The VA loan refers to a zero-down-payment mortgage option available to Service members, Veterans, and select military spouses. Private banks or mortgage companies issue the VA loans and the U.S. Department of Veterans Affairs guarantees them.
Before the approval of your loan, an underwriter must check whether you qualify and whether all your documents are in order.
What does an underwriter do?
The underwriters job is to evaluate the exposure and risk of potential clients. The underwriter ensures that the lender is making a good investment and will scrutinize your loan file to ensure it meets all the requirements. They also have to find out whether you are a safe bet when it comes to repaying the mortgage.
4 reasons why a VA loan is rejected
Despite the sophisticated computer programs and the reams of documents you submit, there are chances of your application being rejected. Mistakes do occur because it is humans who carry out the VA loan process.
Here are possible reasons for an underwriter to deny you a VA loan:
1. Change in employment
Changing your employment once the loan process has kicked off, may lead to suspicion by the underwriters. It is advisable to keep consistent employment throughout the loan process.
If you change employment, the underwriter may consider the income from your new employment as unreliable.
If a change is inevitable, it is good to talk to your loan officer. This is because even a good career move will trigger the preparation of a new set of documentation that will require verification.
2. Change in credit
Before the approval of your loan, the underwriter will need to re-verify your credit. If you had defaulted in any loan or did something that affected your credit score, your approval can get affected.
Even small issues can raise a red flag. To be safe, resist the urge to take out any new debt and avoid any credit checks until the loan process comes to an end.
Note that new debt can affect your purchasing power, your debt-to-income ratio and ultimately lead to your VA home loan disqualification. Also, keep a lid on your spending as the process goes on.
3. Automated underwriting
Automated underwriting is a system used by many lenders. They have an online portal where they upload reserves, assets, income, and loan applications, plus other qualifying criteria. The system determines whether an applicant qualifies or not.
Using this system can lead to the rejection of application for some reasons. It could be because of a wrong input or because something on your credit was not reported accurately.
Also, if you had some past credit issues that you have not resolved, your application may not go through.
The best way is to go for manual underwriting. This is a method where your documents are physically reviewed by an underwriter.
4. Application errors
Application errors are the leading cause of VA loan rejection. That's why before you submit your documents, you need to double-check them to ascertain accuracy. Underwriters are perfectionists when it comes to accuracy and it is wise to eliminate all errors.
If you fail to disclose debts, if your source of income is not clear, or if there are issues with your family size, your application may not go through. These mistakes can also cause delays.
Once you have submitted your application forms, you still need to keep in touch with your underwriter. This will help if you need to provide him with additional financial statements. Make sure you understand these requirements and discuss everything with your loan officer.
The application process is quite involving and if you decide to go it alone, you may end up making lots of mistakes. It is good to seek the help of an expert loan officer to help you with the VA loan application process.