Hearing that your VA loan was denied is not something you want to hear. Unfortunately, it happens to even the most qualified applicants. Understanding how and why the denials happen can help you prevent it from happening to you.
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Credit Score not High Enough
Technically, the VA doesn’t require a
minimum credit score. As long as you meet the other qualifications, namely the disposal income requirement, the VA will allow the loan approval. But many lenders have what they call ‘overlays.’ These are additional requirements on top of what the VA requires. Oftentimes this additional requirement is a higher credit score.
On average, you can expect lenders to require at least a 620 credit score, but some require scores as high as 640. If you are turned down for your credit score, know that you can shop elsewhere. Because the VA doesn’t require a minimum credit score, you can try any other VA approved lender to see if they have more flexible credit score guidelines.
Debt Ratio too High
Just like with credit scores, the VA doesn’t have a maximum debt ratio requirement. In general, most lenders cap out at 43%, since that’s the threshold for the
Qualified Mortgage guidelines. But again, if you meet the VA’s disposable income requirements, you may be able to get by with a higher debt ratio. But many lenders require a 41% or lower total debt ratio, which can be hard to meet sometimes.
If you find a lender that won’t accept your debt ratio, consider shopping elsewhere. Once you know your debt ratio, you can ask lenders upfront what their debt ratio requirements are and if you meet them. If you don’t, you know not to waste your time applying with them. Luckily, there are thousands of VA approved lenders out there for you to try.
Improper Documentation of Your Income
It’s not enough to tell a lender that you make a specific amount of money; you need to be able to prove it. You do this with paystubs, W-2s, and/or tax returns. If you cannot supply these documents, the lender cannot approve your loan application.
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VA lenders are not able to use alternative documentation to prove your income. They need to be able to show the VA that they evaluated your paystubs and W-2s if you are employed or your tax returns if you work for yourself. If your tax returns show that you have a loss, then you may not be able to secure the mortgage you needed. Lenders have to use the adjusted gross income on
your tax returns for qualifying purposes.
A New Job
Having a new job isn’t a bad thing, but it could be an issue when it comes time to apply for a VA loan. Technically, the VA wants to see a 2-year job history. That means two years at the same job. If you change jobs, some lenders may turn your application for a loan down. They like the consistency that a 2-year history provides.
This doesn’t mean that you can’t get a VA loan, though. While the VA would prefer a 2-year job history, they allow their lenders to accept other situations. Basically, you need to be able to prove that you have experience in the industry you are in if you change jobs. If you don’t have experience, you’ll need proof that you can succeed in the new industry. Usually this means proving that you underwent proper education and/or training to handle the new position.
Your Credit Score Changed
Did you know that lenders, including VA lenders, pull your credit twice? They pull it when you apply for the loan and then again just before you close. If something drastic changes between those two times, you could end up with a VA loan denial. These denials hurt the most because you had an approval but then lost it due to your credit score changing.
Your credit score can change if you pay your bills late, open a new credit line, or overextend your credit. Basically you want to freeze your credit score once you apply for a mortgage. That means don’t apply for new credit, don’t overspend on your credit cards, and pay your bills on time.
VA loans are among the most flexible programs available today, which is great for the veterans of our country. Just because they are flexible, though, doesn’t mean they don’t have requirements. You have to meet the requirements in order to secure the loan. Remember, though, that you are able to shop around with different lenders if one lender’s overlays are too strict to allow you the loan you need.
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