Most Common Reasons for VA Loan Denial
The VA loan program is one of the many benefits afforded to U.S. military members and veterans. But just because you have the right to one doesn’t necessarily mean you’ll be approved.
As with any loan program, applicants can be denied a VA loan for a variety of reasons. Fortunately, being aware beforehand can help you steer clear.
Are you preparing to apply for a VA loan? According to data reported under the Home Mortgage Disclosure Act (HMDA), below are the most common reasons for denied VA loans.
A VA loan pre-approval is simply a lender saying you look like a good loan candidate at first glance. It doesn’t involve a deep dive into your finances, and it doesn’t account for any changes that may occur between the time you find a home and close on your loan. This leaves room for potential denial — even with a pre-approval in place.
According to HMDA data, over 78,000 VA loans were denied in 2023. The most common reasons for these VA loan denials were:
Meeting the military service requirements of the VA loan program is requirement #1. A Certificate of Eligibility proves to your lender that you meet this requirement and details your current VA loan entitlement.
A good VA lender should be able to pull your COE for you, but if they can’t, you can get one through your benefits portal or by mail from the Department of Veterans Affairs.
Your debt-to-income ratio (DTI) plays a big role in the mortgage application process, indicating how much you can comfortably afford for your monthly payment. Typically, you’ll need no higher than a 41% DTI to get a VA loan — meaning your monthly debts, including your new loan payment, account for no more than 41% of your monthly income. If your DTI is higher than this, you may be denied.
While the VA doesn’t impose credit requirements for VA loans, the private lenders that issue the loans can and often do. Lenders need to see that you manage credit responsibly and have a history of on-time payments to creditors. If your credit shows lots of late payments, a very low credit score, or no credit experience at all, it could lead to a loan denial.
You’ll need to supply bank statements to your lender to prove you have enough cash for closing costs and a down payment if you’re making one (remember, VA loans don’t require down payments in most cases). If these don’t show you have the resources for these costs or you can’t verify their source, your loan can be denied.
Additionally, the collateral you’re using — the home, in this case — will be looked at too. Your lender will send out an appraisal to determine how much the house is worth. If its value isn’t equal to or more than what you’re looking to borrow for it, you can be denied a loan as well.
VA loans can also be denied during underwriting when all your application data and financial information is verified and confirmed. According to HMDA data, the top three reported reasons for application denial last year included:
It's an underwriter's job to ensure applicants qualify for the mortgage, and over 16% of reported VA mortgage applications were denied in 2023.
There are several reasons a VA loan is denied in underwriting. These include:
Underwriters need to prove the information on your loan application is accurate and up-to-date. If they can’t do that — say, they can’t verify your employment with ABC Corporation or your monthly income amount — they won’t be able to approve your loan.
VA loans require at least two years of stable employment history and income. If your underwriter cannot verify that you’ve been consistently employed for the required time or cannot verify that you have a valid reason for any gap in employment, it can result in denial.
Application errors are a common reason for loan denial, so make sure to fill out your loan application carefully. You should also check it over once or twice before officially submitting it, ensuring every detail is accurate. Even small, seemingly minor mistakes can result in a denial.
Keep in mind that your lender will often notify you of any issues with the underwriting process so that they can be addressed and fixed without having to deny the loan immediately. If the issues can’t be fixed, however, the loan will likely be rejected.
If an underwriter denied your VA loan, ask for a clear description of what went wrong. Then, talk to your loan officer about moving forward. Often, you can make small changes to your finances and reapply soon.
