Why VA Loans Get Denied and What to Do Next

Few things are as deflating as the notice of your Veterans Affairs (VA) loan denial. However, one loan denial does not need to mark the end of your home search; it may just be a temporary roadblock. Whether you’ve recently been denied, or you’re trying to get in front of potential issues on your future VA loan application, it’s important to understand why VA loans get denied.

As a veteran, you’re likely no stranger to preparation or perseverance, and the homebuying journey requires both in spades. In this article, I will break down some of the common causes behind VA loan denials and share how you can better prepare for your VA loan application—whether it’s your first attempt or the one that gets you over the hump.

Common Reasons for VA Loan Denial

First, know that VA loan denials are not uncommon, though they’re less likely than other home loan types. If your VA loan was denied in underwriting, rest assured that you’re not alone. Below are some of the most common reasons that VA loans get denied by private lenders.

Credit Score Issues

The VA does not issue a minimum credit score for its eligible veteran borrowers, but most lenders do. The minimum credit score may vary from one lender to another. Typically, you will see a number ranging from 620 to 650, but a variety of factors can impact that.

Lenders will likely pay attention to recent changes in your credit during the process, too. If you take on new debt like a car loan or credit cards, they may flag that as an impediment to your ability to afford your mortgage. Additionally, they’ll want to be sure that you have not defaulted on any existing debt.

Application Errors

Generally, the homebuying process is lined with a seemingly endless stream of paperwork. With all that documentation comes plenty of opportunity for human error. Unfortunately, application errors, even small ones, can lead to loan denials. To avoid this, take your time and work thoroughly through your documents.

Inaccurate information can grind the lending process to a halt, so if you’re unsure of what something is asking for or where to find certain information, speak with your lender. They may be able to clear things up or point you in the right direction.

Out of an abundance of caution, consider providing as much supporting documentation as would be helpful or writing letters of explanation to clarify your situation.

Income Related Issues

Many VA loan denials come down to issues with the borrower’s income. Here are some common income issues that guide a lender’s decision-making:

• The lender may decide that your Debt-to-Income (DTI) ratio would make your mortgage payments
• The lender may be uncomfortable with the reliability or veracity of your This is common for self-employed VA loan borrowers or those with heavily fluctuating income, such as gig-workers or freelancers.
• Similarly, lenders may flag a recent employment change as unreliable If you must change jobs during the process, talk to your banker.

Some of these issues can be resolved with extra documentation. For example, if you’re a small business owner or solopreneur, your profit-and-loss statements, balance sheets, and other relevant financials can paint a clearer picture of your income.

Appraisal Issues

Because you are trying to use your VA loan benefits, the home you intend to purchase must abide by the VA appraisal guidelines. As such, something that can get in the way of your VA loan approval is the condition of your desired property. The VA stipulates that eligible veterans use their loan benefits to buy a primary residence that meets the Department’s minimum property requirements (MPRs).

If the VA appraiser finds issues that threaten the safety, sanitation, or structural integrity of the home, they cannot approve it until those problems are resolved. In some cases, you, the buyer, can finance those improvements. You may, in rarer cases, be able to get the seller to pay for the renovations.

Along those lines, the lender may deny your VA loan because the appraiser finds that the home lacks enough value to justify your loan amount. If the seller is unwilling to bring down the price, this could be a challenging issue to rectify.

Next Steps to Take After Denial

If your VA loan is denied, that does not necessarily have to be the end of your homeownership dreams. It may just be a temporary snag on your road to home. Here are a few steps you can take that may potentially bring you closer to an approval.

Learn the Reason for the Denial

Lenders must explain why you were denied. Get in touch with your lender to understand what happened. You may find that the issue can be resolved relatively easily, or you may have a longer-term fix in front of you. For example, if you were denied because of your credit score, you may need time to improve that.

If your outstanding debts prove to be an issue, you may need to string together months of timely payments. Often, you might not have to pay down your debts in full but rather prove you’re able to pay them consistently while still being able to afford the mortgage payments. Regardless, once the issue is re- solved, you will likely be in a better position to reapply with your lender.

For certain issues, you can appeal a VA loan denial directly with the lender. Let’s say your loan was denied because of a debt, but you have proof that you’ve cleared that debt. It could be worth issuing an ap- peal to the lender with that proof.

Try Another VA-Approved Lender

Sometimes, you and your lender are not the right fit. Perhaps your credit score was too low for them but would meet the minimum requirements elsewhere. Private lenders vary in their criteria for borrowers. If one turns you down, don’t be too discouraged. You may even find that in the time since you started working with the first lender, a different one began offering lower rates.

Final Thoughts

Receiving notice of your VA loan denial can be painful and disheartening, but don’t lose hope. With time and effort, you can likely resolve the cause of the denial. Whether you’re preparing to apply for your VA loan for the first time or stepping back up to the plate after a denial, try to work with an experienced lender. Lenders with knowledge of the VA process, like those at The Federal Savings Bank, may be able to facilitate a smoother process once you’re ready to buy.