How the VA Mortgage Underwriting Process Unfolds

Home buyers planning to use the VA loan program tend to have many questions about the VA mortgage underwriting process, and it’s easy to understand why. Much of it happens without the borrower’s direct involvement, making it a “mystery.” 

Even so, home buyers who use VA loans should have a basic understanding of the mortgage underwriting process because there might come a time when they need to take certain steps to help the underwriter complete the process. 

What Is Mortgage Underwriting, Exactly? 

The word “underwrite” first appeared in the 17th century, when insurance risk for foreign travel on maritime vessels was underwritten. By writing their name at the bottom of the policy and confirming that they are in agreement that it is in effect, the insurance company would sub-scribe—literally, to write beneath or under-write—the policy. 

Today, mortgage underwriting represents the final review of a borrower’s loan application and supporting documents. 

The review process starts earlier, shortly after the borrower applies for a home loan or gets pre-approved. However, the most intensive review occurs during the mortgage underwriting stage, which takes place before the final closing. 

Mortgage lenders who offer VA loans typically use an “Automated Underwriting System,” or AUS. This is a computer software system that evaluates a borrower’s eligibility for a VA loan based on a variety of criteria. Many of these criteria come from the Department of Veterans Affairs. 

Automated underwriting systems used for VA loans offer many advantages compared to the manual process. They can streamline and expedite the VA mortgage process to help the borrower reach the final closing stage on time. 

Many borrowers can obtain approval through the automated underwriting system. But those who have had credit issues might require a secondary “manual underwrite.” This involves a closer and more stringent review of the loan file. 

Events that could require manual underwriting for a VA loan include late or missed mortgage payments in the past, defaults on federal debt, and previous bankruptcies or foreclosures. 

What Do VA Loan Underwriters Look for? 

VA mortgage underwriters review all aspects of the loan file to ensure the lender is making a good investment. In a typical lending scenario, the mortgage lender puts more money into the deal than the borrower. So, they want to make sure they are making a sound investment. 

The lender’s underwriter will review the bought property and the buyer’s credentials to determine this. They also have to make sure that the loan meets all requirements set forth by the Department of Veterans Affairs, which manages the VA home loan program. 

So, what does the underwriter actually do during VA mortgage underwriting? 

The process can vary from one underwriter to the next since they have different methods and workflows. But in general, the underwriter will tackle the VA loan process step-by-step: 

• Review the borrower’s credit history and credit score. 
• Examine the borrower’s income documentation to verify its accuracy. 

• Analyze the borrower’s debt-to-income ratio to assess their financial stability. 
• Validate the property’s appraisal to ensure its value aligns with the loan amount. 
• Check the source of the borrower’s down payment and closing costs. 
• Check the borrower’s employment history and stability. 
• Ensure compliance with lending guidelines and regulations. 
• Calculate the loan-to-value ratio based on the appraisal and loan amount. 
• Assess the borrower’s financial reserves to cover potential expenses. 
• Double-check all documentation and calculations for accuracy. 

One of the VA loan underwriting tips is to catalog all your documents prior to the pre-approval stage, as underwriters armed with proper and complete documentation can help establish the true market price of risk by deciding on a case-by-case basis. 

It should be noted that the VA loan underwriting timeline is not fixed yet; generally, it takes around 3 to 6 weeks to complete; however, this might vary based on a number of factors. The intricacy of your financial circumstances, the number of loans the lender processes, and other pertinent variables may increase the VA loan underwriting challenges. 

The VA loan underwriter will typically issue one of three decisions based on this thorough review process. These decisions represent the three possible outcomes that follow the VA loan underwriting process: 

1. Loan Approval 

If the underwriter reviews all documentation and determines that the borrower meets the lender’s criteria, he or she will issue an approval. According to the VA manual underwriting guidelines, this decision is based on the following factors:  

• Borrower’s creditworthiness, income, debt-to-income ratio, and the property’s appraisal. 
• Veterans receiving a non-service-connected pension from the VA 
• Joint loans are granted to the following parties: The veteran and one or more non-veterans (excluding spouses). The veteran and one or more veterans (who are not spouses) will not be utilizing their entitlement.  

