How does VA Underwriting Work?

Written by Isaac F. Davis

VA borrowers often hear about the “underwriter” when applying for a home loan.  Who is this VA underwriter person, is it a real person, and what in the VA underwriting process? 

VA loan underwriters are specially certified to determine whether an applicant and home meet the criteria for the VA Home Loan Guaranty.  Though VA loans are made by independent lenders, all VA home loans are underwritten to VA specifics.  Frequently, VA-approved lenders will have additional guidelines to those of the VA. It’s the underwriter’s job to know both sets of guidelines to ultimately determine whether a VA loan application is accepted.  

Before a VA loan applicant even enters the lenders office, the VA and lender qualifying guidelines are well in place.  These pre-established criteria must be met by each applicant.  

The criteria involve requirements of the borrower and of the property in order for a loan to be accepted. The underwriter determining qualifications for a VA loan will look at things like whether the:

-  Applicant is VA eligible and has ample entitlement for the loan amount desired.

-  Purpose of loan is appropriate under VA guidelines.

-  Applicant meets VA occupancy guidelines meaning he or she must occupy the property within a reasonable time frame after closing.

-  Potential VA borrowers is a satisfactorily low credit risk

-  VA applicant’s income is constant and ample to make mortgage payments, afford homeownership costs, meet obligations and expenses, and have money to spare to support family.

-  Property’s appraised value rationalizes the value of the loan.

If a potential VA borrower is to be considered an acceptable credit risk under the VA guidelines, then he or she must have the following:

• 41% residual income
• Zero government debts or liens

VA-approved lenders who only do a small number of VA loans per month may use a VA loan underwriter provided by the VA out of a local underwriting center.  Those VA-approved lenders that specialize in VA loans as the majority of their product will often employ their own underwriters certified in VA home loans.  An in-house VA underwriter can have benefits over those out of house.  The convenience of face-to-face conversations between a loan officer and an in-house underwriter regarding details of an application can provide instant answers as opposed to waiting for a call to be returned from the nearest available underwriting center. 

An in-house VA underwriter or one employed by the VA must both have the training and certification required to verify VA loan applications. Certified VA underwriters have authority to decide whether an applicant’s circumstances, sometimes extenuating, meet VA mortgage eligibilities.

As each potential VA borrower’s circumstances are unique, each VA home loan application is reviewed by an underwriter individually.  Of course, there are some instances where an automatic underwriting system can approve an application if there are no extenuating circumstances.  The two most used systems in connection with VA loans are Loan Prospector and Desktop Underwriter. 

Loans that cannot be approved automatically using software must be manually underwritten by a certified person.  Things that might prevent a loan from being approved electronically can include:

• Joint applicants involving a non-VA-eligible borrower
• Foreclosure or bankruptcy within 2 or 3 years
• No established or not enough credit history

Finally, an underwriting fee is often associated with each VA loan application and can vary from lender to lender.  For more information about VA underwriting and VA underwriters, get in touch with a VA loan professional.