Veterans Loans and FHA Loans Specialist, Rob (858) 922-7899

VA home loans for U.S. military veterans and active military in general tend to be very understanding about credit.   The VA loan underwriters are looking for borrowers who do not have a disregard for their credit, but they can be understanding if you have had past credit difficulties and/or have an explanation for your credit circumstances due to situations out of your control.  Below I will give an overview of how VA loan underwriters looks at a VA borrowers credit.

First of all, you can still get a VA loan with a credit score of 580 and possible below.  It is one of the few home loan choices that is still flexible with credit scores.   A guiding principle with VA is that a borrower have 12 mos without any late payments since their last major derogatory, although there can be exceptions with this as well.  Below I will go over VA’s policies towards the most common derogatory items found on credit reports:

Collections

These are outstanding accounts on credit reports the creditor is still trying to collect from the borrower on.  Collections don’t necessarily have to be paid before getting a loan, especially if medical collections.  But if a VA borrower has an exceedingly large amount of collections or some very large collections, it is up to the individual underwriter whether they deem this necessary to decline the loan.

Judgements

These are items of public record owed by the borrower.  They can be from unpaid taxes or any unpaid item that a court had ordered you to pay.  These items must be paid in order to get a VA loan.  However, if you can document that you have set up a payment plan to pay off the judgement, VA may still approve a home loan for you.

Bankruptcy

If you have had a Chapter 7 bankruptcy that has been discharged for 2 or more years VA will approve your loan.  However you will still have to write a letter of explanation detailing the circumstances of the bankruptcy and you will likely need to have no late payments since the bankruptcy and have re-established credit.   If it has been less than 2 years since your bankruptcy 7, VA will only approve your loan if you can document circumstances out of your control that led to the bankruptcy.  With a Chapter 13 bankruptcy VA will approve your loan 12 mos after the bankruptcy as long as all the Chapter 13 payments have been made on time.

Foreclosure

VA will approve a loan 2 years after the final date of a foreclosure

Credit card and installment late payments

Generally if it has been more than 12 months since your last credit card or installment late payment VA will be OK with that as long as your credit score meets minimum guidelines and you have an explanation.  If you have late payments within the last 12 months, the VA underwriter is going to want to see a very good letter of explanation and it will be up to the underwriters discretion whether to approve the loan.  They will be looking at the big picture to see if this is an isolated occurrence or if there is a general disregard for credit by the VA loan applicant.

Spouses credit

If a VA borrowers spouse will be a co-borrower on the loan, their credit will be reviewed to the same extent as the VA borrower.    Each borrower has 3 credit scores, with 2 borrowers VA will take the lowest of the middle scores.  So if a spouse has a poor credit score, it may be wise to leave them off the loan.  However an important point, in a community property state like California and many other states, even if the spouse is left off the loan, their debt obligations will be have to be considered in the qualifying ratios.  So even if a spouse is left off the loan, their car payments, student loan payments, credit card payments, etc… will have to be considered.  However if they are not on the loan, their credit score and quality of their credit will not be a factor in the VA borrower qualifying for a loan.

So those are some major credit items and brief explanations to how VA underwriters regard them.   And below are the most common practices to make sure your credit is the best it can be:

• Make sure you NEVER are late on any debt obligations
• Keep your credit card balances to 30% or less than the card limit
• Review your credit every 6 mos to make sure their are no mistakes or errors.  If there are errors, take action to get them removed.

I hope this article has been helpful.  VA loans with 100% financing, low 30 year fixed interest rates and no monthly mortgage insurance offer a tremendous opportunity for veterans and active military members to purchase a home.  Feel free to call or email me with questions or to get a quick pre-approval for a VA loan.

Warm Regards,

Rob Chomentowski

Sr. Loan Officer (and VA loan specialist)

rob@affinity-financial.com

858-922-7899

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There have been recent changes to home appraisals that don’t directly affect VA Loans and changes to the general scrutiny of underwriting guidelines that directly affect VA loans.  There has been a big recent change in how appraisals are ordered for conventional loans called HVCC.  They are now ordered directly through the bank and assigned by someone other than the bank.  For years prior all appraisals were ordered by the loan officer handling the loan.   With this new system of appraisals, the loan officer has no contact with the appraiser.   Through early feedback on this system, many are seeing appraisals come in very low for various reasons.

