Often, VA buyers have trouble with loan approval on an Arizona VA mortgage. Seasoned loan officers use creative problem solving to turn loan denials into loan approvals. What to do and how to do it is key. VA home loan rules are unique. A few of these rules often trip up certain lenders during pre-approval.
Approving Tough VA Mortgage Loans
Before giving up on a VA loan, a loan officer needs to explore 3 key areas.
1. VA Residual Income
Residual income is a central guideline on a VA home loan. Besides meeting debt to income ratio limits, VA buyers also need to have a set amount of residual income left over each month in order to qualify for VA loan.
Per VA rules, each VA mortgage lender subtracts real life costs from a veterans’ gross income. Left over income is known as “Residual Income”. There are several items that are deducted from veterans’ income to arrive at their Residual Income. For example:
- Payroll Deductions (Fed Tax, State Tax, Social Security etc…)
- Estimated utilities costs of home
- Family size related costs
- Recurring monthly debt payments on veteran’s credit report
- New home loan payment
Residual income thresholds are preset by VA. Mortgage lenders must document the veteran meets or exceeds the residual income required in order for VA to insure or “back” the loan.
2. Loan to Value
Loan to value measures a veterans home loan amount against the appraised value or price of the home. For example, when a veteran put’s 0% down their Loan to Value is 100%. However, when a veteran puts 5% down their loan to value is 95%. In fact, because VA home loans’ require no down requirement, this solution is often missed.
However, that does not mean a veteran cannot put a down payment down with their Arizona VA mortgage. Making even a small down payment may shift a loan denial to a loan approval.
3. Cash Reserves
“Reserves” measure how much money buyers have left over after closing on their home loan. Funds in checking, savings, money market, 401k, IRA and other liquid accounts are common examples of funds counting toward reserves. While VA has no set reserve limit, adding reserves may help (see below).
Fixing a Troubled VA Loan Application
In conclusion, VA loan application deserves to b worked on until no alternatives remain. A Phoenix area VA loan officer should use every possible tool when helping a veteran. 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.
By Jeremy House