VA Loan Underwriting Guidelines
The VA loan underwriting process often raises questions from homebuyers, but the goal is simple: verify the facts, and protect all parties involved.
Underwriting is essentially the last step in the mortgage process — whether you’ve applied for a VA loan or any other type of mortgage product.
During underwriting, your lender is verifying your financial information to ensure you have the means to make your payments — both now and in the future. They’ll be looking at things like your income, debts, employment history, credit report, and more, trying to discern whether you’re a safe investment or a risky one.
At the end of this step, the underwriter will either approve your loan, deny it, or issue you a conditional approval — which we’ll go into later on. Here’s what you need to know.
The VA Underwriting Process
Every mortgage loan must be underwritten before it can be approved and closed on.
With VA loans, the goals of underwriting are two-fold. Underwriters are looking to ensure:
- The borrower is a satisfactory credit risk (they don’t have a history of late payments or accounts in collection, for example), and
- They have enough income now and anticipated in the future to manage their payments.
There are two ways a VA loan can be underwritten: The VA loan automated underwriting system (AUS) and via manual underwriting. By default, all loans go through AUS. Lenders use the system to analyze a borrower’s basic financial details (income, credit score, etc.) against the VA’s basic underwriting requirements. This is how they’ll issue a preapproval.
The AUS determines a borrower’s risk level, and low-risk candidates may get certain documentation requirements waived. This might mean skipping the employment verification or not needing to show proof of rent payments.
When Manual Underwriting May Be Required
If AUS doesn’t accept a borrower due to their risk level, their loan will need to go through manual underwriting, which is when a human underwriter goes over the file by hand.
Manual underwriting is common when a borrower has:
- No or minimal credit history
- A bankruptcy, foreclosure, short sale, or deed-in-lieu of foreclosure in the last two years
- Late payments or a default on federal debt (student loans, for example)
- Past late mortgage payments
Fortunately, manual underwriting doesn’t necessarily mean your loan is on its way to denial if you fall into this category. It just means your file requires a bit more number-crunching to prove you’re a safe investment.
To be clear: Loans that need to be manually underwritten are held to stricter standards, but it’s not impossible to get approved by any means.
What Happens After VA Loan Underwriting
When a loan goes through manual underwriting, there are three potential outcomes you might see.
These include:
- Approval. You’ve satisfied all requirements and your loan approved. You’ll be assigned a closing date and can start prepping to close on your home.
- Conditional approval of your loan. Your loan approval hinges on a few additional requirements. This might mean providing more documentation, writing a letter of explanation to address (like why an account is past due, for example), or settling a lien or unpaid debt.
- Denial. Your lender will explain why your loan was denied. You can then work to correct the issues that hurt your loan application and aim to reapply in the future.
If you get conditional approval of your loan, it’s important to act fast in responding to your loan officer’s requests. The more you delay, the longer it will take to approve and close on the loan.
How Long Does it Take for Underwriters to Approve a VA Loan?
The underwriting process usually takes at least a few weeks. If your loan needs to be manually underwritten, it will typically take a bit longer due to the extra work required.
According to the latest data from ICE Mortgage Technology, it takes about 61 days for a VA loan to close. This includes the underwriting stage, which is typically the longest step in the process.
How Often Do Underwriters Deny VA Loans?
About 15% of VA loan applications get denied, so if your’s isn’t approved, you’re not alone. If you’re denied during the automated underwriting stage, you may be able to seek approval through manual underwriting.
If a manual underwriter denied your loan, you can:
- Apply again with a co-borrower — ideally one with a stronger credit history, lower debt-to-income ratio, or both.
- Reduce your debts and improve your credit score and try applying again.
- Try a different loan program. FHA loans are often more lenient on debt-to-income ratios than VA loans are.
Making a down payment can also help your case, as it reduces the risk for the lender. Ask your loan officer for more specific suggestions based on your denial.
