This Article Is About VA Bad Credit Mortgage Guidelines Versus Lender Overlays

VA Home Loans are primary residence owner-occupant mortgages only available to active and/or retired members of the United States Armed Services with a Certificate of Eligibility. VA loans is one of three government-backed home mortgage loan programs available in the United States. However, VA loans are only for active and/or retired members of the United States Armed Services and/or surviving spouses of eligible members. The United States government created and launched VA loans as a reward for our active and/or retired members of our United States Armed Services for their service to the United States. The Veterans Administration is the government agency that is in charge of administering VA loans. 

About The Veterans Administration

The United States Department of Veterans Administration (The VA) is the federal agency that sets VA Mortgage Guidelines. The VA does not originate, underwrite, fund, service VA Loans. Independent mortgage companies and financial institutions who have been approved by the Veterans Administration originate, process, fund, and service VA loans. In the event if a borrower has defaulted and/or foreclose on a VA loan, the VA will partially insure the independent mortgage company against the loss sustained from the default. Due to the government default, independent VA-approved lenders are more than eager to originate and fund VA loans at competitive rates and 100% financing. The role and function of the VA are to insure lenders that originate and fund VA Loans in the event borrowers default and/or foreclosure in the event borrowers default on their VA Loans.

In this blog, we will discuss VA Bad Credit Mortgage Guidelines. We will also cover VA Agency Guidelines Versus Lender Overlays.

VA Mortgage Agency Guidelines Versus Lender Overlays

Not all lenders have the same VA Lending Requirements. One lender may say a borrower does not qualify but another lender will say yes. There are two types of VA Lending Requirements. All lenders need to meet the minimum VA Agency Mortgage Guidelines. However, lenders can have their own lending requirements that are above and beyond the minimum VA Agency Guidelines which are called lender overlays. A lender can impose any type of lender overlay as part of their lending guidelines on VA Loans. All lenders need to have their borrowers meet the minimum VA Guidelines. However, the lender can add additional lending requirements. For example, borrowers do not have to pay outstanding collections and charge offs to qualify for VA Loans. However, a lender may require borrowers to pay all outstanding collections and charge off accounts as part of their lender overlays. The VA does not have a minimum credit score requirements. However, lenders can impose a minimum of 620 to 640 FICO as part of their lender overlays. The VA does not have a maximum debt to income ratio requirement. However, most lenders will have lender overlays on debt to income ratios. Gustan Cho Associates does not have any overlays on VA Loans. We just go off the automated findings of the automated underwriting system (AUS).

What Are The Minimum VA Mortgage Agency Guidelines

Here are the minimum VA Agency Mortgage Guidelines:

• 100% financing with no down payment required on home purchase transactions
• 100% LTV on cash-out refinancing
• There are no maximum loan limit on VA loans
• Any loan amount that is higher than $548,250 is called a VA high balance loan
• There is no monthly mortgage insurance premium
• The VA does not have a minimum credit score requirement as long as the borrower can get an approve/eligible per automated underwriting system (AUS)
• The VA does not have a maximum debt to income ratio cap on VA Loans with an approve/eligible per automated underwriting system
• Outstanding collections and charge off accounts do not have to be paid
• There is a two-year waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale
• Manual underwriting
• Borrowers in Chapter 13 Bankruptcy repayment can qualify for VA Loans during the repayment plan after they have been in the plan for the past 12 months and have Trustee Approval and manual underwriting
• There is no waiting period after Chapter 13 Bankruptcy discharge date
• Any bankruptcy discharge that has been seasoned for less than 24 months needs to be manually underwritten

Borrowers can qualify for VA Bad Credit Mortgage Loans.

Qualifying For VA Bad Credit Mortgage

Borrowers can qualify for VA Loans with prior bad credit, bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale. However, it will be difficult to get an automated approval per AUS with recent late payments or late payments after bankruptcy and/or housing event. Lenders do not like to approve VA Loans with frequent late payments. Most lenders will require timely payments in the past 12 months. It will be difficult to get an approve/eligible per automated underwriting system (AUS) with late payments in the past 12 months. Borrowers can get a VA Home Loan approval with prior bad credit but will need timely payment history in the past 12 months.