Need-to-Know Credit Questions VA Lenders Ask
May 4, 2018
For veterans and active duty service members, the VA guaranteed home loan program offers many advantages. These loans have been designed to put home ownership within the range of all those individuals who are now serving their country or have served in the past.
Although some features of VA guaranteed loans are different than conventional loans, such as not requiring a down payment, other features, such as credit considerations are similar to standard mortgage loans.
Credit Score Considerations
Just like traditional home loans, VA guaranteed loans require applicants to provide information about their credit histories. VA mortgages do not require a minimum credit score, nor is a maximum debt ratio to be considered. Instead, the VA encourages lenders to consider the overall lending profile to make decisions about loans.
Although the VA states no maximum amount for a loan, the amount covered under the guarantee is limited. In most parts of the country, loan amounts up to $417,000 do not require a down payment.
What Is Your Credit Score?
Generally, a credit score above 620 is favorable to you. The credit score that consumers see is not the same one that lenders have available. Under lending criteria, you may have a different score, which may not be as favorable to your loan application.
Lenders also must receive scores from two or three different credit agencies, and their choice of score may put you below the minimum 620 number. If you have questions about your credit score, asking for pre-qualification or pre-approval will help you to determine your likelihood of success in securing a VA guaranteed loan.
Do You Have Any Old Collections or Judgments on Your Record?
The VA Lenders Handbook recognizes that old collections or judgments on an applicant’s record can indicate that the individual may be a poor risk for a loan. However, the size of the unpaid amount may have a bearing on whether the lender will approve a loan.
Generally, lenders have a cap on these debts, and if the amount is above their limit, the loan will be denied. If any of the unpaid debt is to the federal government, the loan will be denied. Setting up a payment plan to manage the debt can often satisfy their requirements for approval of a loan.
Do You Have A Bankruptcy or Foreclosure on Your Record?
A bankruptcy or foreclosure will cause the lender to impose a waiting period after the event before considering your application for a home loan. After a foreclosure or short sale, you will be required to wait 24 to 36 months after the completion of the proceeding.
For a Chapter 7 bankruptcy, the waiting period is 24 to 36 months. For a Chapter 11 bankruptcy, the waiting period is 12 to 36 months. The strength of your overall credit will be considered in the amount of time you are required to wait to get a loan.
Is Your Income Stable?
The lender will require you to prove that your current income is stable and sufficient to cover the loan payments on a regular basis. They will calculate your ability to pay the mortgage amount plus ordinary living expenses.
Some types of income will not be considered in regard to home loans for veterans, such as part-time work you have only done for a short period or alimony payments.