To get a VA loan, you must contact a VA lender. This lender will evaluate your financial status, debts, and credit history. Moreover, most sellers will ask for a preapproval letter from a VA lender before assessing your offer. Fortunately, there are ways to avoid getting disapproved. Read on to learn how to prevent these problems. Here are three examples of what will cause your VA loan to be disapproved.
Application errors
The most common reasons for VA loans getting rejected are applicants’ errors. While the underwriters are perfectionists, you can’t afford to make any mistakes in your application. Make sure you double-check every single detail. Failing to disclose information about your income, debts, and family size can get your application disapproved. Failure to follow up with your underwriter is another common mistake. You should keep in touch with them throughout the process to correct any errors that may be present.
If you’ve recently made significant changes in your credit score, this will be a red flag for the underwriters of VA loans in California. Explain the differences and make sure you plan to stay on top of your finances in the future. Otherwise, you’ll risk getting disapproved. For this reason, ensure you have a steady income to cover your monthly payments. Otherwise, your credit score might drop, and you may be asked to explain it.
Poor credit
The first thing to understand is that while the VA does not have a standardized minimum credit score, lenders will do all they can to get you approved. The bad news is that you will probably receive an Adverse Action Notice, the official document the lender has to send you explaining why your loan has been declined. The loan officer is most likely to give you the bad news first. This is because a loan officer with a poor credit score will be troubled with your application, so getting the information you need to know as soon as possible is vital.
The good news is that there are ways to mitigate your poor credit score and still be approved for a VA loan. A significant down payment and income can offset any risks associated with a low score. The next step is to evaluate your credit report and work with a mortgage lender to improve your score. This way, you’ll be aware of the ranges available to you with your current credit score.
Low down payment
A downpayment is essential to your mortgage application if you are a veteran. While most lenders require a credit score of at least 640 to qualify for a VA loan, some are more flexible. You can discuss your credit history with an experienced VA-approved lender or visit a credit counselor if you have a lot of debt. A downpayment of 5% or more can significantly reduce your monthly payment and save you a lot of money over the lifetime of your loan. A five-percent down payment can mean hundreds of dollars a month.
A conventional mortgage may be the better option if you don’t have much money to put down. If you have good credit and plenty of savings, you can avoid paying the VA funding fee if you put down at least 20%. If you have excellent credit, you might also be able to qualify for a meager interest rate on a conventional mortgage. While getting a VA loan is similar to applying for other types of loans, there are a few unique aspects to it that make it more attractive to veterans.
Failure of appraisal
To avoid the disapproval of a VA loan, you must purchase a home that meets VA requirements. If your home appraisal comes back low, you may need to negotiate the price of your home with the seller or make a larger down payment to cover the difference. If you are applying for a VA loan for a home built before 1978, you should also be aware of any lead-based paint. Appraisers will flag peeling paint and homes in over three steps.
A qualified inspector must perform an inspection. A VA-approved appraiser will conduct this inspection. If your lender is not VA-approved, you must submit your loan for prior approval. The lender must be a VA-approved underwriter or use an RLC from the surviving entity. Failure to complete the required paperwork will delay the processing of your loan and result in disapproval.
Unacceptable debt-to-income ratio
The VA recommends having an acceptable debt-to-income ratio (DTI) of 40% or less. However, mortgages are exempt from this rule. To calculate the DTI, you must compare your monthly debt payments to your monthly income. You should have enough money to cover your expenses daily. Keeping your debt-to-income ratio below 40% is vital to getting your VA loan approved.
Your debt-to-income ratio is just as important as your credit score. Most lenders want your monthly expenses to be no more than 43 percent of your gross monthly income. If this ratio is out of balance, you will likely get a denial letter. Increasing your income is more straightforward than cutting your expenses, and paying down revolving debt is much easier than boosting your debt-to-income ratio.
