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Reason You Might Be Denied for VA Loan.

  • lnguyen45
  • Apr 11
  • 3 min read



Hey guys, welcome to VA Fridays—your go-to series for all things VA loan-related.


Today, we’re diving into a topic that confuses a lot of people, even loan officers: lender overlays.


In my previous blog post, I touched on how different lenders can have different credit score requirements, even though the VA itself doesn’t have a minimum credit score guideline.


That, my friends, is a perfect example of a lender overlay—and today, we’re going to break that down in detail.



So, What Is a Lender Overlay?


A lender overlay is an additional rule or requirement that a lender adds on top of the VA’s guidelines.


Let me explain: The Department of Veterans Affairs has a set of rules for how VA loans work. These are the official guidelines laid out in the VA Lender’s Handbook 26-7, which every VA-approved lender must follow at a minimum. But some lenders go beyond those requirements by adding their own restrictions—those are overlays.


For example:✅ The VA doesn’t set a minimum credit score.❌ Your lender requires a 620 score. That’s a lender overlay, not a VA rule.



Why Do Lenders Add Overlays?


It comes down to risk.


Lenders are businesses. They have shareholders, investors, and financial portfolios to manage. So to reduce risk, they add extra safeguards—overlays—that go beyond the VA’s flexible guidelines. This doesn’t make them “bad,” but it does mean not all lenders operate the same way, even on VA loans.



Here's the Problem...


Overlays aren’t always explained clearly—or at all. I’ll be honest: I didn’t even fully understand lender overlays until about 3–4 years into my career. And I was lucky—I worked with a lender that didn’t have many overlays.


But not everyone is that lucky.


Many loan officers simply haven’t been trained to understand the difference between a VA requirement and an overlay. Or worse, they do know, but it’s easier to say “you don’t qualify for a VA loan” than to say, “our company doesn’t allow that, but another one might.”



Why This Matters for You


If you’re ever denied for a VA loan, one of the first questions you should ask is:


❓ “Is that a VA guideline… or a lender overlay?”

That single question can change everything. Because if it’s an overlay, another lender (like me!) might be able to help you move forward without having to jump through unnecessary hoops.



Common Lender Overlays to Watch Out For


Here are some of the most common overlays that might be the real reason behind a denial or delay (There can be dozens more):

  1. Credit Score Minimums

    1. VA = No minimum score

    2. Many lenders = 580, 600, or 620+


  2. Debt-to-Income (DTI) Limits

    1. VA = No hard DTI cap

    2. Many lenders = Won’t approve over 50–55%


  3. Loan Amount Caps

    1. VA = No max loan amount

    2. Some lenders = Max $1M or $1.5M


  4. Jumbo Loan Requirements Buying above conforming limits (currently $806,500). Some lenders impose extra conditions even though VA allows it.


  5. Offer Letters & Future Income

    1. VA = You can close with a signed offer letter before starting the job

    2. Some lenders = Require 30 days on the job or even a full year!


  6. Manufactured Homes

    1. A = Allows it with few restrictions

    2. Some lenders = Won’t touch manufactured homes at all, or impose restrictions (e.g., must be newer than 1991)


  7. Rental Income & Multi-Family Use

    1. VA = Allows some rental income and more flexibility for multi-units

    2. Some lenders = Stricter requirements


  8. Gift Funds or Borrowed Funds for Closing

    1. VA = Very flexible

    2. Some lenders = Won’t allow borrowed funds or place tight limits



Bottom Line: Not All VA Lenders Are Created Equal


So, if someone tells you “you can’t do that with a VA loan,” ask:

  • Is this a VA guideline or a lender overlay?

  • Can you show me that rule in the VA Lender’s Handbook?


And if they can’t—or won’t—reach out to me. I’ve read the VA handbook front to back (multiple times) and stay updated with every change.

Sometimes you just need someone who knows how to separate fact from fluff.



Final Thoughts


Just because one lender says “no” doesn’t mean everyone will. Ask the right questions. Advocate for yourself. And if you’re unsure, I’d be more than happy to take a second look and give you a straight answer—no fluff, no wasted time.

 
 
 

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