VA Loans: Credit Problems that Could Be Roadblocks in Approval

When you apply for a mortgage guaranteed by the VA, credit history plays an important part in the loan decision. The VA generally requires you to have paid your creditors on time for the past year. If you are in the process of repairing some credit problems, make sure to discuss your repayment plans with your lender, so they will know you have a willingness to repay your obligations.

Credit issues that you may need to address before you can obtain a loan approval may include the following.

No Established Credit

If you do not have any credit, this is usually not a problem since there are other ways you can show your ability to repay your debts on time. You can provide your lender with a copy of your utility bills, cable bills, rental or lease payments, or any other record of payments that shows you pay your debts on time.

Late Payment History

A history of late payments will not necessarily result in your application's being turned down. If you had issues with creditors in the past, you must be in the process of repaying any credit that required the lender to file for a judgment.

If you have kept your payments current for the past year, and you show that you are willing to resolve all past delinquency problems, your lender may be able to approve you for a VA mortgage loan.

Chapter 7 or 13 Bankruptcy Filing

If you or your spouse has filed for a Chapter 7 bankruptcy, the VA requires that you must wait at least two years from the date of discharge before you can be considered for a VA mortgage loan.

If you filed for Chapter 13 bankruptcy, you will have to show one year of prompt payments that were made to the court, and your bankruptcy trustee will have to provide your lender with a written statement verifying that you are repaying the court in a timely manner.

You must show a record of solid employment, regardless of the type of bankruptcy that was filed. You will also have to provide a written explanation describing your reasons for filing the bankruptcy. Any credit payments you have made since the bankruptcy was filed must have been on time in order for the VA to consider your mortgage loan request.

Property Foreclosure

If within the past two years you had a property that the lender foreclosed on, or you gave up the property in order to avoid a foreclosure, you will usually not be eligible for a VA mortgage loan.

Other Credit Issues

If you have accounts, such as medical bills or any small debt accounts, that are presently in collection, usually you can qualify for a VA loan if you are working on resolving the matters. Any federal tax liens or judgments will need to be either in the process of resolution or paid in full before the VA will consider you for a mortgage loan.