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Part of the process of obtaining a VA loan is the examination of the contents of the entire loan file which must include specific documentation. The file creates a story of the borrower’s borrowing habits, working background and savings history. Examining a borrower’s credit report and history is one of the first items that will completed when submitting an application for a VA loan.

A credit report is pulled by the lender and will be used to check how the borrower has used credit in the past and current period of time. The report must be prepared by a reputable credit reporting agency and usually includes records from three national repositories (Equifax, Experian, and TransUnion). Each debt must include the creditor’s name, date account was opened, high credit, current status, required payment, unpaid balance and payment history. Records of bankruptcies, judgments, lawsuits, foreclosures and tax liens will also appear. At least a 24 month history of residency and employment are also a part of the credit report. Any inquiries made within the last 90 days are also noted.

The following is considered by the underwriter when examining the credit report and history for a VA loan:

-The total amount of debt that is owed, as well as, the available credit lines.

– Payments and balances for each debt will be looked at, including any payments that were made 30 days past the due date, if any. The credit report will also show when the last payment was made and the minimum amount that is required for payment.

– Since housing payment history is a significant indicator of how a borrower will make future mortgage payments, the borrower’s rental history and previous mortgages will be examined and verified.

– A listing of creditors who have looked at the credit report will be noted. This shows the lender if the borrower has applied for another loan, such as a car loan, which may not yet be appearing as a debt. Depending on the inquiry, the borrower may be requested to provide more information.

– The credit score is based on the entire credit history. With three credit scores, one from each repository, the lender will usually use the middle score for the mortgage application.The VA does not require a minimum credit score to get a loan, however, most lenders will require a minimum score of 620.  It is important to note that the credit score reported to the lender may not be the same score or formula that consumers receive on their own. Often it can be misleading when a consumer purchases a “score” online, only to find out it is different and in many cases higher than what a lender will see. Therefore, the only accurate way to know your qualifying credit score is have a lender pull it for you. We will discuss credit scoring in a future article.

– The employment and residency is compared to the information that the borrower provided to the lender for accuracy. Any discrepancy will need to be addressed, such as owning property for which there is no mortgage attached or additional employment that was not submitted on the application.

– While collection accounts do not necessarily need to be paid off in order to receive loan approval, any liens or judgments must be either paid in full or have a repayment plan in place with a history of timely payments.

– If Consumer Credit Counseling is present for prior adverse credit, the borrower is usually determined to be a good credit risk if 12 months of satisfactory payments have been made.

– Absence of a credit history does not disqualify an applicant from obtaining a VA loan. Payment records for utilities, rent, automobile insurance or other expenses can be considered for determination.

– In most cases, a borrower can obtain a VA loan after two years have passed since a bankruptcy discharge or foreclosure provided credit has been repaired during that period. If there has been a VA loan foreclosure, the borrower may not be eligible for full entitlement. Since each case is examined individually, the borrower may be requested to explain the circumstances that led to the hardship. Qualifying for a new mortgage may depend on how the lender determines the borrower has recovered financially.  In most cases, having a new delinquency after a bankruptcy, foreclosure, etc., can disqualify a Veteran from getting a loan. It is very important to use credit wisely and not have any late payments after a bankruptcy or foreclosure.

– Any errors appearing on the credit report will need to be corrected prior to final loan approval.

The credit report is, by itself, a consolidated story of a borrower over the years. It will even show the different names that the borrower has used in the past. The underwriter is required to address every detail that shows up on the report in order to prove accuracy when compared to the application, as well as, the creditworthiness of the borrower.

Feel free at any time to contact us for more information about credit history, credit reports and credit scores.

Rosemary Rugnetta

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