VA Loan Underwriting: Process, Guidelines and Timeline
Underwriting is the evaluation of a borrower's financial standing and creditworthiness to determine their eligibility for a mortgage loan. It's a thorough examination of the borrower's ability to repay the loan and manage their financial responsibilities. For VA loans, underwriting serves as a safeguard for both the lender and the borrower, ensuring a mutually beneficial arrangement.
There are two primary guidelines that VA underwriters evaluate when considering potential borrowers:
The underwriting process is first initiated during the preapproval stage. In most cases, VA lenders will use an automated underwriting system (AUS) to assess a borrower's eligibility for preapproval. This system evaluates various financial factors and determines if the borrower meets the initial criteria.
Some borrowers that already qualified for preapproval may not receive AUS approval due to a variety of individual circumstances. In such cases, the VA lender may opt for manual underwriting. This more comprehensive approach involves a human underwriter carefully reviewing the borrower's financial details, providing a more personalized assessment of the potential borrower’s qualifications.
The exact timeline for your VA underwriting journey will vary depending on your specific circumstances and financial situation, but typically takes at least a few weeks to complete. It’s important to keep in mind that underwriting occurs throughout multiple stages of the homebuying journey.
Review the chart below for a summary of the underwriting objectives associated with each stage:
| Stage | Objective |
|---|---|
| Preapproval | AUS will evaluate if a borrower is eligible for preapproval |
| Preapproval (if denied by AUS) | VA lenders may begin the manual underwriting process |
| Pre-Closing | Underwriters re-examine the loan file to ensure the borrower satisfies the lender’s standards and meets additional requirements for sale on the secondary mortgage market |
There are three potential results of the VA underwriting process:
If you receive an approval from your VA loan underwriter, your loan file is deemed clean and you're given a “clear to close” (CTC) on your VA loan. However, it's somewhat uncommon for a VA loan to receive a CTC status on its first attempt through underwriting.
A conditional approval indicates that additional documentation is needed to address specific aspects of your VA loan file. These conditions are often minor and easily rectified. Requested documents may include:
Prospective VA borrowers should respond promptly to a conditional approval to streamline their underwriting process.
If your VA loan is denied in underwriting, do not lose hope. Receiving a denial doesn't signify the end of your homeownership aspirations. If a borrower is denied by the AUS, they may proceed with manual underwriting.
In instances of denial during manual underwriting, borrowers should pursue additional methods to improve their chances of receiving an approval in underwriting. Potential steps include establishing healthy financial habits to improve your credit score, paying off debts to reduce your debt-to-income ratio or reapplying with a co-signer or co-borrower.
In 2022, 18.19% of VA home loans were denied in underwriting. While this statistic may seem high, keep in mind that aspiring borrowers may still proceed with manual underwriting if they are initially denied by the AUS.
It is helpful to consider potential issues that may arise during underwriting before beginning this process. If you are able to identify and resolve problems with your financial history before they are flagged by the lender’s AUS, you may be able to streamline your underwriting experience.
See the chart below for the top ten reasons VA loans were denied during underwriting in 2022:
| Reason | VA Loan Denials in 2022 (% of Denials) |
|---|---|
| 1. Credit History | 31.35% |
| 2. Debt-to-income ratio | 15.8% |
| 3. Other | 12.67% |
| 4. Incomplete credit application | 12.63% |
| 5. 2 or more reasons | 10.55% |
| 6. Collateral | 10.46% |
| 7. Unverifiable information | 3.48% |
| 8. Insufficient cash | 1.77% |
| 9. Employment history | 1.19% |
| 10. Mortgage insurance denied | 0.06% |
Note: Above values are based on 2022 Ginnie Mae Loan Level Disclosure Data.
While underwriting can be time-consuming and occasionally frustrating for some borrowers, it's an essential step of the VA loan process. It also signifies that you are nearing the end of your homebuying journey and moving closer to achieving your dream of homeownership. Embrace the process, stay proactive and work closely with your VA lender to ensure a smooth underwriting experience.
