If you are a veteran, you may think that you are automatically eligible for a VA loan. While this might be the case, you have to make sure that you qualify for it. Being eligible and qualifying for the VA loan are two very different things.
If you can’t prove to a lender that you can afford the VA loan, you may find that your loan application gets denied. Keep reading to learn the top reasons VA loans get denied.
When a lender pre-approves you for a VA loan, they pull your credit. That doesn’t mean that they won’t pull it again, though. A pre-approval can last you as long as 90 days in some cases. You then have the time that it takes to process your loan application and buy the home. Overall, you could be looking at several months between your pre-approval and loan closing.
If during that time, you ruined your credit in some way, you could lose your loan approval. While the VA doesn’t have a minimum credit score you must have, they do look at your credit history. They want to make sure that you don’t have any late payments, defaulted loans, or too much revolving debt outstanding at once. If you open new credit, fall behind on your payments, or charge up too many credit cards, you could put your approval at risk.
The VA has strict rules regarding your income. While they don’t put a lot of emphasis on debt ratios (comparing your income to your debts), they do need to know that your total debt ratio doesn’t exceed 41% of your gross monthly income.
The VA also needs to know that you have enough disposable income according to their guidelines. They determine exactly how much disposable income that you need based on your family size and the location that you live. If you don’t meet the disposable income requirements, you may lose your loan approval.
It’s important to note that if you do happen to have a total debt ratio that exceeds 41%, you may be able to get away with it, if you have more disposable income. You can ask your lender how much more disposable income you must have in order to allow a debt ratio up to 43%.
In a perfect world, veterans would have at least a 2-year employment history at the same job when they apply for a VA loan. We don’t live in a perfect world, though, so lenders often cut you some slack. You can have several jobs within the last 2 years and still qualify, but not always.
If you changed jobs recently and you changed industries, the VA may frown upon the change. This could put your loan approval at risk. Let’s say, for example, that you worked as a lawyer and then suddenly six months ago you switched jobs and are now an accountant. Those two industries aren’t directly related, which means that the lender takes a risk giving you a loan when you are at a job that you don’t have a long history working.
If you want to change jobs either just before or during a loan application, talk it over with your loan officer. Sometimes it’s just a matter of sticking it out at the same place of employment for another few months until your loan closes. If you change jobs, you could put your loan status at risk.
Believe it or not, you could be a part of the reason your VA loan gets denied. You have to be an active participant in the loan process. You can provide the lender with your initial documents and information, but you can guarantee they always need something more.
If you wait too long to provide your documents or you don’t provide them at all, you put the integrity of your loan approval at risk. If you wait too long, your purchase contract may expire, which puts you in even more hot water. In the end, you could be without a loan approval.
VA loan applications do get approved often, but there is always the chance that it won’t get approved. Make sure that you maximize your credit score, keep your credit in good standing, keep your debts low, and keep your employment stable for the best chances of approval.