Basic eligibility criteria listed in VA underwriting guidelines state that Veterans who served on active service in the Army, Navy, Air Force, Marine Corps, or Coast Guard after September 15, 1940, and were released from active duty under circumstances other than dishonorable are eligible for VA home loan benefits. 

You are eligible for VA loans if you qualify the following service requirements: 

• Ninety days or more, of which any portion took place during a period of war, or 181 days or more straight (during a period of peace). 
• Two-year duration: Veterans who enlisted (and began service) after September 7, 1980, or became officers after October 16, 1981, should have served for a longer period of time. 

• These veterans must have served at least 90 days (during any part of a conflict), 24 continuous months of active service, or the whole time they were called or ordered to active duty, but not less than 90 days. 

An approval means that the borrower is qualified to receive the requested mortgage amount and can, therefore, move on to the closing process. 

2. Loan Denial 

If an underwriter denies a loan application, it means the borrower does not meet the necessary criteria for loan approval. This can occur for various reasons, such as a low credit score, insufficient income, a high debt-to-income ratio, or problems with the property’s appraisal. 

The lender will typically provide an explanation for the denial so that the borrower can take steps to address those issues and reapply in the future. 

In case your loan application is denied, don’t be disheartened, as 15% of VA loan applications are usually denied. You might be able to request approval through manual underwriting if you’re turned down at the automated underwriting stage. 
 
If your loan was rejected by a manual underwriter, you can: 

• Reapply with a co-borrower, preferably one who has a lower debt-to-income ratio, a better credit history, or both. 
• Reduce your bills, raise your credit score, and try applying again. 
• Examine alternative loan programs since, compared to VA loans, FHA loans frequently have more forgiving debt-to-income ratios. 

 
In addition, putting down a deposit strengthens your position by lowering the lender’s risk. Based on your denial, consult your loan officer for more detailed recommendations. 

3. Request for Additional Information 

An underwriter could occasionally take some time to accept or reject a loan application. Alternatively, they could ask the borrower for further details or supporting evidence to elucidate certain areas of their financial circumstances.  
 
This is known as “conditional approval” at times. It indicates that if the borrower takes care of any lingering problems or requirements, the loan might still be authorized. This might involve more thorough income verification, justifications for specific financial inconsistencies, or more property-related documentation. 

Underwriting Conditions 

It’s typical to get conditional approval for your loan application, even after VA loan underwriting for first-time buyers. Homebuyers rarely breeze through the underwriting procedure without any requirements. 

These “conditions” are frequently straightforward matters that borrowers may resolve fast—sometimes on the same day. You may be asked to submit a “letter of explanation” by your loan officer in response to a particular query or issue, such as the reason for a late mortgage payment or the circumstances behind your most recent short sale.  

Additionally, lenders can rely on other parties to confirm information, such as your income records or tax filings. Before granting final clearance, underwriters could ask for further tax returns or pay stubs. There are countless scenarios that might occur. 

How You Can Help Keep the Process on Track 

As you can see, a lot of the VA loan mortgage underwriting process happens “behind closed doors” without direct involvement from the home buyer. But there are also times when the buyer can help facilitate the process to keep it moving forward. 

If the mortgage underwriter needs additional information from you, try to handle that request in a timely manner. This will help prevent unwanted delays. 

A common example is what’s known as the “letter of explanation.” Sometimes, VA mortgage underwriters require a letter of explanation from the borrower relating to a certain financial transaction, such as a large bank deposit or withdrawal. 

The underwriter might also request additional information relating to the borrower’s employment status, income, assets, and other important checkpoints. 

During the VA mortgage underwriting process, communication is critical. Stay in touch with your mortgage company’s point of contact, typically a loan officer or broker. Ensure they (and the underwriter) have everything they need to complete the process. 

Everyone is on the same team here, but the team still needs to work together to get a win!