VA Home Loan Disqualifiers – What Could Prevent Your VA-Backed Mortgage?
Veterans and active-duty service members may not be eligible for a VA-backed home loan if they do not meet specific service requirements, income and credit criteria, property standards, and other requirements.
- The VA offers beneficial, guaranteed home loans to qualified veterans, active-duty service members, and some spouses and dependent children. However, veterans must meet certain eligibility requirements to qualify for a VA-backed loan.
- Veterans and service members must meet the VA’s service requirements and their lender’s credit and income requirements. Additionally, the home they intend to purchase must meet the VA’s Minimum Property Requirements.
- If you have been disqualified for a VA home loan, there are strategies for obtaining approval in the future, such as increasing your credit, lowering your debt, ensuring the home you want to buy is safe and structurally sound, and more.
Eligibility for home loans guaranteed by the U.S. Department of Veterans Affairs is based on a veteran or service member’s service history and duty status. VA-backed home loans offer several advantages, such as no required down payments, no mandatory private mortgage insurance, competitively low interest rates, and more.
These loans can be used to purchase or build a new home, refinance an existing home, and more. However, to get financing for a VA-backed home loan, you must meet credit, income, and occupancy requirements from both the VA and your lender. Failing to meet the eligibility criteria, including service requirements, property standards, adequate credit, and sufficient income, can result in disqualification or a delay in obtaining a VA home loan.
Service & VA Eligibility Disqualifiers
Several factors related to a veteran’s military service history and documentation can block or delay a VA home loan approval. The service eligibility requirements are based on the length, date, and type of a veteran’s service, and whether the service occurred during wartime or peacetime. If you don’t meet the minimum service requirements, you may still be able to get a Certificate of Eligibility if you were discharged under one of the qualifying exceptions, such as hardship, medical conditions, or involuntary reduction in force.
If you received a discharge that was other than honorable, bad conduct, or dishonorable, you may not be eligible for VA benefits. However, you can apply for a discharge upgrade and ask for a VA Character of Discharge review.
Surviving spouses of deceased veterans may also be able to get a Certificate of Eligibility if they are eligible for certain types of VA Dependency and Indemnity Compensation or are the spouse of an active-duty service member who is missing in action or a prisoner of war. However, misapplying the surviving spouse rules can lead to disqualification.
Credit, Income, & Debt-to-Income Disqualifiers
Private lenders administering VA-backed loans can disqualify applicants despite the VA’s guarantee. In most cases, the VA may only guarantee a loan when it’s possible to determine the borrower is a satisfactory risk and has the anticipated income to pay the terms of the new loan.
When underwriting a loan, bankruptcy itself doesn’t disqualify an applicant, and lenders must consider the reason for and type of bankruptcy. Typically, there is a two-year waiting period for Chapter 7 bankruptcy and a one-year waiting period for Chapter 13 bankruptcy to qualify for a VA-guaranteed loan.
Other factors lenders may consider when determining whether to approve a veteran for a VA-backed home loan include:
- A very low credit score or negative credit history
- A high debt-to-income ratio
- Lack of steady income or recent job history
- Insufficient residual income after debts and payments
- Large outstanding judgments, collections, or bankruptcies
Property & Appraisal Disqualifiers
To obtain a VA home loan, the property you are purchasing must meet the VA’s Minimum Property Requirements, or MPRs, for safety, soundness, and sanitation. Once you have chosen a home, confirmed your service and financial eligibility, and begun the process of applying for a VA loan, you must have the home appraised by a VA-approved appraiser to ensure it meets all MPRs.
Several property-related issues can disqualify a VA loan, even if the borrower is otherwise eligible for the loan. Extensive deferred maintenance, missing heating, and structural problems can cause a property to be flagged by the VA-approved appraiser, delaying or halting the loan process. If the purchase contract is above the appraised value and the buyer is unwilling to cover the difference, the loan may fall through.
Additionally, because VA loans require that the home be the borrower’s primary residence, plans ot use the home as an investment or vacation property can disqualify the loan. Properties in condo developments or other associations that are not VA-approved can also cause issues with the home loan process.
Entitlement & Previous Use Disqualifiers
Service and financial requirements are not the only factors that can lead to disqualification from a VA loan; the veteran’s VA entitlement also plays a role. If a veteran has already used their VA home loan benefit, their entitlement has been exhausted, and there is no remaining guaranty for an additional loan without a down payment. Additionally, an existing default on a prior VA loan with incomplete entitlement restoration can result in disqualification.
Note that full entitlement doesn’t guarantee an unlimited loan amount—your lender will still assess affordability and eligibility.
How to Avoid or Overcome Disqualifiers
Coming Back from Disqualification
If you fear you may be disqualified from a VA-guaranteed home loan, an experienced VA lender can help you get back on track with qualifying or appealing a denied claim. There are ways to come back after a loan denial by addressing issues with your income or credit, the property, or your Certificate of Eligibility.
Consult your lender for guidance through the process to increase your chances of future approval.
