4 Factors that Can Hurt Your VA Home Loan Application

Your VA home loan application is processed by a private lender and not the Veteran Administration office. The private lender will use your certificate of eligibility for a VA home loan guaranty to file for insurance on the loan, making your loan cheaper and easier to secure. The application can be delayed, or denied, for any number of factors, some relating to your status with the VA and others are due to lender requirements.

#1 Dishonorable Discharge

Individuals with a dishonorable discharge from the armed forces are not eligible for federal loan assistance of any type, including a VA home loan. You will not earn your certificate of eligibility for the loan under these circumstances.

#2 Other than Honorable Discharge

If your discharge was listed as other than honorable, the VA will have to further evaluate the conditions of your discharge prior to approving your certificate of eligibility on the loan. You will have to provide supplemental documents, including your discharge papers and any appeals you made to have the status of your discharge changed. Some individuals will still qualify under these conditions, but other will be deemed ineligible for the VA home loan guaranty. 

#3 Bad Credit

It is true that the VA guaranty can go a long way to overcome bad credit. By promising to purchase the loan out of default if you cannot make payments, the VA is eliminating a significant portion of the risk. However, a lender would prefer not to exercise this option if possible. It can take a long time to have the loan restored, and the lender will lose money each month in the process. Further, the VA may settle the debt for less than is owed. The private lender would prefer to lend to an individual with fair to good credit, and then have the VA guaranty, instead of loaning to a bad credit borrower.

#4 Low Asset Base

Your assets will be considered as additional security against the likelihood you will default. While they are not directly placed as collateral, these assets could protect you if you lost your income, allowing you to continue to make payments on your home. For example, you could sell a car or stock in order to get the cash needed to pay your home loan. You could even use these assets for lines of credit to make payments in the short run. A lender would prefer to work with a borrower with assets because there is less likelihood they will declare bankruptcy.

#5 Low to No Income

You will need an income in order to pay your mortgage. If you are on active duty, the lender will be understanding about a low income, particularly if the lender works with military personnel frequently. However, if you are post active duty and working in a low income job, you may have difficulty getting the loan limits you would like. The VA home loan guaranty is only for a small amount, so the loan limits could be capped at a sum too low to allow you to afford the home you are hoping for.

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