VA Credit Requirement Guidelines


Your Credit Report

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.

You may obtain a Free Credit Score at TransUnion that you can view instantly online or get additional free credit report information. Get your free credit score now by clicking >> TransUnion .

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

  • 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, etc., and the circumstances are verified.

    Divorce is not generally viewed as beyond your control. 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 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.