VA loan keeps getting kicked back from DU refer

[coterotie]

Okay here's the details:

Loan amount is 379K

Scores are 775 786 772

The interest rate is 3.5% which gives a payment of 1,702 for Principal and Interest, Exempt from Property Tax, actual insurance quote is $168/month

All other debt is 213/month but I have offered to pay off all but 121/month of the debt.

The utility contribution is 432

Cash Reserves are approximately $75K, plus VA will allow rental income from the paid for former home to offset the future mortgage payment without rental history if the area is "known" to the underwriter.  We went with local people so as to make this part applicable.  But again not using for calculation purposes.

Using the spreadsheet from the VA website to calculate residual income.

Income from VA and SS of 3281 per month ALL of which is tax free income for federal and state tax purposes. 

I asked them to use this without using the investment income because the investment income is all tax deferred as well.  The only thing that gets reported is the annual withdrawals from IRA's which are approximately $9,000 and again non-taxable.

This appears to be the problem as they can't get the residual income to properly calculate for desktop underwriter nor will the ratios adjust properly for the fact that all income is tax free.

I get the residual income at 858 without the investment income, 1608 with it.  They come up with $550.  It appears they are counting taxes against the income and they do not know how to do the gross up so that the other ratios fall into line.

Shane anyone else have some suggestions to offer?

[IOBA]

Are they calculating real estate taxes against the rental property or Federal taxes?

[coterotie]

No taxes being calculated against the rental property as it is exempt as well.

As far as I can tell they have to be calculating Federal taxes, Social Security Tax and State Income tax, even though the income is all tax exempt.  I have sent the returns, a research paper on taxation of income (I am a CPA) and they just can't seem to figure out how to input the data into DU.

---

@IOBA wrote:

Are they calculating real estate taxes against the rental property or Federal taxes?

---

[IOBA]

I have two properties - a rental and a primary residence.  When we were looking at the final, dream property, all of the lenders wanted to know about our finances (naturally.)   Each one required that I provide proof of rental income, real estate property taxes, and property insurance.  Even though the rental property paid for itself and then some, the lenders were going to count the expenses against my income.

Maybe the lender is doing the same.  (For us, the real estate taxes and homeowners insurance for three properties were calculated into the   I  income/debt ration.)  Even though you are exempt from paying real estate taxes, the underwriter can't find a way to reconcile that?

In the end, due to a variety of reasons, we didn't get the third property.

Please let us know how things work out.

[ShanetheMortgageMan]

So from the sounds of it, you have $3,281/mo in non-taxable income.  For residual income calculations, that is the figure that will be used.  For debt ratio calculations, it can typically be grossed up by another 25% to $4,101.25.

So $3,281/mo minus $1,702, minus $168/mo, minus $121/mo, minus $432/mo = $858/mo.  If the rental income isn't being counted, then you are still hit for the homeowners insurance (you said you are property tax exempt, but would that be applicable on both homes at once?  I assume you are a disabled vet and normally that exemption can only be used on your primary residence, although each county/state can differ)... but the insurance alone wouldn't explain the $308/mo difference.  If adding property taxes into the equation that would make more sense.

You should ask how they are determining the expenses when doing the residual income calculation.  I've had AUS approvals into the 70's on VA loans before as long as the residual income requirement is met.

Why aren't you having them use the investment income qualifying purposes?  Seems that it'd really help you out.