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VA Credit Guidelines

This article discusses the VA Credit Guidelines in use, today, October 21, 2011.  VA Credit Guidelines may change at any time due to changes in the law or administrative rules and procedures.

Remember… No matter what I say here, the Veterans Administration is the final authority on whether your credit is acceptable for the purposes of obtaining a VA-backed home loan.

Also, please remember that you are asking the VA to guarantee your loan.  It is reasonable for them to expect repayment of the loan that they back.  The review and approval of your credit is part of them making sure that you will probably pay back the loan.

I’m going to give you the rules and decision making considerations the Veterans Administration uses to determine if a given veteran whose service and financial qualification are OK has acceptable credit.  The VA publishes how it goes about making credit-based decisions concerning individual loan applications.

NOTE: FOR CONVENIENCE, WHENEVER I REFER TO THE “VETERAN,” IT ALSO MEANS THE VETERAN’S SPOUSE, if appropriate.

We and the Veterans Administration recognize that “Life Happens.”  So, I’m going to give you the various rules and decision making considerations by situation.  Here goes…

Situation:  No Credit History

The Veterans Administration recognizes that due to service related considerations, many otherwise qualified veterans may not have any established credit.  The VA makes allowances for that fact and will accept proof of regular on-time payment of rent, utilities, doctor bills, etc., as proof that you will probably repay your loan.

Situation: Late Periodic Payments On Bills Like Your Mortgage, Credit Cards,  Or Doctor Bills

The objective of the VA’s loan underwriting department is to determine if you are probably going to repay your VA home loan.  It is not to “hold your feet to the fire” over isolated late payments.

If you have a history of late regular payments, the VA underwriter will expect to see that you have at least 12 full months of on-time payments since the last derogatory entry on your credit report.  If you had a couple of months where you had slow payments because of a personal situation such as illness or job loss, the VA will probably take that into considerations and grant credit approval so long as you have maintained regular, on-time payments since then.

If you have court judgments in your history, they must be paid in full or be in an regularly paid on-time repayment plan before the VA will approve the credit on your VA loan application.

Situation: Chapter 13 Bankruptcy

The Veterans Administration requires that veterans that are applying for a VA-backed loan after or during a Chapter 13 Bankruptcy must meet the following guidelines, as appropriate:

  • The Bankruptcy Court’s Trustee responsible for your bankruptcy must approve your request for credit in writing.
  • All of your payments under the Bankruptcy must have been satisfactory and have been made on time and be verified for the last 12 months prior to your application date.
  • You must fully explain the circumstances of your bankruptcy in writing.  This means that you must explain the circumstances that caused it and, I assume, demonstrate that you learned from the situation and that it won’t happen again.
  • You must have reestablished good credit.
  • You must be financially qualified for the loan.
  • You must demonstrate good job stability.

Situation: Chapter 7 Bankruptcy

The Veterans Administration requires that veterans that are applying for a VA-backed loan after a Chapter 7 Bankruptcy must meet the following guidelines, as appropriate:

  • Two years must have elapsed since the Discharge Date, not the filing date, of the bankruptcy.
  • You must fully explain the circumstances of your bankruptcy in writing.  This means that you must explain the circumstances that caused it and, I assume, demonstrate that you learned from the situation and that it won’t happen again.
  • You must have reestablished good credit.
  • You must be financially qualified for the loan.
  • You must demonstrate good job stability.

Situation: Foreclosure

If you have had a residence or a property foreclosed or which has gone through a “deed in-lieu” process in the last 2 years, you will not be considered credit qualified for a VA insured loan.

If you have previously had a property with a VA-backed mortgage foreclosed on, you may no longer be eligible for all or part of your VA insured home loan benefits.  Contact the Veterans Administration to find out more.

Situation: Debt Collection

If you have become subject to debt collection of delinquent debts and the debts are minor in nature and you have not yet payed them off, they will probably not impact your credit approval, assuming you are making regular, satisfactory payments against the debt.

Situation: Judgments

Judgments must be paid off totally before closing.  Contact the Veterans Administration for more information,  You will probably be required to get the liens dissolved (removed) before credit approval will be given.

Situation: Federal Debts, Including Late Tax and Student Loan Payments

All Federal Debts must be paid in full or be a part of a payment plan which is being paid satisfactorily and on-time.

Situation: Consumer Credit Counseling

If a veteran has really “screwed up” their credit but are trying to straighten their situation out by attending Consumer Credit Counseling, they may be approved for credit by the VA if they have maintained satisfactory payment of their debts for the most recent 12 months and the Consumer Credit Counseling Organization approves their attempt to obtain credit through their Veterans Benefits.

If you have any other questions about VA Credit Guidelines or something that I said doesn’t make sense to your, please, contact the Veterans Administration.