Getting declined for a VA loan isn’t something you want to experience, but it happens all of the time. The good news is that it isn’t the end of the world. There are ways to work around it and eventually get the loan that you need. The bad news is that you may have some work ahead of you.
First, you need to know the reason that your loan was declined. The mortgage company is required to tell you the reasons. If it had anything to do with your credit, you are also entitled to a free copy of the credit report from the bureau that the lender used to make the decision. Once you know the reason, you can then move forward with your resolution.
Fixing Your Credit
If it turns out that your credit score/credit history was the reason for the declined loan application, you can take steps to fix your credit as follows:
- Was it due to late payments on your credit history? Take the time to get your payments current and continue making your payments on time. The lender may need to see 6 – 12 months of on time payments in order to process your application. Make sure you know the required timeline and stick to a strict schedule of timely payments during that time.
- Do you have too much credit outstanding? If your credit history is fraught with numerous credit card debts, pay them down. It’s even better if you pay the debts off entirely. Lenders don’t want to add to your list of debts when you are already in over your head. The faster you pay the debts down or off, the quicker you can get your loan approval.
- Is your credit score too low? If your credit score is just too low, figure out why. Do you have collections? Figure out how to take care of them and get them reported as paid in full. Is your credit too new? You will just have to give it time. Make sure you have active trade lines and then wait 6 – 12 months to try again.
Fixing Your Debt Ratio
If the loan officer tells you that your loan application was denied due to a high debt ratio, see what you can do about lowering it.
The easiest way is to pay some debts down or off entirely. The lender won’t need much proof of how this occurred other than that the debts no longer exist. This may take time since you’ll need extra money to pay towards those debts, but be diligent in your efforts in order to ensure that it’s successful.
If you can’t pay your debts down or off, you may want to add to your income. Maybe you take on a second job or do odd jobs from home. This is where it gets tricky, though. If you take on a part-time income, you won’t be able to use it for qualifying purposes until you have the job for at least 12 months. If you don’t want to wait that long, pay your debts with the extra income rather than using the income for qualifying purposes.
You aren’t required to use part-time income to qualify for a VA loan. If you don’t need it, you don’t have to report it. This way if you are able to get your debts paid down or off in less than 12 months, you can reapply for the VA loan sooner.
Is Your Income Inconsistent?
Sometimes lenders decline a loan application because they don’t see the reliability and consistency in a borrower’s income. Maybe you just took a new job or you bounced around from jobs too frequently. Lenders like to see you at the same job with the same (or increasing) income for the last 2 years. If you don’t have that, it could send up a red flag.
The VA doesn’t require lenders to turn loans down if borrowers don’t have 2 years of steady income, but some lenders might. Lenders have the opportunity to add lender overlays. These are additional rules to the rules that the VA already set. This means some lenders may require that solid 2 years of income before they will approve a loan.
If you get turned down for this reason, all you can do is wait. In the meantime, make sure that you don’t change jobs or change your income. If the lender wants consistency, you are going to have to give them that consistency. It shows a lender that you are reliable and will be able to pay your mortgage payment for the foreseeable future.
The most important thing you can do when you are declined for a VA loan is find out the reason. You can then act accordingly to find out how you can fix the situation and get the VA loan approval that you wanted.