VA does not have a minimum credit score requirement.  The borrower's past repayment practices on obligations are the best indicator of his or her willingness to repay future obligations.  Emphasis should be on the borrower's overall payment patterns rather than isolated occurrences of unsatisfactory repayment.  For borrowers with no established credit history, based the determination on the borrower's payment record on alternative or nontraditional credit directly from the borrower or creditor in which a payment history can be verified. 

 

Housing expense payment history is a primary indicator of how motivated the borrower is to make timely mortgage payments in the future, therefore, the borrower's most recent 24-month housing payments must be verified and rated.  

 

All debts and obligations of the borrower's must be verified and rated.  For obligations that have not been rated on the credit report which are revealed on the application or through other means, the lender must obtain the verification and rating directly from the creditor along with a written explanation for those accounts that are not rated.  In community property states, if a married Veteran wants to obtain the loan in his or her name only, the spouse's debts and obligations must be considered.  A borrower cannot be considered a satisfactory credit risk if he or she is presently delinquent or in default on any debt to the Federal Government until the delinquent account has been brought current or satisfactory arrangement have been made between the borrower and the Federal agency.

 

If a borrower has a contingent liability based on co-signing a loan, the loan payments may be excluded from the monthly obligations if there is evidence that the loan payments are being made by someone else and the obligation is current, and there is no reason to believe that the borrower will have to participate in repayment of the loan.

 

If a student loan is in a deferment for at least 12 months beyond the date of closing, a monthly payment does not need to be considered; otherwise, the monthly payment needs to be included in the monthly obligation.   The threshold payment calculation for a student loan is 5 percent of the outstanding balance divided by 12 months.  If the payment reported on the credit report for each student loan is greater than the threshold payment, the payment recorded on the credit report will be used.

 

For open 30-day charge account, determine if the borrower pays the balance in full each month, and there are sufficient funds, the payment does not need to be included in the monthly payment, but the obligation should continue to be listed.  If there is not sufficient funds, a minimum payment of 5 percent of the balance should be considered.  

 

The payment amount of any alimony or child support obligation of the borrower must be verified; however, a request for documentation of a borrower's divorce is required unless it is necessary to verify the amount.  Spousal support may be treated as a reduction in income. Child support payment is treated as a liability.  

 

Collection accounts must be considered part of the borrower's overall credit history and unpaid collection accounts should be considered open, recent credit.  A borrower with a history of collection accounts should have re-established satisfactory credit in order to be considered a satisfactory credit risk.  If the collection account is listed on the credit report with a minimum payment, then the debt should be recognized at the minimum payment amount.

 

For charged off accounts, the underwriter must address the circumstances regarding the negative credit history when reviewing the overall credit of the borrower.  Likewise, the underwriter should document the reasons for not considering disputed accounts on the loan analysis.

 

If a borrower has prior adverse credit and is participating in a Consumer Credit Counseling plan, they may be determined to be a satisfactory credit risk if they demonstrate 12 months' satisfactory payment.

 

If there is a Bankruptcy or a Foreclosure that was discharged more than 2 years ago from the date of closing for purchases or refinances, it may be disregarded.  If the bankruptcy or foreclosure was discharged within the last 2 years, a lender will extend their analysis whether it was caused by circumstances beyond the control of the borrower or spouse, such as unemployment, medical bills not covered by insurance, and so on.