VA loan denied in manual underwriting - help!

[amy76]

We are in th process of building a home, due to be completed mid-October. We have been under contract since March, but bad/wet weather has caused numerous delays. We received pre-approval for FHA financing early in the process and did a little shopping around. We were all set to go with one lender via FHA, when a second lender recommended we try VA instead. My husband was in the Air Force for 23 months, 26 days (not 24 full months) so we never bothered to apply. Low and behold, we received a COE. Not only was this a $10,000 swing in the amount of money we'd have to bring to the closing table, but also a $315 per month savings in PMI.

Our loan was denied via automated underwriting and went to manual underwriting. Our lender assured us that everything looked good for underwriting. I got the call today that they are not able to approve our VA financing due to "too many late payments". Our credit mid-scores are in the 640's, we have 4 PAID judgments, one unpaid medical collection for about $300, and the last late payment was in July of 2012. Prior to that, the last late payment was October 2011. Nothing has been late in the past 13 months; over a year. Our income, employment history, DTI and residual income are all impeccable.

Now that we've gotten used to the idea of not paying PMI, and putting 0% down (we will be in the house at least 12 years until our kids graduate so not concerned about equity). The thought of going back to FHA feels unbearable and way too expensive. I understand that the VA underwriting approval is based on the bank, following general VA guidelines which we meet! This seems to be a bank specific denial. Is there any hope for us? Do we keep trying different lenders or give up and go FHA?

Thanks.

[Sunshine85]

Some questions for you:

Do either of you have a prior BK?

What is your DTI and do you have any prior mortgages reporting? If so, are there any lates?

Keep in mind that 640 is only the minimum, and that you only have a year on time payments, which isn't all that long. With the last 2011 late pay, you had had less than a year of on time payments before having another hiccup in 2012.  I'm not at all trying be harsh, but based on what you wrote, the credit history does seem spotty. You stated that you have good residual income- since that's the case, what caused the derogs? If they are due to an extenuating circumstance (other than job loss, divorce, etc...lenders don't consider those events extenuating),you could try taking the decline up the chain to an underwriting manager.   

You could try another lender- I certainly would as it saves you what I feel is a significant amount of money each month. Just be prepared to have to have really good support/explanations for the previous late pays/derogs.

[HoldingOntoHope]

Yes another VA lender is in your future. There are innumerable ones out there and as long as you meet VA criteria one of them will write your loan. Does the lender who preapproved you for FHA do VA loans?

[Christian123]

I agree with the others. Find a new lender. Different banks have different guidelines. I was denied by NFCU because of my past BK and was approved by USAA and our builders lender.