VA Loan Credit Reporting Requirements

Some people assume that once they receive a VA loan Certificate of Eligibility that they are automatically “approved” for a VA home loan or refinance. But the fact is, all borrowers must credit qualify for a new VA loan the same as they would any other mortgage. There are VA credit minimums and lender standards to meet in order to qualify. Your lender will set certain FICO score minimums and loan repayment history standards, but the VA also has its own minimums.

Credit requirements for VA home loans are established by the Department of Veterans Affairs and are enforced for all applicants. While VA loan rules are clear about the types of procedures lenders must follow when “underwriting” or processing VA loan applications.

All VA loans are handled on a case-by-case basis. You will find that plenty of personal financial situations occur where one-size-fits-all policy does not work—the participating VA lender is permitted to use a certain amount of discretion to work with a borrower’s circumstances in cases where it may be required.

What are the VA loan requirements to verify a borrower’s credit worthiness? What does your VA lender need to get the application processed?

Merged Credit Reports and Residential Mortgage Credit Reports

The lender must pull your credit reports and review them for FICO scores, loan repayment history and to make sure your application data is reconciled with the report.

There are two types of credit reports a lender can use. One is an MCR, or a “Three-File Merged Credit Report”. The other is called an RMCR, the Residential Mortgage Credit Report. Chapter Four of the VA Lender’s Handbook says “The credit report must be less than 120 days old (180 days for new construction). For automatically closed loans, the date of the credit report must be within 120 days of the date the note is signed (180 days for new construction).
 
For prior approval loans, the date of the credit report must be within 120 days of the date the application is received by VA (180 days for new construction).” As you can see, age of the reports is a crucial factor.

Credit Report Sourcing

VA loans require the lender to get the borrower’s permission to request credit reports in order to process the loan. Borrowers cannot provide copies of these reports, the lender is required by law to get them directly from the credit reporting agencies,

Credit As A Qualifying Factor

According to the VA Lender’s Handbook, Chapter Four, Section 7C, “The applicant’s past repayment practices on obligations are the best indicator of his or her willingness to repay future obligations. Emphasis should be on the applicant’s overall payment patterns rather than isolated occurrences of unsatisfactory repayment.” That last sentence is very important for borrowers to keep in mind. “Isolated occurrences” is not defined in the rulebook--it’s best to put at least 12 months between your last late payment and your VA home loan application whenever possible.

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