Lately, I have been doing a lot of work around VA Loans and was researching some specific qualification requirements for a recent loan loan scenario. As I was doing this, I confirmed two things: loan requirements are boring and exact. But as I was plodding my way through the pages and pages of VA loan requirements I came across something called “Compensating Factors” which reminded me of something I once heard from an ole mortgage mentor of mine.
He said, “there are ways that things are supposed to be done and then there are the ways that things really get done.” He further explained that as a loan officer if you have a loan applicant that falls outside of “boring and exact” loan requirements, it is up to you to show the underwriter why the loan makes sense - if in fact it makes sense.
I have written a lot of loans for my customers over the years where I have used this coaching, but it has always been up to me to figure out the angle. Now at least as far as Va loans (and as I looked the list - many other mortgage programs) thanks to this section I ran across on Compensating Factors I have some sort of reference point to start from if I need ideas about how to make sense of a loan that falls outside of the “requirement box.”
The “falling outside the requirement box” that I’m talking about is like the Gray Area. I gotta think that most people have heard of the term Gray Area. If you haven’t send me a note and we’ll talk about it. But, for what we’re talking about here - VA Loans - the Gray Area refers to an aspect of a VA loan applicant’s loan application that falls outside of the “boring and exact” mortgage underwriting requirements.
Let’s be real, very few people in life really fit perfectly into a box. Just about everyone I know has something going on - has some story - that makes either their income or credit situation just a little different from the next person. Yet, VA loan underwriting criteria as with all mortgage loan criteria are pretty cut and dry when it comes to what they accept.
Well it seems that the VA is pretty smart as they recognize that people have their “stuff” and have made some allowances for that stuff. Here is a list of the stuff that the VA calls: Compensating Factors which if make sense when presented with a loan application might just lead the applicant to an approval even though they don’t fit perfectly into the loan requirement qualification box.
- excellent credit history
- conservative use of consumer credit
- minimal consumer debt
- long-term employment
- significant liquid assets
- sizable downpayment
- the existence of equity in refinancing loans
- little or no increase in shelter expense
- military benefits
- satisfactory homeownership experience
- high residual income
- low debt to income ratio
- tax credits for child care, and
- tax benefits of home ownership.
So, if you are considering looking to buy a home using a VA loan, or any mortgage for that matter and you think that you have to be perfect and fit into a box, remember this list and this article and apply for your mortgage anyway. If it makes sense - you have a good shot at getting the mortgage and your home. What do you have to lose?
