VA Loan Reader Questions: Pending Judgment and Loan Approval
Chapter Four of the VA Lenders Handbook has a great deal to say about a variety of credit issues. Borrowers are expected to be good credit risks in order to be approved for a VA home loan. It’s very important not to confuse basic eligibility for the VA home loan program with loan approval, since that approval is up to the individual participating lender.
Credit standards can and do apply–the borrower will have to meet the lender’s minimum FICO score requirements (which vary depending on the lender) and it’s generally best to come to the VA loan application process with 12 months of on-time payments on all accounts.
When it comes to pending judgments, VA loan rules have this to say in Chapter Four–there is also important information for those who may have federal debt outstanding:
“An applicant cannot be considered a satisfactory credit risk if he or she is presently delinquent or in default on any debt to the Federal Government until the delinquent account has been brought current or satisfactory arrangements have been made between the applicant and the Federal agency. The refinancing of a delinquent VA loan with an IRRRL satisfies this requirement.
An applicant cannot be considered a satisfactory credit risk if he or she has a judgment lien against his or her property for a debt owed to the Government until the judgment is paid or otherwise satisfied.”
There are other concerns when it comes to credit, addressed in Chapter Four:
“Collections: Isolated collection accounts do not necessarily have to be paid off as a condition for loan approval. For example, a credit report may show numerous satisfactory accounts and one or two unpaid medical (or other) collections. In such instances, while it would be preferable to have collections paid, it would not necessarily be a requirement for loan approval.
“However, collection accounts must be considered part of the borrower’s overall credit history and unpaid collection accounts should be considered open, recent credit. Borrowers with a history of collection accounts should have reestablished satisfactory credit (see previous paragraph) in order to be considered a satisfactory credit risk.”
The VA loan rules in this section do not mention judgments involving debt other than federal, but it may be safe to assume that a borrower will be expected to work with the lender closely to provide all relevant details and documentation so the loan officer can make a determination. All such cases would be handled individually and would depend greatly on the circumstances.
Do you have questions about VA home loans? Ask us in the comments section.