New to this? Start with how mortgage underwriting really works.
What manual underwriting is
Most VA loans are approved by an automated underwriting system. When it returns a "refer" instead of an approval, the file can go to a human underwriter who reviews it against VA's written guidelines. It takes more documentation and more time, but it looks at the whole picture instead of a score.
What sends a VA file to manual
Common reasons include a lower credit score, a recent late payment, a past bankruptcy or foreclosure, limited credit history, a high debt ratio, or a combination that the system doesn't like. A refer isn't a denial. It's a request for a closer look.
Residual income is the heart of it
VA's most important test is residual income: the money left over each month after taxes, your new house payment, home maintenance and utilities, debts and child care. VA sets a minimum based on your family size, region and loan amount. Florida is in VA's South region.
| Family size | South region, loans $80,000+ |
|---|---|
| 1 | $441 |
| 2 | $738 |
| 3 | $889 |
| 4 | $1,003 |
| 5 | $1,039 |
| Each additional | +$80 |
From VA's residual income guidelines. Confirm current figures with your lender.
Why high debt ratios can still be approved
See how this compares in debt to income limits by loan.
VA doesn't set a hard debt to income cap. It uses 41% as a guideline. When the ratio is above 41%, VA expects the residual income to be at least 20% above the minimum, or other strong compensating factors.
That's why VA can approve ratios other loans never would. On manual VA files, I've seen approvals up to about 60% debt to income, and in some cases above, even without cash reserves, when the residual income was strong. Every lender is different, which is why it matters who you work with.
VA residual income check
Simplified estimate using VA's South region table and a maintenance and utility estimate of $0.14 per square foot. Tax free income like disability pay isn't taxed, so enter $0 taxes on that portion.
Other compensating factors
Beyond residual income, underwriters weigh things like long term employment, little or no increase in your housing payment, conservative use of credit, a solid history of paying rent or a mortgage, cash in the bank, and tax free income like disability pay or allowances.
Credit on a manual file
VA doesn't set a minimum score, but manual files get a closer look at payment history. The last 12 months matter most, especially rent or mortgage payments. Expect to explain late payments, collections or past credit events in a short letter. Many lenders set their own minimum scores for manual VA, and some don't do manual VA at all.
How to give your file the best chance
Keep every payment on time while you're shopping. Document all income, including disability compensation, which counts as tax free income. Avoid new debt. Gather 12 months of rent payment proof if you rent. And work with a lender who actually does manual VA, not one who just runs the automated system and stops.
The plan after closing
Manual files sometimes come with a higher rate. Once your loan is seasoned and your payments are on time, an IRRRL can often lower it with lighter requirements. I plan that from the day we close.
High debt, strong residual income
Darnell had a family of four, a truck payment and student loans, which pushed his debt ratio near 58%. The automated system returned a refer.
His disability compensation was tax free, and after every expense his residual income was well above VA's minimum for his family size. A manual underwriter approved the loan without cash reserves. Eight months later, he was eligible to streamline into a lower rate.
Frequently asked questions
What is the maximum DTI for a VA manual underwrite?
VA has no hard cap. Above 41%, residual income generally needs to be at least 20% over the minimum or supported by strong compensating factors. Approvals around 60% happen with strong residual income, depending on the lender.
Do I need reserves for a manual VA loan?
VA doesn't generally require reserves, though they help as a compensating factor and some lenders require them.
What credit score do I need for a manual VA loan?
VA sets no minimum. Lenders set their own, and they vary widely.
Does disability income help with residual income?
Yes. It's tax free, so more of it counts toward what's left over each month.