Manual Underwriting Credit Guidelines On VA And FHA Loans


This BLOG On Manual Underwriting Credit Guidelines On VA And FHA Loans Was UPDATED And PUBLISHED On January 27th, 2020

Manual Underwriting Credit Guidelines


VA and FHA allows for manual underwrites. Conventional Loans do not. Manual Underwriting is when borrowers cannot get an approve/eligible per automated underwriting system. Case files with a yield of refer/eligible per automated underwriting system are eligible for manual underwriting on FHA and VA Home Loans.

General credit requirements on Manual Underwriting Credit Guidelines On VA And FHA Loans:

  • The underwriter must look at the borrowers’ overall pattern of credit
  • No late payments in the past 24 months
  • Isolated derogatory payments due to extenuating circumstances are acceptable with proper documentation
  • Lenders do not need to consider the credit profile of the non-borrowing spouse
  • Even in community property states

In this article, we will cover and discuss the manual underwriting guidelines on VA and FHA mortgages.

Payment History In Past 24 Months

Payment history in the past 24 months will be evaluated. Late Payments after bankruptcy and/or housing event will be reviewed by mortgage underwriters:

Types of payment history:

The underwriter will evaluate the borrowers’ payment history in the following order:

  • 1) previous housing expense(mortgage or rent)
  • 2)installment debts
  • 3) revolving accounts

The underwriter will consider acceptable housing payment if the borrower has made mortgage or rent payments on time for the last 12 months:

  • Cannot have any more than 2 times 30 day late payments in the last 24 months
  • The underwriter may approve the borrower if they have no major derogatory payments on revolving accounts in the last 12 months
  • Major derogatory tradelines are considered
  • Major derogatory credit is one times 90 days late payments and/or 3 late payments in the past 12 months
  • 60 day late payments

Manual Underwriting Credit Guidelines On Collection Accounts

What are the Manual Underwriting Credit Guidelines On Collection Accounts

Outstanding collection and charged off accounts do not have to be paid off to qualify for FHA and/or VA Loans. However, recent outstanding collections and/or collections are carefully looked at on manual underwriting.

Collection accounts for manual underwriting credit guidelines require the following:

Mortgage Underwriters must determine if collection accounts were a result of:

  • the Borrower’s disregard for financial obligations without extenuating circumstances
  • the Borrower’s inability to manage debt will be considered;
  • or extenuating circumstances

Underwriters must analyze borrower’s documentation provided for consistency with other credit tradelines and information. This is required to determine if borrower derogatory credit tradelines should be considered in the underwriting analysis.

Exempt From Mortgage Underwriting Analysis

The following are exempt and can be excluded from consideration in the underwriting analysis:

  • disputed medical collection accounts no matter what the outstanding balance 
  • credit disputes which are being disputed due to identity theft, credit card theft or unauthorized use
  • consumers need to provide documentation of identity theft and/or fraudulent activities and disputing credit tradelines
  • accepted documents to identity theft and/or fraud is to provide the lender with a copy of police report and/or documents provided by creditors to document and/or verify above

If credit reports show borrowers are disputing derogatory credit tradelines, borrowers need either to retract it and/or provide a letter of explanation as to why the tradelines are in dispute. If credit dispute is due to fraud and/or identity theft, borrowers need to provide a police report and/or other documentation to prove dispute is legitimate.

Any non-medical collections if the overall outstanding balance is under $1,000 is exempt from retraction of credit dispute. Any late payment credit disputes with an outstanding balance under $1,000 are exempt from retraction.

Manual Underwriting Credit Guidelines On Judgments And Tax Liens

The importance of guidelines for manual credit risk assessment in the area of tax judgments and pledges

Borrowers with Judgments:

Judgment refers to any debt or monetary liability of consumers. Mortgage borrowers can qualify for home loans with outstanding judgments with a written payment plan and three months of payment seasoning.

Exception for Judgments and Tax-Liens:

A Judgment is considered resolved if borrowers have entered into a valid agreement with the creditor to make regular payments on the debt:

  • Borrowers need to have made timely payments for at least three months of scheduled payments
  • Judgments will not supersede the VA and/or FHA-insured mortgage lien
  • The Borrower cannot prepay scheduled payments in order to meet the required minimum of three months of payments

The same mortgage guideline that applies to judgments applies on tax liens.

  • The borrower can enter into a written payment agreement with the Internal Revenue Service
  • Needs three months of payment seasoning
  • Cannot pre-pay the three months upfront in order to qualify
  • The three months of payments need to be seasoned

VA And FHA Mortgage Guidelines During And After Chapter 13 Bankruptcy

Getting a loan while in Chapter 13 is allowed on VA and FHA Loans.

  • There is no waiting period to qualify for FHA and VA Loans during Chapter 13 Bankruptcy repayment plan
  • There is no waiting period to qualify for VA and FHA Loans after Chapter 13 Bankruptcy discharged date

However, any VA and/or FHA Loans that has not been seasoned two years after bankruptcy discharged date needs to be manually underwritten:

  • A Chapter 13 bankruptcy does not disqualify a Borrower from obtaining a VA and/or FHA-insured Mortgage
  • This only holds true if at the time of case number assignment at least 12 months of the pay-out period under the bankruptcy has elapsed
  • Lenders must determine that during this time, the Borrower’s payment performance has been satisfactory
  • Lenders need to make sure all required payments have been made on time

Borrowers need written permission from bankruptcy court trustee to enter into the mortgage transaction.

FHA And VA Guidelines In Qualifying After Housing Event

What could be the FHA and VA guidelines for qualifications after a housing event?

Getting a mortgage after a short sale, Foreclosure or Deed in Lieu:

  • A Borrower is generally not eligible for a new FHA-insured Loan if the Borrower had a short sale, foreclosure or a DIL of foreclosure in the three-year period prior to the date of case number assignment
  • This three-year period date starts on the date of DIL or the date that the Borrower transferred ownership of the Property to the foreclosing Entity/designee
  • Lenders may grant an exception to the three-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the Borrower, such as a serious illness or death of a wage earner but exceptions are very unlikely
  • Borrowers have re-established good credit since the foreclosure with no late payments
  • Divorce is not considered an extenuating circumstance
  • An exception may, however, be granted where a Borrower’s Mortgage was current at the time of the Borrower’s divorce, the ex-spouse received the Property and the Mortgage was later foreclosed
  • The inability to sell the Property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance

Gustan Cho Associates will exempt verification of rent if borrowers have been living rent free with family. Rent Free Letter Form provided by Gustan Cho Associates needs to be completed and sign. This letter can be used in lieu of Verification Of Rent.

Choosing A National Lender With No Overlays And Experts In FHA And VA Manual Underwriting Credit Guidelines

Gustan Cho Associates are one of the very few national five-star lenders with no lender overlays on government and conventional loans. We are also experts in Manual Underwriting Credit Guidelines. To qualify with an experienced lender with no lender overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at

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