This guide covers the VA credit dispute guidelines on VA mortgage loans. VA loans are the best loan program in the U.S. The Department of Veterans Affairs created and launched VA Home Loans to reward our members of the United States Military in becoming homeowners. Active and retired members of the U.S. Armed Services with a Certificate of Eligibility (COE) can qualify for VA Loans. There is no down payment required.

Most borrowers do not have to worry about closing costs. Closing costs can be covered with sellers’ concessions or lender credit. Borrowers can qualify for VA loans with bad credit, outstanding collections, and charge-off accounts.

However, to get an approve/eligible per automated underwriting system findings, borrowers will need timely payments in the past 12 months. There are no minimum credit score requirements on VA Loans. VA also does not have a maximum debt to income ratio cap. VA Credit Dispute Guidelines prohibit credit disputes during the mortgage process. Credit Dispute Guidelines do exempt certain types of credit disputes from being retracted during the mortgage process. Gustan Cho Associates is a mortgage company with no lender overlays on VA loans. In this guide, we will cover if credit disputes will halt the mortgage process on VA loans per VA credit dispute guidelines.

Do Credit Dispute The Mortgage Process on VA Loans Per VA Credit Dispute Guidelines

Yes, credit disputes can impact the VA loan mortgage process. When you’re applying for a VA loan, lenders will scrutinize your credit history as part of the approval process. If there are any disputes on your credit report, it could raise concerns for lenders. While the VA doesn’t explicitly prohibit credit disputes during the mortgage process, lenders may have their policies regarding them. Disputes on your credit report can sometimes indicate unresolved issues with your credit history, which could affect your eligibility or the terms of your loan. Speak With Our expert to know about your eligibility for credit dispute mortgage process

Case Scenario of VA Credit Dispute Guidelines

In this section, we will cover potential scenarios of VA credit dispute guidelines. Some lenders may require you to resolve any credit disputes before proceeding with your VA loan application. This could involve providing documentation to support your dispute or resolving any outstanding issues with creditors.

Credit disputes could lead to delays in the mortgage process as lenders investigate the disputed items. In some cases, if the disputes are not resolved satisfactorily, it could even result in denial of the loan.

While you have the right to dispute inaccurate information on your credit report, it’s important to note that disputes can temporarily impact your credit score. This could affect your ability to qualify for a VA loan or the interest rate you receive. It’s advisable to discuss any credit disputes with your lender early in the mortgage process. They can guide how to proceed and ensure that any disputes are resolved in a way that minimizes potential negative impacts on your loan application. Additionally, it’s crucial to maintain open communication with your lender throughout the process to address any concerns promptly.

VA Credit Dispute Guidelines and Reason Lenders Do Not Allow Disputes

VA Credit Dispute Guidelines are similar to other loan programs. Lenders do not allow credit disputes during the mortgage process. The Reason is whenever consumers dispute a derogatory credit tradeline, the credit bureaus automatically discount the negative tradeline from the credit scoring model.

When a consumer disputes a recent late payment, that particular tradeline will be discounted from the scoring model, thus, increasing the credit score of consumers.

Same with collections, charged-off accounts, and other derogatory credit items. When consumers retract the credit dispute, the negative item is factored back into the credit scoring model. Therefore, consumer credit scores will drop. Loan officers should not be submitting loans to processing/underwriting if there are credit disputes on borrower’s credit reports. Credit scores with disputes are not accurate.

How To Retract Disputes To Meet VA Credit Dispute Guidelines

Credit disputes will automatically halt the mortgage process. Borrowers will be instructed to retract the credit disputes before proceeding. The reason is that whenever a consumer disputes derogatory credit tradelines, the disputed tradeline is exempt from the credit scoring model by the credit bureaus.

Whenever there is a dispute, the scores will go up. Chances are borrower’s scores will drop once the credit disputes are retracted. How much will it drop?  That depends on how bad and recent the derogatory credit tradelines are.

