, derogatory credit, or manual underwriting, please get in touch with us at FHA Bad Credit Lenders at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.
FHA Bad Credit Lenders is a mortgage company licensed in multiple states with no overlays on VA loans.
FHA Bad Credit Lenders are mortgage brokers licensed in 48 states, including Washington, DC, Puerto Rico, and the United States Virgin Islands. The team at FHA Bad Credit Lenders go off VA Agency Guidelines with zero overlays. Our team of mortgage professionals at FHA Bad Credit Lenders is available seven days a week, evenings, weekends, and holidays.
