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Lender overlays are stricter standards imposed by lenders. For example, while the VA doesn’t set a minimum credit score, many big lenders require one. If you’ve been denied, it’s crucial to determine whether it’s due to your credit score or the property you’re trying to buy. Start with what to do if your VA loan is denied.
Overlays are not one rule, they are a stack of them. The common ones are a credit score floor (often 620 or higher), tighter debt to income limits than VA asks for, longer waiting periods after a bankruptcy or a foreclosure, and reserve requirements. One lender wants a 680. Another goes to 620. Some will work in the 580 range. Same VA program, completely different thresholds, which is why the same file gets a no in one place and a yes in another.
This is the part of the handbook I end up quoting the most, because it is the opposite of how an automated denial reads your file.
VA Handbook Excerpt
“The borrower’s past repayment practices on obligations is the best indicator of his or her willingness to repay future obligations. Emphasis should be on the borrower’s overall payment patterns rather than isolated occurrences of unsatisfactory repayment.”
If you had a rough patch and have been paying on time since, a lender who reads the whole picture can see that differently than the one that ran your score through a system and stopped.
Source:
VA Lenders Handbook – Chapter 4: Credit UnderwritingFirst, get the specific reasons in writing. A denial that says “credit” is not useful. A denial that says “score below our 620 minimum” or “recent collection inside 12 months” tells you exactly what has to change and whether it is a VA rule or that lender’s own overlay. Then get the file in front of someone who works tougher files instead of applying again at another big shop and collecting a second no.
If the denial said credit, it also helps to see what the lender saw. My Credit Guy’s free credit review reads your credit report and lists every negative item and what it would take to clear it. If your credit does not need work, it says so.
If you already have paperwork from the lender that turned you down, send me the denial or the Loan Estimate and I will tell you which of the two you are dealing with.
Score floors are the most common overlay behind a denial. For the full picture, see what credit score you need for a VA loan.
One of the best features of the VA home loan is its flexibility with credit. Unlike conventional loans, the VA program has no minimum credit score requirement. Instead, it evaluates your payment history and personal financial story. While this doesn’t guarantee approval for everyone, it does mean you may still qualify even if your credit score isn’t perfect.
Take the 30 second mortgage quiz to see if you qualify
Remember, getting a VA loan isn’t about fitting into a one-size-fits-all box. With the right approach, you can overcome lender overlays and achieve your homeownership goals.
Have questions about VA home loans? Click here to contact me.
VA Circular 26-23-19, dated October 2, 2023, explains who is exempt from the VA funding fee, why that status must be confirmed before closing, and how refunds work when a fee was paid in error.
Yes, in many cases you can get a VA loan with a new job, and in many cases you can qualify with a job offer
Self-employed veterans get told no more than almost anyone, and usually for the same reason: the lender only knows W-2 files. VA has a written
Take the 30 second mortgage quiz to see if you qualify
