What to Do When a VA Lender Says No

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Being told you’re not approved for a VA loan can set you back on your journey to homeownership. Often you’ll need to work on your financial health before trying again, but in some cases all you need is a second opinion to get your VA loan approved.

You are ready to be a homeowner. Your American dream seems within reach, and you’ve taken all the right steps toward getting your VA loan: you have your Certificate of Eligibility (COE), you’ve done your research, and you’ve applied through a VA-approved lender. Then, suddenly, the rug is ripped out from under you – your VA loan is rejected by the lender.

It is easy to become discouraged. But don’t lose hope – just because you are not approved once doesn’t mean you should give up. In fact, there are many reasons to give it another try.

In most cases, when a lender doesn’t approve your loan, it’s because you haven’t met one or more of the qualifying requirements. Often this has to do with your financial health. You may have to spend some time paying down debts, dispute a negative mark on your credit report, or simply pay more of your debts on time to get into a better position for VA loan approval.

But if you think you are financially healthy or have a credit score above 620, your rejection may be due to the failure of the lender to take the time to explore your entire financial picture. This is when a second opinion can’t hurt.

So how can you tell when it’s you or the lender? Here are some real-life stories to illustrate that, with the right guidance, some Veterans are able to turn a rejection into an approval. The stories share a common theme. Each of the borrowers was denied a VA loan, and was later approved.

Turned Down Due to a Low Credit Score

In most cases, you will have to be diligent and apply some proven credit-building tactics, like those recommended by the Federal Trade Commission. This was the case for Josh. He’s a U.S. Marine (while not on active duty – once a Marine always a Marine), who’d given up on the idea of owning a home. In fact, he was rejected so many times that he became cynical. “After the seventh time I was like, okay, this is just funny now. I applied with Veterans First just for sh#ts and giggles.”

In Josh’s case, he’d been rejected for the same thing every time – his low credit score. The VA guidelines don’t require a minimum credit score, but most VA lenders require a score of around 620 or above for their own underwriting standards.

When Josh applied for a VA loan with Veterans First Mortgage, his FICO score was not bad. In fact, it was in the “fair” range according to Experian, a top-three credit reporting agency. Still, Josh’s score was just barely below the company’s requirement. His loan officer walked across the hall to the in-house underwriter and asked if there were any other options, though in the majority of cases there wouldn’t be.

"Our number one goal is to get Veterans into the home of their dreams,” says Scott Sudbury, an in-house underwriter at Veterans First’s Salt Lake City loan center. “The qualifying guidelines aren't any easier here. Our team is trained and willing to follow every avenue to the end in hopes of approval."

Josh’s loan officer saw something that made him think Josh had a chance. A large portion of Josh’s debt was in student loans, and federal law allows Veterans to seek student loan forgiveness if they have a total and permanent disability (TPD) discharge, which happened to be the circumstances for Josh.. In fact, Josh had already applied for student loan forgiveness and was eagerly awaiting a decision. Given the situation, the underwriter granted the exception, and Josh got his VA purchase loan with no funding fee. He is now a proud homeowner.

Turned Down Due to an Outstanding Tax Lien

You need to pay off any tax liens before being considered for a loan. Mike was no exception. Mike is a U.S. Army Airborne Veteran who tried to get a VA home loan with his own bank and then another lender that serves Veterans. Both denied him based on issues with his credit, but neither really explained what the issues were.

“I searched ‘VA Home Loan’ on Google one day and Veterans First popped up. The name just caught my eye. I got connected with A.J.,” said Mike. “Right away I knew Veterans First was different.”

Mike’s loan officer, A.J., is a Veteran who served five years in the U.S. Marine Corps. They bonded instantly. During the initial call, A.J. noticed a small tax lien on Mike’s credit report. It was only $150, but it was enough to halt loan processing and approval.

The next day, Mike paid the lien. It took less than a week for the lien to clear from the credit report. “Why didn’t those other lenders take the time to tell me that?” said Mike. With Mike’s income, he qualified for a much bigger loan than he even needed. But that little lien prevented him from moving forward with other lenders. Today, Mike and his family enjoy their own home with a pool in the backyard.

Turned Down Because Your Condo Was Not Approved for VA Financing

If you’re looking to finance a condo unit, the development will need to be on the list of VA-approved developments before you can get a loan backed by the U.S. Department of Veterans Affairs. Winifred wanted to refinance her condo so she started looking for a VA lender. After speaking with several lenders, she was told she could not be considered for a VA loan because her condo complex was not approved for VA financing.

Winifred, 71, had earned her home loan benefits when her husband, John, a U.S. Army Veteran, passed away in 1993. She had wanted to use her benefit to refinance to a shorter term and get a lower rate. “My goal was to pay off my loan sooner,” said Winifred.

Stuck and unable to move forward, Winifred thought she’d try another lender. She got in touch with Veterans First. Her loan officer, a U.S. Marine Veteran named Taylor, made a phone call to the VA. He discovered that the homeowners association for Winifred’s complex had applied for VA approval, but the paperwork was not processed. It took about 30 minutes, but after the call, the condo was approved. Winifred got her VA refinance loan after all. Winifred was able to accomplish her refinancing goals with a shorter-term VA mortgage.

Turned Down Because You Have Too Much Debt

The VA debt-to-income (DTI) standard for VA loan approval is 41%. It’s a guideline, but it’s not cut in stone. Under certain circumstances, such as if a borrower has excess residual income, a DTI above 41% is acceptable. Watch Alvin’s video here.

When first-time home buyer Alvin applied for a loan, his DTI was too high due to two car loans. One was for his vehicle, and the other was one he cosigned for with his fiancée. The extra debt prevented him from being approved for a VA loan.

His loan officer, Celeste, called the auto lender and got verification that payment on the second car loan was automatically withdrawn from the fiancées account, not Alvin’s. That was the last push that Alvin needed to get his DTI in qualifying range. After just two months, Alvin was approved and now lives in a beautiful brick home he has affectionately named after his loan officer, Celeste.

When choosing a VA lender, make sure you get a sense that your financing goals are their top priority. Additionally, find out if they are willing to go the distance with you. If you’re denied a VA loan, don’t give up. Find out what it takes to get approved. And remember, a second opinion could result in a different outcome. A lender willing to explore every angle may make you a homeowner. To see if you’re approved for a VA loan, click here to get in touch with a specialized lender.


Credit Score Ranges from Experian: https://www.experian.com/blogs/ask-experian/infographic-what-are-the-different-scoring-ranges/

Veterans First is a trade name of Wintrust Mortgage, a division of Barrington Bank & Trust Company, N.A., a Wintrust Community Bank. I NMLS# 449042 I Equal Housing Lender

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