The Veterans Affairs can be understanding with Veterans who may not have established a credit history. Having none, per VA’s handbook, is not an adverse factor in qualifying for a VA-guaranteed loan.
For sure, there are reasons behind this absence of credit history among VA borrowers. What can you expect if you were applying for a VA loan without a credit report or score?
How VA Credit Underwriting Works
At the heart of VA underwriting standards is for lenders to make sound loans to eligible Veterans who (i) are a satisfactory credit risk and (ii) have income (present and anticipated) that will support repayment of the mortgage.
This borrower’s satisfactory credit hinges on the assessment of his or her credit report and related data. For VA, the payment history best indicates the borrower’s willingness to meet his other obligations under the VA loan.
But, how can lenders establish this payment record in borrowers without credit histories? Is that even possible?
Absence of Credit History
In the context of VA loans, having no credit history is not a point for disqualification. The VA recognized that the lack of credit history happens to:
- Veterans who have been recently discharged
- People who use cash in their purchase transactions
- People who have not used credit because of a past negative event like bankruptcy
In lieu of a traditional credit history, underwriters can look into the borrower’s payment behavior on:
- Car insurance
- Other expenses
Establishing timely payment histories is particularly helpful for people who have bankruptcy in their credit files.
Bankruptcy and Foreclosure
It’s interesting to note that neither bankruptcy nor foreclosure disqualifies you or any Veteran from getting a VA loan.
Lenders are tasked to gather information about the circumstances and reasons behind the bankruptcy filing.
For example, a bankruptcy that has been discharged over two years ago may be disregarded.
If the bankruptcy discharge occurred within a year or two, a payment record on certain items obtained through credit is required to establish satisfactory credit.
Indeed, some who have been discharged from bankruptcy within the last 12 months might not be able to re-establish satisfactory credit.
An applicant who has filed a Chapter 13 filing and has made all satisfactory payments may be deemed as having re-established a satisfactory credit.
The same guidelines may be applied to borrowers with foreclosure on their record files.
The VA recognized that circumstances vary among borrowers that were not covered in the handbook.
That being said, the VA is leaving it to underwriters to apply reasonable judgment and flexibility in making VA loans. Lenders, too, can tack their own requirements on existing VA guidelines called overlays.
This explains why one lender requires a credit score of 740 and another is fine with a score below that threshold. Moreso with credit histories that may be too short for some lenders but sufficient for other lenders.
With these varying credit standards, can you qualify for a VA loan without a credit history?
The answer is yes.
If the lender sees you as a satisfactory credit risk upon evaluation, you can qualify for a VA loan.