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Carlos Scarpero, VA Mortgage Specialist, NMLS 1674385

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VA Manual Underwriting...Your Key To VA Home Loan Approval If You Have Bad Credit

When applying for a VA home loan, the underwriting process is a crucial step. Let’s cover the two types of underwriting—manual and automated—and why understanding them can make all the difference, especially for borrowers with unique credit situations.

Key Takeaways

  1. Automated underwriting is faster and requires less paperwork but is limited by strict criteria.
  2. Manual underwriting offers flexibility for borrowers with complex credit or income histories, but it requires detailed documentation.
  3. Lender overlays can impact loan approval, adding extra requirements beyond VA’s baseline guidelines.

Not sure where your credit leaves you?

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Would rather just talk? Call or text me at 937-572-3713.

Automated Underwriting

Automated underwriting is a software-driven process where your financial and credit information is entered into a system to generate a decision. This process is efficient, as it delivers a “yes” or “no” response quickly. Advantages of automated underwriting include:
  • Speed: Less paperwork and faster approval times.
  • Fairness: Decisions are based on algorithms rather than subjective opinions.
  • Options: Broad lender availability, as many lenders rely on automated underwriting exclusively.
However, if the automated system flags your application, you may receive a “refer” decision, requiring manual underwriting for further consideration.

Manual Underwriting

Manual underwriting steps in when automated underwriting doesn’t approve your loan. This process involves a loan officer reviewing your credit history, income, and other financial details manually. While more time-consuming, it allows for greater flexibility.
Key advantages include:
  1. Flexibility: Borrowers can provide explanations for credit challenges, such as late payments or unique income scenarios.
  2. Customized Assessment: Exceptions can be made if documentation supports your case.
  3. Residual Income Evaluation: Manual underwriting ensures you meet VA standards for leftover income after expenses, making approval possible even with higher debt-to-income ratios.
However, borrowers must meet specific criteria, including providing detailed housing history (one year for homeowners, two years for renters), no recent evictions, and no late payments in the past year for most non-medical debts.
On a manually underwritten file, residual income carries more weight than your DTI ratio. Here is how residual income really decides how much house you get.

Not sure where your credit leaves you?

Start the VA Loan Pathfinder

Would rather just talk? Call or text me at 937-572-3713.

The Role of Lender Overlays

While VA loans are inherently flexible, lenders often impose additional rules, known as lender overlays. These might include minimum credit scores, stricter debt-to-income limits, or even an outright refusal to offer manual underwriting. Not all lenders provide manual underwriting services, which can limit your options if automated underwriting fails.

How to Prepare

If you anticipate needing manual underwriting, preparation is key:
  • Gather detailed documentation, including pay stubs, tax returns, and housing history.
  • Be prepared to explain any irregularities in your credit report.
  • Work with a lender who understands VA manual underwriting and can guide you through the process.


Both automated and manual underwriting serve important purposes in the VA loan process. If your credit or financial situation doesn’t fit neatly into an automated system, manual underwriting could be your key to home loan approval. By understanding these processes and working with knowledgeable professionals, you can increase your chances of success.

Have questions about VA home loans? Click here to contact me.

Where to go next

Not sure which one is you? The two minute mortgage quiz asks what I would ask on a first call, or call or text me at 937-572-3713 and describe the situation in your own words.

Licensing Info

I am licensed in multiple states. My VA manual underwriting guides by state: Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wisconsin. 

Additionally, our team can also originate loans in several other states through our corporate referral program.

Related Post

How To Get A VA Home Loan With Bad Credit

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Carlos Scarpero

Carlos Scarpero is the founder of Scarpero.com and a mortgage loan officer focusing on VA and Non QM mortgage loans. He is also the author of VA Loans Made Easy.
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