The VA loan underwriting process goes beyond just examining the credit report which was explained in Part 1 How VA Underwriters Examine a Borrower’s Credit Report and History. Underwriting other debts and obligations is necessary because some may or may not be included on the credit report. Very often, debts are reported by the applicant, discovered on payroll checks or through court recorded documents. Each one must be addressed as follows:
– When a debt has been discovered on a payroll stub, the underwriter will normally request more information from the borrower so that the debt can be identified and verified.
– Debt payments can be also be found on the bank statements and will need to be explained and verified.
– Alimony and/or child support are considered a debt obligation and will need to be verified. Court recorded divorce papers are usually requested for this purpose.
– The underwriter will deduct any significant debts and obligations from the total effective income in order to determine the ability to repay the mortgage.
– Debts and obligations with a remaining term of 10 months or more are considered long-term debt and will be considered in the total debt ratio.
– Debts and obligations that have a remaining term of less than 10 months, but require large payments will also be considered since they have the capacity to impact the borrower’s financial resources at any time during that period.
– The underwriter will examine and make a determination as to whether any debts or obligations that are not considered significant, should be included in the debt analysis especially if they could have an impact on the borrower’s ability to repay the mortgage.
– A married borrower may obtain the mortgage in their name only and without regard to their spouse’s debt and obligations in a non-community property state. In community property states, the spouse’s debts and obligations are required to be considered even when the borrower is obtaining the loan in their name only.
– Any debts assigned to an ex-spouse through a divorce decree will not be charged or considered against the borrower even if those debts are delinquent.
– If a borrower has co-signed a loan and there is documented proof that the loan payments are being made by someone else and no reason to believe that the applicant will be responsible for repayment, the underwriter will generally disregard this debt obligation.
– If the borrower has a pending sale of real estate, the sales proceeds may be necessary to payoff the mortgage on the property, pay off other debt obligations or be used for the down payment on the VA loan. If there is enough information available showing that there is sufficient equity to be realized through the sale, the underwriter will make a determination to disregard this mortgage payment and any related obligations that will be cleared.
– If the borrower intends to obtain a second mortgage at the same time as the VA loan, the second mortgage must be included as a significant debt.
– If the borrower has student loan repayments scheduled to begin repayment within 12 months of the closing of the VA loan, the underwriter will consider the monthly loan payment in the debt obligation. If there is evidence that the student loan debt will be deferred outside of that timeframe, the underwriter will consider eliminating the student loan debt from the debt analysis.
– Any loans secured against deposited funds, such as 401K loans, cash value life insurance policies, etc., do not need to be considered for loan qualification. However, the deposited funds securing these loans may not be included as an asset in the loan analysis.
Generally, when underwriting the debts and obligations for a VA loan, the underwriter must not place the borrower into a worse debt position. The debt analysis must show that the borrower will be able to comfortably make the mortgage payment along with their other debt obligations.
Feel free at any time to contact me for more information or questions you may have about debts and obligations when underwriting a VA loan.
My loan process was very easy and quick. Not to mention a great loan rate. I couldn't be happier!
Capt Sam T. - US Army
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