When you decide to get a VA home loan and contact a VA lender, whether the loan is for a purchase or a refinance, one of the first things you will be asked to do is complete a loan application. Prior to the advent of automated underwriting systems, the process was mostly in reverse. Instead of applying for a VA loan at the outset, the loan officer first requested not just the application but a host of documentation such as bank statements and pay check stubs. The loan officer would then review a handwritten loan application and run a credit report in order to provide the borrower with an opinion of the likelihood of an approval.
Today however, very little if any documentation is accepted at the outset and the borrower is only asked to complete an application, most usually online. The online application is then downloaded to the loan officer’s desktop or rest in a cloud, checked for accuracy then uploaded to an automated underwriting system. An automated underwriting system, or AUS, quickly evaluates the information in the application including income, assets and credit scores and produce an approval, all within a matter of seconds. The loan officer then reviews the approval and documents the loan file according to the instructions listed on the approval.
Sometimes though, an approval isn’t issued and the loan can’t be approved as submitted. When a loan is denied, it may not necessarily be the end. Sometimes the loan can be approved the old-fashioned way—manually.
Manual Underwriting Process
When a loan is electronically submitted to an AUS and an approval is not issued, it’s possible the loan may still be approved but manually, not electronically, under specific circumstances. A loan may not be manually underwritten if the loan is declined by the AUS due to credit score issues, high debt ratios or other valid reasons.
A manual underwrite means the underwriter, the individual at the lender’s office that makes sure the loan conforms to VA guidelines, literally calculates debt to income ratios and reviews the credit report line by line as well as a thorough review of the complete loan file. This is done to override the AUS decision not to approve the loan electronically.
When will a VA lender order a manual underwrite? When the loan file appears to be declined by the AUS due to an item that would automatically turn down the application. At first glance that seems obvious but a manual underwrite can be employed if there has been a bankruptcy filing that appears on the credit report. VA guidelines allow for a bankruptcy if there has been at least two years from the bankruptcy discharge date and credit has been reestablished. Even though the VA has such an allowance a bankruptcy will often trigger a declination when submitted to an AUS.
In such an instance, the loan may be manually underwritten and the underwriter will override the AUS decision. Only approved VA lenders have the authority to override an automated decision. When the AUS declines an application and the lender sees that the loan is eligible for a manual approval, the underwriter makes the determination that the file is still eligible for an approval and reviews the credit report for good credit, calculates the debt to income ratios and other qualifiers. Other reasons that a loan may be declined can be a late mortgage payment within the previous twelve months or the borrower hasn’t established traditional credit and alternative credit must be used.
Don’t Take No For an Answer
If your initial VA loan is declined using an AUS your loan officer will review your file and work with you to get the information needed in order to obtain an approval. What a loan officer cannot do is override required guidelines. For example, VA loans require that income be verified from full time employment and a job history. If the income is from spotty, part time income the income cannot be used. There’s nothing a loan officer can do about that.
Yet ask your loan officer directly if the file is eligible for a manual approval. Hopefully your loan officer has already submitted your loan for a manual underwrite but if not, it’s quite possible the lender isn’t authorized to manually approve a loan. Yet another reason why you should only use VA approved lenders who have the authority to approve your loan manually without having to send your loan file to yet another lender for an approval.