Arizona VA Loan Approval Tricks

VA Home Loan Tips

3 tricks to approving difficult VA mortgage applications

If a VA borrower is having trouble obtaining approval on an Arizona VA mortgage (due to the fact that the automated underwriting systems used by VA lenders DU and LP) do not give up!  There are 3 tricks that a loan officer can use to help turn a denial into an approval!   These tricks involve tweaking the veterans mortgage application to try to help that particular VA home buyer meet VA home loan guidelines.

What to tweak and how to tweak it, that is the question.  VA mortgage guidelines are unique and have a few requirements that can trip a borrower up relative to obtaining an automated loan approval.  Before we talk about how to adjust a mortgage application, let’s dig into what can be adjusted.


3 Tricks to Approve a Tough VA Mortgage Application 

There are 3 simple areas that an Arizona VA lender should look at when having trouble getting a VA buyer approved before giving up on the file.

1. VA Residual Income:

Residual income is something that only Arizona VA mortgage guidelines take into consideration.  On top of requiring that a veteran buyer meet defined debt to income ratio guidelines, VA also wants to make sure that a veteran has enough money left over after making their mortgage payment and all other bills that veteran must pay outside of their mortgage.  VA requires that each mortgage lender subtract various real life expenses from a veterans gross income to make sure that have enough money left over at the end of the day.  This left over money is what VA calls “Residual Income.”   Items that are deducted from a veterans gross income include:

1. Income taxes
2. Social security payroll deductions
3. Estimated utilities and maintenance for the home being purchased
4. Costs related to the number of members in the household
5. Current recurring monthly liabilities from the veteran’s credit report
6. The new monthly mortgage payment the veteran is applying for

VA determines what the residual income requirement is on each loan application and the lender is required to document that the veteran applying for a VA loan has residual income equal to or greater than the requirement.

2. Loan to Value:

This is very straight forward.  Loan to value relates to how much of a down payment an Arizona Veteran puts on their new home. Believe it or not this simple variable is often overlooked due to the fact that on of the biggest draws of a VA mortgage is that there is no down payment requirement.  However, that does not mean a veteran cannot put a down payment down with their Arizona VA mortgage.

3. Mortgage Reserves

Reserves in the mortgage world relate to how much money a borrower has left over after they close on their home loan.  Funds in checking, savings, money market, 401k, IRA and other liquid accounts is typically able to be used toward meeting a reserve requirement.  VA does not have a set reserve requirement and most often veterans are not required to document reserves however having reserves can help (see below).

Fixing a Troubled VA Loan Application

Each VA loan application should be worked until there are absolutely no alternatives left.  A Phoenix area VA loan officer can utilize each of the 3 items listed above (Residual Income, Loan to Value and Mortgage Reserves) to try to help a veteran obtain loan approval.  The automated underwriting systems (DU and LP) used to approve VA mortgage applications can be very sensitive and a minor adjustment can take a denial to an approval.

1. Adjusting Residual Income

When a veteran is declined even when they meet residual income increasing residual income above what VA requires can strengthen an application enough to push it to an approval.  This is where there is an opportunity for strategic creativity!  A loan officer can increase a veteran’s residual income by:

1. Lowering their VA mortgage interest rate
2. Having the veteran pay off recurring debt
3. Having the veteran try to obtain a lower homeowner’s insurance quote

2. Changing Loan to Value

While 0% down is a huge plus relative to a VA loan, putting a small down payment down may help an Arizona veteran go from declined to approved.  Oftentimes, a 3% down payment can do the trick.   Many veterans would be willing to do this if they were properly counseled.

3. Increasing Mortgage Reserves

This is a very common compensating factor that we use to help a veteran borrower obtain loan approval.  The automated systems will sometimes have a VERY specific number in mind relative to a VA mortgage applicants reserves.  Now, they do not share this with the VA lender however the VA loan officer can find out what it is by adding more and  more assets to the application until DU and/or LP give them an approval.  The lender can also use a strategy where the lender themselves pay for the veteran’s closing costs allowing the veteran to keep more money in their liquid asset accounts.  There are a number of different ways to try to increase reserves (note reserves cannot come from a gift).

Every Arizona VA mortgage application is different and requires an in-depth review by an experienced VA mortgage team.  If you have any questions regarding VA home loan approval please call or email us today.

By Jeremy House

Speak Your Mind