VA Loans: Debt to Income

When the VA automatic underwriter analyzes credit, they do take into consideration the whole picture.

Veteran Home Loans Rates for 7/27/2008
30 Year Fixed ----------------- 0.000 points 6.500% 6.618% APR		15 Year Fixed ----------------- 0.000 points 6.500% 6.500% APR		Hybrid 3/1 ARM ----------------- 0.000 points 7.500% 8.000% APR

Frequent Question # 26:
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The Veterans Benefits Act of 2004 - How does the Veterans Benefits Act change my loan process and entitlements?
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The Veterans Benefits Act of 2004 made many changes to the VA loan process. If you haven't had to get eligibility or otherwise deal with the VA for a loan since the act passed, you may be surprised at the changes. One of the major differences; the maximum guaranty amount of $60,000 has been modified. Now, for qualifying loans in excess of $144,000, the maximum is a sum equal to 25 percent of the Freddie Mac conforming loan limit, which is determined under the Federal Home Loan Mortgage Corporation Act. If you feel your VA mortgage may be affected by changes created by the Veterans Benefits Act, contact your lender for more information. -- -- -- -- -- -- -- --

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Debt to Income Ratios for VA Loans

The VA strongly believes that a borrower who has made timely payments for the last 12 months serves as a guide and demonstrates their ability to repay a loan. It clearly demonstrated a pattern of willingness to repay future credit obligations, and that is what they are looking to find. On the opposite side, a borrower who does not pay their bills as agreed or who reflects continuous slow payments, judgments and delinquent accounts is not a good candidate for loan approval.

Below are explanations concerning a borrower's credit.

ON TIME VS. LATE PAYMENTS
Satisfactory credit is generally considered to be reestablished after the veteran, or veteran and spouse, have made on time satisfactory payments for 12 months after the date of the last derogatory credit item(s). Any late payments made within the last 12 months do not weigh in the borrower's favor.

When the VA automatic underwriter analyzes the borrower's credit, they do take into consideration the whole picture. It is the overall pattern of credit behavior that must be reviewed, rather than isolated cases of slow payments. A period of slow payments during financial difficulty does not disqualify the borrower if a good payment pattern has been maintained since then with proper explanation.

All accounts that have been reduced to a judgment by a court of law must either be paid in full or subject to a repayment plan with a history of timely payments on that plan.

NO CREDIT OR HISTORY AT ALL
The VA handbook states that the lack of an established credit history should not be a reason to deny a particular loan. As provided in the VA credit standards, a satisfactory payment history on items such as rent, phone bills, utilities, etc., may be used to establish a satisfactory credit history.

BANKRUPTCY - CHAPTER 7 (Total Liquidation)
The VA credit standard guidelines state that a veteran must have a minimum of two years that elapses since the discharge date of the borrower and / or their spouse's Chapter 7 bankruptcy, not the filing date. The VA underwriter will require the veteran to write a full explanation of the bankruptcy. The borrower must also have re-established good credit, qualify financially and have excellent long-term employment.

BANKRUPTCY - CHAPTER 13
The VA credit standard guidelines state that the VA will consider a borrower still paying on a Chapter 13 Bankruptcy if the payments to the court have been satisfactorily made and verified for a period of one year. In addition, the court trustee will need to give written approval to proceed. The VA underwriter will require the Veteran to write a full explanation of the bankruptcy. The borrower must also have re-established good credit, qualify financially and have excellent long-term employment.

JUDGEMENTS, FEDERAL DEBTS AND COLLECTIONS
The VA credit guidelines explains that if a collection is determined to be minor in nature, the underwriter can usually waive the need for the debt to be paid off as a condition for loan approval. All judgments must be paid in full prior to closing. If a borrower is delinquent on any federal debt, they are not eligible for the loan. The federal debt can include student loans, tax liens, payment arrangements that would bring the borrower up to date may be considered for loan approval if it is presented in writing and signed off on by the party the debt is owed to.

FORECLOSURE
Any veteran borrower whose previous residence or other real estate property was foreclosed on or given a deed-in-lieu of foreclosure within the previous two years since the disposition date is generally not eligible for a VA insured mortgage. If the foreclosure was on a VA loan, the applicant may not have full entitlement available for the new loan.

CONSUMER CREDIT COUNSELING or CCCS PLAN
If a veteran, or veteran and spouse, are participating in a Consumer Credit Counseling Plan because they have prior adverse credit, the underwriter may determine them to be a satisfactory credit risk if they can demonstrate 12 months' satisfactory payments and the counseling agency approves the new credit.