What is a Fully Documented VA Loan?
The VA home loan program has been around since near the end of WW II in various formats. The program was designed to assist veterans returning from service to buy their own home, attend college or start a business. But as a borrower, you may have heard the term “fully documented.” What exactly does that mean?
A fully documented VA loan is compared to a “reduced” or “no” documentation loan. Over the years, mortgage companies would occasionally get a little creative with their mortgage programs and design something a little different to capture a wider market share. Sometimes these programs got a little too creative and caused borrowers as well as lenders problems.
For example, certain lenders came up with a reduced documentation loan program. That means certain parts of the loan package were simply not verified. The loan program might require no verification of assets but verify income.
A no documentation loan, commonly referred to as a “no-doc” loan, meant that very little in the file was verified whatsoever. That means no tax returns, no bank statements and no employment verification at all. Soon, such loan programs were offered to those with damaged credit. Someone with credit problems could apply for a no-doc loan and get a mortgage to buy a house.
If you’re scratching your head wondering why and how lenders could do this, you’re doing the very same thing that VA lenders did. The VA home loan program has always been a fully documented loan program. A VA lender is required to verify income with paycheck stubs, W2 forms and tax returns. Assets are reviewed by keeping copies of bank statements in the file and the borrower must demonstrate responsible credit patterns.
The VA loan program has historically had the lowest default rate of any mortgage in the market today. And the reason why? It’s really never changed its approval guidelines. It’s always been a fully documented loan.