VA Manual Underwriting Guidelines

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VA (Veterans Affairs) manual underwriting guidelines refer to the specific criteria and procedures used by lenders when manually underwriting VA-guaranteed loans. Manual underwriting is typically used when a borrower’s circumstances do not fit the automated underwriting system’s criteria or when the borrower has unique financial situations that require closer scrutiny.

While the exact guidelines may vary slightly among lenders, here are some common factors that VA manual underwriters typically consider:

Credit History: Manual underwriters will review the borrower’s credit history, including any derogatory marks such as late payments, bankruptcies, or foreclosures. They will assess the borrower’s overall creditworthiness and ability to repay the loan.

Income Verification: Manual underwriters carefully examine the borrower’s income sources and stability. They may require additional documentation such as pay stubs, tax returns, or bank statements to verify income.

Debt-to-Income Ratio (DTI): Manual underwriters assess the borrower’s DTI ratio, which compares the borrower’s monthly debt payments to their gross monthly income. While VA loans typically allow for higher DTI ratios compared to conventional loans, manual underwriters ensure that the borrower’s debt load is manageable.

Residual Income: VA manual underwriting guidelines often include a focus on residual income, which is the amount of money left over after paying all monthly debts and expenses. Lenders use VA’s residual income tables to determine whether a borrower has sufficient income to cover living expenses after paying housing costs and other obligations.

Compensating Factors: In cases where a borrower’s financial profile does not meet all standard requirements, manual underwriters may consider compensating factors. These can include factors such as a high credit score, significant cash reserves, stable employment history, or a low DTI ratio.

Property Appraisal: Manual underwriting guidelines also require a thorough appraisal of the property to ensure its value meets VA requirements and that it’s safe, sound, and sanitary for occupancy.

Additional Documentation: Manual underwriting may require more documentation than automated underwriting systems. Borrowers may need to provide explanations for credit issues, source of large deposits, or other financial matters.

It’s important to note that VA manual underwriting guidelines are subject to change and may vary slightly between lenders. Borrowers who are considering a VA-guaranteed loan and anticipate needing manual underwriting should work closely with a knowledgeable lender who can guide them through the process and help them understand the specific requirements.