VA Guidelines versus Lender Overlays on VA Loans

This guide covers understanding VA guidelines versus lender overlays on VA loans. The VA guidelines versus lender overlays from the Veterans Administration is very important for borrowers qualifying and getting pre-approved for VA loans. Many lenders have conflicting lending requirements on VA loans due to them having its own overlays. The difference between VA guidelines versus lender overlays. Overlays are additional mortgage lending guidelines set by the individual lender above and beyond the mortgage guidelines of the Veterans Administration.  Many borrowers of VA loans often get confused due to not quite understanding VA guidelines versus lender overlays on VA loans:

Understanding VA guidelines versus lender overlays is very important for homebuyers with less than perfect credit trying to get qualified and pre-approved on VA loans.

Our veterans and active duty members of the United States Military who are eligible for VA loans are often confused why one lender requires a 640 credit score and a lender like GCA FORUMS Mortgage Group does not have a minimum credit score. We will detail the minimum VA guidelines versus lender overlays on VA loans straight from the Veterans Administration and NOT from independent lenders. Each lender can have their own lending requirements on VA loans, called lender overlays. In the following paragraphs, we will cover VA guidelines versus lender overlays on VA loans.

Facts About VA Guidelines versus Lender Overlays on VA Loans

VA loans are the best loan program in the nation. The Veterans Administration is not a lender. The Veterans Administration is a federal agency that is in charge of insuring and partially guaranteeing VA loans that go in default and/or foreclosed. Private lenders originate and fund VA loans. Due to the VA guarantee, lenders can offer VA home mortgages to borrowers with 100% financing, no mortgage insurance, no max loan limit,  and low mortgage rates. For the VA to insure and partially guarantee VA loans, all lenders need to meet the minimum VA Agency Lending Guidelines. However, lenders can have higher mortgage lending requirements that are above and beyond the minimum VA Agency Guidelines called lender overlays. This is why not every lender has the same VA lending requirements. GCA FORUMS Mortgage Group is a five-star national mortgage company licensed in multiple states with no lender overlays on VA loans. In this article, we will discuss and cover understanding VA guidelines versus lender overlays on VA loans. Click here for Apply For VA Loans

Understanding VA Guidelines versus Lender Overlays on VA Loans

All lenders need to meet the VA guidelines on VA home loans if they want to make sure the loan they originate is insured by the Veterans Adminstration. However, lenders can and often do have higher lending guidelines of their own that are above and beyond the minimum VA agency mortgage guidelines. Here are the main bullet points of the minimum VA guidelines versus lender overlays:

• The Veterans Adminstration offers 100% financing to eligible borrowers with an active certificate of eligibility (COE).
• Most homebuyers do not pay closing costs.
• Closing costs are normally paid with a seller concession by the seller and/or a lender credit.
• The VA allows up to 4% in sellers concessions by the home seller to be given to homebuyers for closing costs.
• There are no minimum credit score requirements on VA loans as long as the borrower can get an approve/eligible per automated underwriting system (AUS).
• There is no maximum debt-to-income ratio caps on VA loans as long as the borrower can get an approve/eligible per automated underwriting system.
• There is a two-year waiting period after Chapter 7 Bankruptcy, foreclosure, deed-in-lieu of foreclosure, short sale to qualify for VA loans.
• Borrowers in Chapter 13 Bankruptcy Repayment Plan can qualify for VA loans during Chapter 13 repayment with Trustee Approval via manual underwriting.
• Chapter 13 Bankruptcy does not have to be discharged
• Any borrowers without a two-year seasoning after Chapter 13 Bankruptcy discharged date needs to be manually underwritten.
• Outstanding collection and charged-off accounts do not have to be paid to qualify for VA loans.
• Only married spouses of the veteran can be co-borrowers on VA loans.
• Non-Occupant Co-Borrowers are not allowed on VA loans.
• Deferred student loans that are deferred for longer than 12 months are exempt from debt-to-income ratio calculations by mortgage underwriters.

All lenders need to abide initially by the above minimum lending requirements and guidelines for all its borrowers. However, lenders can have additional lending guidelines called lender overlays on VA loans. GCA FORUMS Mortgage Group does not have any lender overlays on VA home mortgages

What Are Lender Overlays

As mentioned earlier, lender overlays are additional lending guidelines imposed by the individual lenders that are above and beyond the minimum VA guidelines versus lender overlays. Not all lenders have the same lending requirements on VA loans

• A borrower may meet all lending guidelines set forth by the VA.
• However, the borrower may not qualify with a particular lender.
• Just because the borrower does not qualify for a VA loan with a particular lender does not mean they do not qualify with a lender with no lender overlays like GCA FORUMS Mortgage Group.