But VA appraisals are affected more from the general lender tightening of underwriting guidelines that has happened over the last 2 years.  Lenders are now being much more careful with appraisal values and they are doing internal appraisal reviews.   This affects you when you use a VA loan to buy a house because the VA appraiser may appraise the property for the price you are purchasing it for, but then 2 weeks later in the loan process the lender may review the appraisal and cut the value.  This means that you would either come in with cash for the difference, or renegotiate with the seller to lower the price to meet the lenders appraisal review in order to close on the house.

Comparable sales are the foundation of home appraisals.  The appraiser looks for 3-6 recent home sales that are comparable to your home in size, location and age.  They then use the sales prices of these recent homes to support the value they are giving your home with their appraisal.  Lenders are now requiring the appraisers to provide much more recent comparable sales.  Sales within 6 months used to be acceptable.  Now lenders are looking for sales within 3 months and even current listings and houses pending sale.  Also when lenders do their internal review appraisals, they generally do not go out and look at the property.  The do what is called a “AVM” or desk appraisal.  So if a house has been really upgraded or renovated, they are not giving a lot of value (if any) for that.  They may use a comparable that is a fixer but they don’t know that because they are not going out to the property physically to look at it.

So as a VA buyer it is best to work with a excellent buyers real estate agent that can help you properly value the property before you make an offer.  That buyers agent should be looking at recent sales similar to the house you are making an offer on to make sure it is a realistic price that you will offer.

Warm Regards,

Rob Chomentowski (VA loan specialist)

rob@affinity-financial.com

858-922-7899

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Veterans and active military members can use their VA loan eligibility to buy a property all the way up to $593,750 in many parts of California.  I just wanted to mention this because many people think that the VA loan limit is $417,000 with zero down.   Right now in the state of California with house prices way down, $593,750 can get you into a house in a very high end neighborhood near the coast with zero down payment!

And to re-iterate some of the highlights of VA Loans:

• True 100% financing zero down loans
• Sellers can pay all your closing costs so you can get into a house with almost no money out of pocket
• VA is one of the stronger loan programs right now with more flexible underwriting guidelines than other types of home financing
• There is no monthly mortgage insurance with a VA Loan (all FHA loans and conventional loans over 80% have monthly mortgage insurance which increases the monthy payment substantially)
• Historic interest rate lows with 30 year fixed mortgages right now.  It’s pretty outrageous right now that you can get a property 100% financed at a 30 year fixed rate below 5%!!!  That has not happened for 40+ years, if it has EVER happened.
• You do not need perfect credit for a VA Loan

But as always, even though you can theoretically get up to $593,750 zero down on a VA Loan, make sure you are very comfortable with your proposed monthly housing payment before making the decision to buy.  But one thing is for sure, you will know what your payment is going to be for the next 30 years.  VA Loans are 30 year fixed rate loans, so you have no worries about adjustible rate mortgages adjusting higher or negative amortization!

So if you have VA eligibility it is worth looking into possibly buying a home right now.   Give us a call or email if you have any questions about getting pre-approved.

Warm Regards,

Rob Chomentowski

Sr. Loan Officer and VA Loan Specialist

rob@affinity-financial.com

Office (858) 227-4833
Cell     (858) 922-7899

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• The more “clean” your offer the better…”clean” means don’t ask for a lot of concessions
• Do not call out for a pest inspection in your offer
• Do not ask the seller to credit you for closing costs (although in many cases it still can be OK to ask the seller to pay for your closing costs if you don’t have the funds)
• Put up a larger cash deposit (the bank will think you are more serious)
• If you can, shorten your inspection and financing contingency periods (but be VERY careful with this - this is an area that it is key to work with a skillful loan officer)

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