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Home  Qualifying VA Credit Guidelines
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An underwriter looking a VA loan will look at
the applicant's past repayment practices on
obligations as these are the best indicator of
his or her willingness to repay future
obligations. They will place emphasis on the
applicant's overall payment patterns rather
than isolated occurrences of unsatisfactory
repayment. An underwriter must determine
whether the applicant (and spouse, if
applicable) are satisfactory credit risks based
on a careful analysis of the credit report and
other credit data.
Rent and
Mortgage Payment History
The applicant's rental history and any
outstanding, assumed, or recently retired
mortgages must be verified and rated.
Housing expense payment history is often the
best indicator of how motivated the applicant
is to make timely mortgage payments in the
future.
Absence of
Credit History
For applicants with no established credit
history, base the determination on the
applicant's payment record on utilities, rent,
automobile insurance, or other expenses that
applicant has paid.
Absence of a credit history is not generally
considered an adverse factor. It may result
when
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recently discharged veterans have not yet
developed a credit history
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applicants have routinely used cash rather
than credit, and/or
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applicants have not used credit since some
disruptive credit event such as bankruptcy or
debt proration through consumer credit
counseling.
In these cases, develop evidence of timely
payment of non-installment obligations such as
rent and utilities since the disruptive credit
event.
Accounts in the
Spouse's Name
Under ECOA -- Upon the applicant's request, the
lender must consider any account reported in the
name of the applicant's spouse or former spouse
that the applicant can demonstrate accurately
reflects the applicant's creditworthiness.
Consideration of the Spouse's Credit History
ECOA prohibits requests for, or consideration
of, the credit of a spouse who will not be
contractually obligated on the loan except
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if the applicant is relying on alimony, child
support, or maintenance payments from the
spouse (or former spouse), or
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in community property states.
- If the property is located in a community
property state, VA requires consideration of the
spouse's credit (whether or not the spouse will
be personally liable on the note and whether or
not the applicant and spouse choose to have the
spouse's income considered).
- If a married veteran wants to obtain the loan
in his or her name only, the veteran may do so
without regard to the spouse's credit only in a
noncommunity property state.
BANKRUPTCY
The fact that a bankruptcy exists in an
applicant's (or spouse's) credit history does not
in itself disqualify the loan. Develop complete
information on the facts and circumstances of the
bankruptcy. Consider the reasons for the
bankruptcy and the type of bankruptcy filing.
Bankruptcy Filed Under the Straight Liquidation
and Discharge Provisions of the Bankruptcy
Law
You may disregard a bankruptcy discharged more
than two years ago.
If the bankruptcy was discharged within the last
one to two years, it is probably not possible to
determine that the applicant or spouse is a
satisfactory credit risk unless both of the
following requirements are met:
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The applicant or spouse has obtained consumer
items on credit subsequent to the bankruptcy
and has satisfactorily made the payments over
a continued period, and
-
the bankruptcy was caused by circumstances
beyond the control of the applicant or spouse
such as unemployment, prolonged strikes,
medical bills not covered by insurance, and
so on, and the circumstances are verified.
Divorce is not generally viewed as beyond the
control of the borrower and/or spouse. If the
bankruptcy was caused by failure of the
business of a self-employed applicant, it may
be possible to determine that the applicant
is a satisfactory credit risk if
-
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the applicant obtained a permanent
position after the business failed
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there is no derogatory credit information
prior to self-employment
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there is no derogatory credit information
subsequent to the bankruptcy, and
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failure of the business was not due to
the applicant's misconduct.
If a borrower or spouse has been discharged in
bankruptcy within the past 12 months, it will not
generally be possible to determine that the
borrower or spouse is a satisfactory credit
risk.
Petition Under Chapter 13 of the Bankruptcy
Code
This type of filing indicates an effort to pay
creditors. Regular payments are made to a
court-appointed trustee over a two to three year
period or, in some cases, up to five years, to
pay off scaled down or entire debts.
If the applicant has finished making all
payments satisfactorily, the lender may conclude
that the applicant has reestablished satisfactory
credit.
If the applicant has satisfactorily made at
least 12 months' worth of the payments and the
Trustee or the Bankruptcy Judge approves of the
new credit, the lender may give favorable
consideration. |
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