VA LOAN CREDIT REQUIREMENTS
Although the VA was developed to help Veterans and VA eligible Service members obtain a VA Home Loan, they still have certain credit guidelines and underwriting criteria that must be met in order to approve a VA Loan. However, as a general rule, the VA is much more credit forgiving and is much more willing to consider compensating factors based on an individuals personal circumstances than pretty much all other Home Loan Mortgage options.
We have compiled a number of questions and answers you may have concerning VA Loan Credit guidelines and requirements that will hopefully help determine your personal credit circumstance as it relates to the VA Credit Underwriting Guidelines. It is important to note that a highly qualified and experienced VA Home Loan expert can be a tremendous help in navigating the sometimes complicated VA procedures and processes to get your VA Loan Approval. This site can recommend a VA Approved and a highly experienced VA Loan Specialist to get you pointed in the right direction for VA Loan Approval. Get your VA Refinance Quote or VA Purchase Quote HERE.
Below is some general but very specific clarification on VA Credit Directives that you should know and understand if you are interested in a VA New Purchase Loan or VA Refinance Loan. Some additional Credit Questions and Answers can be found in our VA Loan Frequently Asked Questions page.
VA LOAN CREDIT CLARIFICATION
LATE MORTGAGE PAYMENTS
The general rule is when satisfactory payments will have been made on all credit accounts, including a mortgage, for a period of 12 months form the last recorded derogatory credit reporting. A VA underwriting will look strongly at the overall payment pattern rather than isolated periods of slow pays due to intermittent periods of financial difficulty.
NO CREDIT HISTORY
In most cases, the lack of an established credit history should not be a deterrent to loan approval. VA guidelines allow for some non-conventional accounts to be used to establish a credit history. Some of these account items include satisfactory payment history on rent, utilities, phone bills, etc
CHAPTER 7 BANKRUPTCY
The VA guidelines require a minimum of two years to elapse since the discharge date of the borrower or spouse's Chapter 7 bankruptcy. This two year requirement is from the discharge and and not the filing date. In addition, the underwriter will require an explanation for the bankruptcy, a good credit history, stable income and strong job stability since the time of discharge of the bankruptcy.
CHAPTER 13 BANKRUPTCY
If a borrow is currently in Chapter 13 Bankruptcy at the time of application, VA guidelines would require a full explanation for the bankruptcy, that all payments to the court have been made for a period of one year with written verification from the court, written approval by the trustee of the court giving approval to proceed with the loan. The borrower must also show subsequent good credit history, financial stability and good job security.
COLLECTIONS, JUDGEMENTS AND FEDERAL DEBTS
Any outstanding judgments, collection accounts and Federal obligations would need to be paid off prior to closing or a verifiable payment restructuring plan showing that the payments on the re-structured debt are current with a history that shows no late payments since the re-structuring of the debt.
FORECLOSURE
A borrower whose previous residence or other real property was foreclosed on or given a deed-in-lieu of foreclosure within the previous two years since the disposition date is generally not eligible for a VA insured mortgage. If the foreclosure was on a VA loan, the applicant may not have full entitlement available for the new loan.
CONSUMER CREDIT COUNSELING PLAN
Borrower with prior credit problems that are currently participating in a Consumer Credit Counseling Plan that shows a shows a continued good credit and payment history for a period of 12 months may be eligible for a new VA Loan provided the agency authorizes the borrower to take on the debt associated with the new VA Loan.
VA MORTGAGE DEBT-TO-INCOME RATIO REQUIREMENT
The maximum debt ratio to qualify for a new VA Loan cannot exceed 41%. To figure your debt ratio, add the total payment for the new proposed VA Loan (principal and interest, escrow deposits for taxes, hazard insurance, homeowners' dues, etc.) PLUS all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.), then divide that figure into your gross monthly income. That figure cannot exceed 41% of your total monthly income.
Some compensating factors may be considered in determining if you can qualify for a VA Loan. Some of these compensating factors may include:
- Excellent credit history
- Conservative use of consumer credit
- Minimal consumer debt
- Long-term employment
- Significant liquid assets
- Military benefits and more
CO-SIGNORS OR JOINT PARTICIPANTS
The spouse of an entitled Veteran may co-sign on a VA loan with the Veterans. Income for the co-signing spouse may be counted in the ratios and the loan can be fully guaranteed by the VA.
More Than One Eligible Veteran: If one or more eligible Veteran is purchasing a home together, the entitlement charge would be divided equally between them and the loan would be fully guaranteed by the VA.
Non-Veteran Co-Signers: The VA will allow non-veteran co-signers however, only the entitlement of the Veteran's guarantee will be allocated and limited to the Veterans interest in the property only, therefore the loan cannot be fully guaranteed by the VA. Because of this, most VA Mortgage Lenders will not originate this type of loan.
OCCUPANCY REQUIREMENTS
The VA requires that a Veteran obtaining a VA Loan must personally occupy the home as the Veterans primary residence. The regulations require that upon closing of a VA loan that is secured against a home the Veterans certifies he or she will occupy must have the intent to complete the acquisition of the property and to occupy the property within 60 days of closing.
The exception to this rule is the VA Streamline Refinance and URRL interest rate Reduction program. With this loan, the Veteran is only required to certify that he or she occupied the property as the primary residence.
For additional VA Credit Question and Answers, please visit: VA Loan Frequently Asked Questions
