| Your Credit Your past repayment practices on obligations are the
best indicator of your willingness to repay future obligations. The investors emphasis is
on your overall payment patterns rather than isolated occurrences of unsatisfactory
repayment.
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Rent and Mortgage Payment History
Your 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 your
ability make timely mortgage payments in the future.
Absence of Credit History
If you have no established credit history, the investor will base
the determination on your payment record on utilities, rent, automobile insurance, or
other expenses that your have paid.
Absence of a credit history is not generally considered an adverse
factor. It may result when:
- Recently discharged veterans have not had an opportunity to develop a
credit history
- Applicants have routinely used cash rather than credit
- 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.
- For bankruptcy cases, see the "Bankruptcy" heading.
Accounts in the Spouse’s Name
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
The credit of a spouse will not be checked for those who will not be
contractually obligated on the loan except:
- If the applicant is relying on alimony, child support, or maintenance
payments from the spouse (or former spouse)
or
- 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
non-community property state.
Adverse Data
In circumstances not involving bankruptcy, satisfactory credit is
generally considered to be reestablished after you have made satisfactory payments for 12
months after the date of the last derogatory credit item.
If it is determined that your credit is satisfactory in spite of
derogatory credit information, include an explanation of the basis for the determination.
For unpaid debts or debts that have not been paid timely:
- Pay-off of these debts after the acceptability of your credit is
questioned does not alter the unsatisfactory record of payment
- Lenders may consider a veteran’s claim of bona fide or legal
defenses regarding unpaid debts except when the debt has been reduced to judgment
Collection accounts do not necessarily have to be paid off as a condition for loan
approval. Account balances reduced to judgment by a court must be either paid in full or
subject to a repayment plan with a history of timely payments.
Consumer Credit Counseling Plan
If your have prior adverse credit and are participating in a
Consumer Credit Counseling plan, you may be determined to be a satisfactory credit risk if
you demonstrate 12 months’ satisfactory payments and the counseling agency approves
the new credit.
If you have good prior credit and are participating in a Consumer
Credit Counseling plan, such participation is to be considered a neutral factor, or even a
positive factor, in determining creditworthiness.
Bankruptcy
If a bankruptcy exists in your credit history, it does not in itself
disqualify the loan. Your will need to provide complete information on the facts and
circumstances of the bankruptcy, so the investor can consider the reasons for the
bankruptcy and the type of bankruptcy filing.
If the bankruptcy was discharged more than 2 years ago, it may be
disregarded.
If the bankruptcy was discharged within the last 1 to 2 years, it is
probably not possible to determine if you are credit is satisfactory risk unless both of
the following requirements are met:
- If you have obtained consumer items on credit subsequent to the
bankruptcy and has satisfactorily made the payments over a continued period
and
and
- Failure of the business was not due to misconduct.
If your have been discharged in bankruptcy within the past 12
months, it will not generally be possible to determine if you are a is a satisfactory
credit risk.
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 2 to 3 year period or, in some
cases, up to 5 years, to pay off scaled down or entire debts.
If you have finished making all payments satisfactorily, the lender
may conclude that you have reestablished satisfactory credit.
If you 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.
Foreclosures
The fact that a home loan foreclosure (or deed-in-lieu of
foreclosure) exists in an applicant’s (or spouse’s) credit history does not in
itself disqualify the loan.
- You will need to complete information on the facts and circumstances
of the foreclosure.
- The same guidelines provided for bankruptcies applies for
foreclosures. See the preceding heading entitled "Bankruptcy."
If the foreclosure was on a VA loan, you may not have full
entitlement available for the new loan. Your Certificate of Eligibility will reflect the
amount of VA entitlement to meet any secondary marketing requirements of the lender.
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