In cases where credit disputes cannot be removed, the mortgage process can proceed and be downgraded to manual underwriting. FHA and VA loans allow manual underwriting. Conventional loans do not allow manual underwriting. There are certain types of derogatory tradelines that are exempt from retracting credit disputes. 

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Exempt Derogatory Credit Tradelines From Credit Disputes

Under VA Credit Dispute Guidelines, there are certain tradelines that are exempt from credit disputes. Disputes on medical collections do not have to be retracted under VA Credit Dispute Guidelines. Non-medical collections with zero outstanding balance are exempt from retraction.

If borrowers have non-medical collections that total less than $1,000, credit disputes do not need to be retracted. Any derogatory credit items that are older than 24 months do not have to have the credit disputes removed.

Borrowers who cannot get their credit disputes removed can get their files downgraded to manual underwriting. For more information in qualifying for VA Loans with credit disputes, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The Team at Gustan Cho Associates Mortgage Group is available 7 days a week, evenings, weekends, and holidays.

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FAQs: Are Credit Disputes Allowed Per VA Credit Dispute Guidelines

1. VA Credit Dispute Guidelines, what are they? VA Credit Dispute Guidelines are rules set by the Department of Veterans Affairs to help resolve credit disputes during a VA mortgage loan process and to ensure that a borrower’s credit rating is accurately reported when applying for a VA loan.

2. Can my VA home loan application be affected by credit disputes? Credit issues could have an impact on your VA home loan application. However, some lenders might have policies against this even though not expressly forbidding it. They can also ask questions about your creditworthiness if any unresolved credit problems appear on your report, which could affect your conditions of suitability or eligibility.

3. Is it possible to get VA loans despite bad credits and outstanding collections? Even if you have a low credit score, outstanding collections, or charge-offs, you can still be eligible for a VA home loan. However, timely payments over the past 12 months must be demonstrated in order to receive approve/eligible per the AUS system.

4. Are there any exceptions in relation to these guidelines? These guidelines exclude certain types of challenged credits from being deleted within the time frame of processing a mortgage. For instance medical collection accounts that have been paid off as well as non-medical collection accounts with zero balances or less than $1000 do not require deletion; neither does derogatory information appearing more than twenty-four months ago.

5. What if I have an item under dispute on my credit report? This may necessitate removal of such an item before proceeding with VA home loan application process if you dispute an item on your credit report. Because disputed tradelines aren’t used in the scoring model producing scores; retracting the dispute will give accurate score numbers.

6. How does removing my dispute affect my FICO Score? Retracting a dispute would cause one’s FICO score decrease because the bad item will be placed back into the scoring model. The extent to which derogatory credit lines are recent and severe dictates how much will your score drop.

7. Can mortgage processing continue if unresolved disputes exist on my credit report? Mortgage can still close with unsettled credit issues in some cases, but only under manual underwriting. FHA and VA loans may also be underwritten manually as opposed to conventional loan.

8. What is manual underwriting? When do you use it? When an application and a credit report are reviewed by a loan officer rather than relying completely on automated systems, the process is called manual underwriting. It’s also employed when any credit dispute cannot be removed or when the automatic underwriting system denies the loan.

9. What does lender credits and seller concessions mean? Seller concession refers to the financial assistance provided by a seller towards a buyer’s closing costs for home purchase. On the other hand, lender credits are given by lenders to help borrowers reduce their out of pocket expenses for closing costs.

10. Where else can I obtain additional information or help regarding my VA Home Loan Application? For more details about Gustan Cho Associates’ team at 800-900-8569, text for faster response, or gcho@gustancho.com email them directly. They remain available seven days a week, including evenings, weekends, and holidays.

If you need further clarifications about VA Credit Dispute Guidelines or require any assistance concerning your home loan application then feel free to contact Gustan Cho Associates experts on this matter.

This blog about Are Credit Disputes Allowed Per VA Credit Dispute Guidelines was updated on July 3rd, 2024.