Veteran Home Loan Credit Requirements

The Veteran’s Administration has some very interesting guidelines when it comes to analyzing credit for a VA Home Loan… in their guidelines, it doesn’t actually state that you need to HAVE a credit score!  In fact, the Underwriting guidelines in the Lender Handbook state

Absense of a credit history is not generally considered an adverse factor.  It may result when:

• recently discharged veterans have not yet developed a credit history,
• applicants have routinely used cash rather than credit, and/or
• applicants have not used credit since some disruptive credit event such as bankruptcy or debt pro-ration 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.

Here’s the thing to consider… The Veteran’s Administration doesn’t actually approve or lend the money for a VA Home Loan, they only insure the lender against a loss.  

So, the real question becomes… what do the UNDERWRITER’s want to see regarding credit for a VA Home Loan?

We’ve made loans to several Veterans recently who wanted to buy a home, although they had some negative credit hanging in the background… like a Bankruptcy or Foreclosure.  Our experience, with our VA Underwriters is this:

• It’s difficult, if not impossible to get a VA Home Loan with NO current, positive credit history of at least 12 months
• Unless you are also applying for NC Housing Finance Agency Funding, the lowest middle credit score should be at least 640
• There are NO references to Short Sales in the VA Credit Underwriting guidelines, however, if the short sale involved a VA Mortgage, and The Veteran’s Administration had a loss as a result of the short sale – it’s unlikely you will qualify for another VA home loan.  We will need to obtain an updated Certificate of Eligibility to make that determination.
• Bankruptcies and Foreclosures are treated the same for a VA Home Loan.  In general, you need to be at least 24 months from the discharge date.

Our Underwriters treat Short Sales that did NOT involve a VA Home Loan, with the same time constraints / considerations (meaning 2 years from the date of the event).  The VA Underwriting Guidelines For Credit state the following regarding any exception that might be made in regards to considering a Veteran for a Home Loan with less than 24 months from the date of Bankruptcy or Foreclosure discharge:

If the bankruptcy was discharged within the last 1 to 2 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:

• 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:

• the applicant obtained a permanent position after the business failed,
• there is no derogatory credit information prior to self-employment,
• there is no derogatory credit information subsequent to the bankruptcy, and
• 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.

Again, in general, VA Underwriter’s are tasked with considering a Foreclosure, Short Sale of a NON VA Home Loan and a Bankruptcy as pretty much the same event.  It is our experience, that if you meet ALL of the VA guidelines, our VA Underwriters are looking for the following:

• AND you have at least 20 months from the discharge date,
• AND you’ve re-established credit,
• AND you’ve established at least 2 months of payments in reserves
• AND you have at least 2 open trade lines with on time payments for more than 12 months, and a middle credit score above 640

We MIGHT be able to help you buy a new house in NC, before the 2 year waiting period.  I know that’s a long list – but it’s a straight forward as I can make it.  If you are applying for a VA Home Loan, with LESS THAN 24 months since the discharge, it’s important to remember that  we will need every piece of documentation you can give us to verify why the event occurred.

An Example of what we have been able to make work:  Veteran purchased a town home 3 years ago, with a Conventional Loan.  The property  had parking on the lowest level, and two levels above the parking – so it was a 3 story townhouse.  Shortly after purchasing the property, the Veteran developed a very serious heart condition, and had to be hospitalized multiple times.  The Cardiologist advised the Veteran not to take stairs… there was no way to put an elevator in the property – and the Veteran had no choice but to short sale the home.  The Veteran moved in with a child, paid off all medical bills, made payment arrangements with the bank to pay the short sale over a 20 year period (we had to count the debt) continued paying all bills (they never had a late payment on ANYTHING), built up savings and 21 months after the short sale, found a ranch home.  We could make that loan work.  It was a SPECIAL set of circumstances, and we had a letter from a Cardiologist, a Neurosurgeon and hospital bills in the file.  It HAD to be documented.

If you have questions about qualifying for a VA Home Loan in NC – give us a call!  We love helping Veteran’s, and we appreciate your Service!  Steve and Eleanor Thorne 919 649 5058.  Check out what  the Waiting Period for USDA Home Loans and FHA Mortgage Loans look like!