VA Loan Underwriting

VA loan underwriting is the most important step for a veteran looking to buy a home or refinance a current mortgage using their veteran benefits. All purchase and refinance applications, along with a veteran’s supporting documentation, are reviewed by an underwriter who will evaluate the file to ensure it meets current VA loan underwriting guidelines.

Who Establishes VA Loan Underwriting Guidelines?

Underwriters obtain guidelines from the mortgage lender, and the mortgage lender develops its VA loan underwriting guidelines in accordance with VA loan requirements set forth by the Veterans Administration.

If a lender implements a guideline not required by the VA, then that is called an “overlay.”

An example of an underwriting overlay is when a lender has a minimum credit score to qualify, even though the VA does not have a minimum credit score requirement.

VA Loan Underwriting Checklist

Here is a checklist veterans can use to ensure they’re application is ready for underwriting. The first two checklist items apply to all veterans, regardless of their income source. The following checklist items are dependent upon where you receive your income from.

Eligibility

Before you apply for a VA home loan, it’s important you determine if you are eligible. Your Certificate of Eligibility (COE) can be obtained directly from the Department of Veteran Affairs. Most veterans who were honorably discharged are eligible for the VA loan benefit.

Supporting Docs

The next checklist item is gathering your supporting items. If you are buying a home, put together your two most recent bank statements. If you are refinancing, you’ll need a current mortgage statement and a copy of your homeowner’s declarations page.

Active Duty

Are you currently an active duty member of the armed forces? Then, here is what you’ll need to provide to the underwriter before they review the file: complete the loan application, your COE, your two most recent W-2s, and two pay stubs.

W-2 Employee

Are you out of the military and working for a private employer? Then, put together your COE, supporting documentation, and necessary income docs. That means a W-2 and your two most recent paystubs showing your current income.

Self-Employed

For those who have left the military and currently own their own business, here are the checklist items you’ll need to provide. Your supporting documentation and the two most recent years of your tax returns. Also, a YTD P & L statement.

Retired

If you are out of the military and have retired from working, these are the checklist items you’ll need to give to the underwriter. Your supporting documentation and documentation to support your retirement income. Usually, tax returns.

Automated Underwriting System

When your loan goes through the underwriting process, underwriters will use one of two Automated Underwriting Systems;

Fannie Mae’s Desktop Underwriter (DU)
Freddie Mac’s Loan Product Adviser (LPA)

Fannie Mae and Freddie Mac provide liquidity to the mortgage industry and have established an automated way to underwrite loan applications. Fannie Mae and Freddie Mac are traditionally referred to as Conventional loans or, more specifically, Conforming loans.

Instead of creating its own Automated Underwriting System, which is complicated and expensive, the Department of Veterans Affairs decided to allow lenders to use either a Desktop Underwriter or a Loan Product Advisor for VA loan underwriting.

Manual Underwriting For Some Veterans

Sometimes, a loan applicant might be required to go into a manual underwriting process. This means the underwriter will not use an Automated Underwriting System but will review the file to ensure every detail meets or exceeds the VA loan underwriting guidelines set forth by the Department of Veteran Affairs and any overlays the lender may have.

Reasons Why A Manual Underwrite Might be Necessary

Here are some of the reasons why a loan applicant might require a manual underwrite.

Credit history issues such as late payments and or defaults
A bankruptcy, foreclosure, or a similar major derogatory event
Limited or no credit history

Underwriters use the same guidelines during the manual VA loan underwriting process as the Fannie Mae and Freddie Mac Automated Underwriting System.

Possible VA Loan Underwriting Outcomes

When a veteran applies with a VA home loan lender, there are three possible outcomes after the initial review.

Conditional Approval
Full Approval, Clear To Close (CTC)
Denial

Most loan applications either receive a Conditional Approval or Denial. It’s very rare that a veteran will receive a full approval and a Clear To Close after the first review.

Work with your loan officer to ensure you are ready to start the process so that you can at least obtain a Conditional Approval from the underwriter.

Most Common VA Loan Underwriting Questions

Veterans, here you’ll find answers to the most common underwriting questions we received.

An underwriter will review your loan application and documentation to ensure you meet the VA loan underwriting guidelines issued by the Department of Veteran Affairs (and any additional lender guidelines that might be considered an overlay).

CAIVRS stands for Credit Alert Interactive Voice Response System. It’s a Federal government database of delinquent Federal debtors that underwriters use to see if you are delinquent on any Federal debt (such as taxes).

You generally can not connect with the underwriter, you’ll have to work directly with the loan officer. Sometimes, a loan applicant can talk with the underwriter, but that is extremely rare.

Not really. The exception is that with a purchase you’ll also have to provide a copy of the fully executed sales contract and if you have a down payment then two months of your most recent account statements (all pages).

Yes! Talk with your loan officer for additional details on how this works.

Residual income for VA loans is a process in which the underwriter looks at your income and how much money is leftover after paying all of your expected expenses. There is a specific calculation the underwriter uses. It’s important because all underwriters are required to do this if they want to approve a veteran’s loan application.

Your mortgage statement will come with the lender you work with (or if the loan servicing rights are transferred to a new lender, then it will come from them), not the VA.