GCA FORUMS Mortgage Group is a five-star national mortgage company licensed in multiple states with no lender overlays on government and conventional loans. Click here To Find A Mortgage Lenders

Typical Common Lender Overlays By Mortgage Lenders on VA Loans

Here are common lender overlays by lenders on VA loans:

• The VA has no minimum credit score requirement.
• However, lenders may impose a minimum credit score requirement of 620, 640, 660, 680 FICO as part of their lender overlays.
• The Veterans Administration has no maximum debt-to- income ratio requirement on VA loans.
• However, the lender may have a maximum debt to income ratio cap at 45% to 50% as part of their overlays.
• Outstanding collections and charged-off accounts do not have to be paid to qualify for VA loans.
• However, many lenders will require outstanding collections and charged-off accounts to be paid off.

GCA FORUMS Mortgage Group is one of the very few national mortgage companies that have no lender overlays on VA loans. To qualify for a VA loan with a lender with no lender overlays on VA loans, please contact us at GCA FORUMS Mortgage Group at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at GCA FORUMS Mortgage Group is available 7 days a week, evenings, weekends, and holidays.

FAQs on VA Guidelines versus Lender Overlays on VA Loans

What are VA Guidelines versus Lender Overlays? VA Guidelines are the policies promulgated by the Department of Veterans Affairs on VA loans. These guidelines were encouraged to help American veterans and service members enjoy decent loan terms and curb the readiness for loan defaults. Areas such as who qualifies, how much can be borrowed, and what the basic property requirements are highlighted.

What are Lender Overlays?

Borrower overlays are additional borrower or loan guidelines placed by lenders on top of the base guidelines provided by the VA. These are higher than the VA’s minimum standards and differ greatly from institutions. Overlays allow lenders to mitigate risk and satisfy their internal qualifications for any borrowers.

What is the difference between VA Guidelines versus Lender Overlays?

The VA Guidelines explain the minimum measures that borrowers must observe to qualify for a VA loan. These are administrative procedures such as a minimum credit score, acceptable debt-to-income ratio, and approved income types.

Lender Overlays: More precisely, these are extras that lenders may require. For example, the VA may allow for prequalification without evidence of credit history, but a lender may require additional credit history and attachments. Overlays can also be less extensive than some additional types of income verification or lower allowable debt-to-income ratios.

Are lenders free to add credit score requirements on particular loans?

Lenders can add credit score requirements on top of other lenders’ guidelines, known as overlays. However, even though the VA has no hard and fast credit score minimum requirements, she can tell how receptive various lenders are based on how well a borrower’s score measures up and how high the risks are.

What steps does the lender overlay take regarding the loans offered?

Lender overlays can influence how a loan application is processed, as it may become more difficult to qualify for the loan due to the excess conditions that the lender sets forth. You should rather look across various lenders to help you understand your other lenders’ overlays and how they could affect a VA loan application.

On the other hand, what are the most standard lender overlays one should be prepared for?

Typical lender overlays encompass the following:

• More demanding minimum credit scores.

Stricter DTI ratio requirements

More supporting documents are needed to verify employment and income. Comprehensive property appraisal or inspection requirements.

Can I shop around to avoid lenders with excessive overlays?

Yes, it’s common to find it very good to compare shops amongst the different lenders. There is always a variation amongst overlays, so you can find one favorable.

Do VA guidelines versus lender overlays by lenders comply with the VA requirements?

Yes, it is correct. VA loans with lender overlays must also comply with the VA’s basic minimum requirements. A lender-imposed overlay refers to a variation of what is required, though it may not be contrary to the basic VA requirement.

What can be done when my VA loan application is rejected because of the lenders’ overlays?

If you are denied because of lender overlays, consider shopping for other lenders or mortgage brokers who are less rigid in their overlays. Alternatively, looking at your credit report and performing health checks of your overall finances to eliminate any problems could surely boost your other lending chances.

How do I learn about VA Guidelines versus Lender overlays without filling out an application and before sending it off?

Inquire about such overlays with the lenders during the initial meetings with them. They may explain any other procedures or requirements that are considered outside the constraints of the VA. That way, you’ll learn more about the overlays of different lenders, helping you pick the best for you.

This guide on VA guidelines versus lender overlays on VA loans was updated on September 6th, 2024.

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