VA Loan Articles

What Does the VA Use to Approve VA Mortgage Loans?

For the first time home buyer, VA loans can be confusing. There are many misconceptions about VA mortgage loans, starting with who issues the loan. The VA guarantees the loan but does not issue them. Understanding this goes a long way towards understanding the VA's role in the lending process.

WHO APPROVES MY LOAN?

According to the VA, most VA home loans are approved by the lender using criteria and lending guidelines set by the VA. In the process of servicing a VA loan, many people talk of what the VA will approve or won't approve--most articles written about VA loans even talk of the VA in terms of the agency approving your individual loan. In most cases these discussions actually refer to the rules and established precedents covered by government regulations. When the VA needs to handle an individual case, it's usually because the circumstances aren't addressed clearly by existing rules or the lender requires additional information. In these cases, the VA does have the final word. In all others the existing regulations are referred to for guidance.

WHAT IS REQUIRED FOR MY LOAN TO BE APPROVED?

VA mortgage guidelines require two basic methods to determine if you qualify for a loan. The first is a look at your income--called the residual income method. Can you afford the day-to-day costs of the VA home loan? Are your debts too large to allow you to pay for the monthly mortgage payment too? You car payment and credit card payments plus any other expenses all factor in to the loan approval process. The second qualification criteria is a more specific examination of these issueS, boiled down to a formula called the debt-to-income ratio.

WHEN DOES ALL THIS HAPPEN?

According to the VA, you don't have to submit your credit information and application until you've found a home you want to purchase. If you're working out credit problems or are on the verge of paying off a large debt to reduce your debt to income ration, waiting until you've found a home to apply for the VA home loan may work in your favor. But if you get turned down for the loan because the VA mortgage or the sale price of the home would be too high, you've wasted your time going through the motions of trying to buy that particular home. That's one reason why many people apply for pre-approval for a VA home loan--you know exactly what your loan limit will be and you can house hunt more efficiently.

Ask your loan officer about applying for a pre-approved VA home loan amount. If your credit application is denied, don't give up--ask the lender what you need to do to fix your debt-to-income ratio or credit issues and try again.


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