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  • Tel: (651) 552-3681
    Email: Loans@VAMortgageMN.com

  • COVID 19 effects on VA Loans

  • As with so many other aspects of our lives, the ongoing impact of the COVID 19 virus has had a serious effect on the mortgage world, causing market volatility, and difficulties in underwriting the clients credit risk.

    Simply put, lenders have been forced into tightening guidelines to increase protection against defaults from pending disruptions to the economy, job loss, closed businesses, reduced hours, and more.

    This has primarily changed weaker loan applications, including VA Loan applications. New higher minimum credit score requirements is the most common item, with most lenders now requiring at least a 640 score for VA loans.

    Some programs are completely disappearing. Large jumbo loans, and cash out refinance loans are a prime example. Many lenders have simply stopped offering them, especially cash out refinances as they worry that clients may try to take cash out to live on, knowing they are about to lose their job.

    VA streamline refinances (also known as a VA IRRRL loan), which require very little documentation are also harder to get with lenders unable to verify jobs under this program.

    COVID 19 and VA loans

    For those who are still eligible to get a mortgage loan, they can expect new re-verification of job requirements, and the age of documents at the time of closing can’t be as old as before. For example, maybe the pay stub you supplied was from a month ago. Now lenders will need the most recent one too.

    Another big change is many lenders are now also doing a final verbal verification of employment on the day of closing. This is because of the reality that you may have been furloughed yesterday.

    Higher interest rates are also common on government loans (VA, FHA, USDA), especially as your credit score drops.

    LENDER OVERLAYS

    Many of these changes are mandated across the board with all lenders. Others are what is known as lender overlays, and will vary from lender to lender.

    Understand that the VA doesn’t give you a loan. A lender does. The lender basically gets a partial insurance policy against loss by the VA if you default, but only if the lender underwrites your loan to follow VA guidelines.

    The lender can still be on the hook for a loss above the VA ‘insurance’ – so therefore lenders add their own extra internal rules to the basic guidelines. For example, VA guidelines still say lenders can do low credit score VA loans, but I am not away of a single lender in the nation currently offering them.

    RETURN TO NORMAL?

    Will we return to normal? I believe so. It is just a matter of when.

    The most recent example was the market crash or 2007 / 2008.  We saw a big tightening of mortgage programs and guidelines then too. Some things improved fairly quickly, while others took years.

    Stay safe people, and always feel free to contact one of our VA mortgage loan expects anytime with your questions at (651) 552-3681, or click here to send a message to ASK AN EXPERT.