5 Avoidable Roadblocks That Stop Your VA Home Loan Approval
Sometimes, the mortgage application process reminds me of this cop show dialog: “We can do this the easy way or we can do this the hard way.”
Usually, the application process is fairly easy, especially when people do their homework, set specific goals and collect the necessary financial, tax and legal documents. In these cases, the process can proceed quickly and painlessly. In other cases, however, obstacles block the route.
Below are my top 5 avoidable roadblocks to qualifying for a VA home loan, along with some advice on how to address these issues.
1. A debt-to-income ratio that’s too high.
As I mentioned in a previous blog, having too much debt relative to income is a common problem. By way of solutions, you could: (A) wait until the debt is paid off before applying for a mortgage; (2) consolidate the debt to reduce the size of your monthly debt payments; or (3) get a co-borrower to help with income issues. Any of these solutions should help you qualify for a mortgage, but debt consolidation and getting a co-borrower are often the fastest and most realistic solutions.
2. Credit problems.
A poor or mediocre credit rating can increase the interest rate you pay on the loan and add discount points, which increase your closing costs. Normally, it takes months to fix problems or mistakes on your credit report, but there are companies you can hire that will expedite the process.
Recently, one applicant quickly added 12 points to her FICO score by hiring such a firm. Twelve points may not sound like much, but it ended up saving her $6,000. (With a lower credit score, her closing costs would have been higher because she would have had to buy discount points to get a good interest rate.)
Her loan was already being processed, so she needed to improve her score quickly. However, you can also use free services such as annualcreditreport.com to correct mistakes in your credit history. Raising your score will take longer, but – unlike the applicant above – you won’t pay anything for the service.
3. Income issues.
Very often, it’s self-employed people who discover that they don’t meet the minimum income requirements of their mortgage lender. Why? Because lenders look at the whole picture, not just gross income. If you’re a savvy business owner who takes advantage of all the tax deductions to which you’re entitled, your net income may fall below the threshold that qualifies you for a mortgage with attractive terms.
This can put you between the proverbial “rock and a hard place.” To qualify for the mortgage, you may have no choice but to forgo certain tax deductions in order to boost your net income above the lender’s minimum. If you’re lucky, your spouse will earn a salary that will help you qualify for a mortgage. Otherwise, you may have some hard choices to make.
4. Property appraisals that are too low.
In the next blog, I’ll address this challenge in detail. For now, I’ll simply say that low property appraisals are a daunting problem. A lot of legwork is needed to fight an appraisal that undervalues a property you want to refinance, and even if you make the effort, the odds don’t favor success.
5. Condition problems.
Loan conditions are simply stipulations or requirements that the applicant needs to meet to get a final loan approval. Conditions can refer to almost anything – from a leaky roof or broken septic system to a lack of documentation regarding your income, tax bills, disputes on your credit report, etc.
Not long ago, for example, everything was moving smoothly for one loan applicant until we discovered that, although the house had smoke detectors, it didn’t have the carbon monoxide detectors mandated by law. That’s the kind of condition issue that can hold up the mortgage process for a while.
The solution to condition issues is to tackle them one at a time as they are identified. In the case above, everything moved forward once carbon monoxide detectors were installed. The bottom line, however, is to never “count your chickens” until the lender funds the loan and the deed is recorded by the county. There may be a myriad of conditions that must be resolved before the closing can occur.
Before You Apply
If you’re a first-time homebuyer, do some research before applying for a mortgage. Read books and articles to acquaint yourself with the processes. There’s so much that goes into purchasing a home, it makes sense to perform due diligence. You should also attend seminars if they’re available in your area. At BECU, we often hold free seminars for first-time homebuyers.
I often receive calls from people who’ve done absolutely no homework. Sometimes, I’ll spend up to an hour on the phone with them. As a consumer, you should do your own research and acquire an understanding of basic concepts so you’ll know what’s going on with your loan.
Just as important, be sure to have all your documents ready when you proceed to the application stage. You wouldn’t believe how many people call me, claiming they’re ready to start the application, who are completely unprepared. I’ll ask, “How much is your annual property tax, your total homeowner’s insurance premium, your work address,” etc.
“Uh … I don’t know. I’m calling from my car.”
Don’t be that guy. Don’t waste your time and mine. Be prepared.
image: DVIDSHUB. Modified.