VA Credit Guidelines: The Basics

Once they’ve decided to buy a home using their VA benefits, a common concern among servicemembers is whether they’ll qualify under VA’s credit guidelines. Often our servicemembers have preconceived notions about the minimum standard required to get a mortgage—sometimes they’re correct and sometimes they aren’t. The client’s tendency is to think they cannot get a VA loan, when in fact they can. This is largely because of a failure to realize that much of what concerns the client has already been “baked into the cake.”

Here’s what I Mean: The VA guidelines anticipate that in life Stuff Happens; and that in military life, Stuff Really Happens. Perfection isn’t necessary. For example, VA understands that the servicemember may have had 9 duty stations in 13 years, and that it may be unfair to compare the servicemember’s credit record with that of a civilian who has worked at the same job and location for 13 years without ever uprooting their family. Each time a military family moves there is an opportunity for something to fall through the cracks (like the last cable bill from the apartment near Camp Pendleton that somehow was not forwarded to the servicemember’s address in Quantico and ends up on their credit report as a collection account). To gain a VA loan approval, VA does not require payment of relatively small isolated collection accounts. Again, certain benefits and concessions are baked in for VA loan applicants.

With that said let’s undertake a general review of VA credit guidelines and get an idea as to how VA determines creditworthiness.

VA’s Prevailing Guideline – What’s Past Is Prologue

“The applicant’s past repayment practices on obligations are the best indicator of his or her willingness to repay future obligations.” VA Pamphlet 26-7, Revised, Chapter 4.

In other words, does the servicemember’s credit record reflect a willingness to pay obligations in a timely manner? If not, is there a reasonable explanation? If the explanation identifies extenuating circumstances, have the circumstances ended, when did the circumstances end, and has there been a series of payments re-establishing the servicemember’s consistent payment history? There is risk assessment, ratios, and verifications, but everything is undergirded by two things: 1) Is there a way to make this work for the veteran; and, 2) Does it make sense?

Minimum Credit Score Requirement

VA does not have a minimum credit score requirement—none. However, VA does not make loans, VA guarantees loans made by private, VA approved lenders. VA lenders may be more conservative than VA, but not more liberal. As such, VA lenders can place restrictions on their version of the guidelines (called overlays) in accordance with their own tolerance for risk and to assure marketability. As a result, most if not all VA lenders have a credit score requirement of at least 580. Sidwell Mortgage can originate VA mortgages with a single credit score as low as 580 – on a case-by-case basis.

Minimum Credit History

VA does not have a minimum credit history requirement. The absence of a credit history is typically not considered as a negative factor. If the servicemember has no credit history, a credit decision can be made based on the servicemember’s payment record on utilities, rent, auto insurance or other alternate credit references.


The presence of a bankruptcy on the servicemember’s credit profile does not in itself disqualify the loan. The circumstances of the bankruptcy are considered. Generally speaking, when the servicemember has filed a Chapter 7 bankruptcy, VA requires a 2 year wait period from the date of the discharge, after which the bankruptcy is disregarded. In the presence of a Chapter 13 filing, the wait period for some servicemembers may be as short as 12 months from the filing date.

In both cases satisfactory credit (i.e. no late payments) should exist between the date of the discharge and applying for the VA loan. Please note that other restrictions may apply.

Consumer Credit Counseling

If the servicemember has negative credit entries and is enrolled in a Consumer Credit Counseling Plan, they are deemed an acceptable credit risk after making 12 consecutive on time payments and getting permission from the counseling agency to take on new debt.

If the sevicemember has no negative credit entries and is enrolled in a Consumer Credit Counseling Plan, it is considered a neutral factor, perhaps even positive.

Prior Foreclosures

VA loans permit servicemembers to obtain VA financing two years following a foreclosure.

Deed In Lieu of Foreclosure

VA loans permit servicemembers to obtain VA financing two years following a Deed in Lieu of Foreclosure.

Note: These are general guidelines and there’s an exception to every rule. Make no assumptions. If you have a question that’s not addressed here or need additional clarification please contact us for a free no obligation consultation. We can be reached at 844.SID.WELL (844.743.9355). Feel free to also email us or send a message via the website.

Until the next post … may health and happiness abound.



Understanding VA’s Residual Income

Understanding VA’s Residual Income Guidelines

When it comes to risk analysis it’s not always easy to explain how things are done in the mortgage industry, but today we’re discussing a rule that actually makes sense to most of our clients. It is VA’s guideline regarding residual income.

Residual income is the amount the borrower has left each month after major expenses, payroll subtractions, maintenance, utilities, and certain other obligations are deducted.

Perhaps the best way to illustrate this is to have you actually underwrite a loan (shazam, you now have the power to Approve or Deny a loan application). Let’s say you have a 17 year old son named Tim, who’s a senior in high school. He’s a good, responsible kid who works hard, maintains excellent grades, and more often than not, tries his best to meet your expectations. Tim thinks of himself as independent and receives no allowance. He works a few hours on Saturday and Sunday at the local farmers market and earns $320 per month in gross pay. In addition, he’s held a job for the last three summers and has $3,600 in savings.

Predictably, Tim approaches you about buying a car, having found a great deal on a used Honda Civic. It’s mint condition with low mileage, and the owner is asking $6,000. Tim proposes a scenario in which he’d put up his $3,600 savings if you loan him the additional $2,400 to buy the car. Because he’d like to pay you back in a year, Tim suggests payments of $200 monthly until the debt is repaid.

Like any good underwriter, consciously or not, you consider the C’s: capacity, cash, collateral, and character/credit. Overall it’s a pretty decent loan application for someone that’s seventeen. He’s shown responsibility and the discipline to save. He’ll have some skin in the game in the form of his $3,600 savings as down payment. Tim doesn’t have much of a credit history, but you’ve never known him to not honor his word. And you’ll have some collateral in the form of the car.

However, there’s one aspect of this that’s problematic: Tim’s capacity. His weekend job pays $320 per month, but he brings home $240 (75% of his gross pay). If he’s paying you $200 per month toward the $2,400 you loaned him, he won’t have enough left over to buy gas, eat lunch, pay for the car’s insurance and maintenance, or even treat himself to a movie or ballgame. Tim’s residual income is insufficient. You love your son, and from all indications the young man deserves a chance to own his first car; but if you agree to this deal, you are setting him up to fail (i.e., default on the loan). This would be unfair to you and to him. How long would it be before he fails to make the $200 payment because the insurance is due or the vehicle needs a repair?

Congratulations! You’ve just underwritten your first loan and much to your chagrin, I’m sure, you had to say no.

Hopefully you now understand why VA has a residual income guideline. Though a bit more complicated, in principle the process is similar to the way we just underwrote Tim’s loan.

VA requires us to start with your gross income and deduct the following: 1) Housing related expenses such as principal, interest, taxes, insurance, HOA dues, Mello Roos, etc.; 2) Estimated expense for maintenance and utilities (based on a factor that VA provides); 3) Amounts taken from gross pay (payroll deductions); and, 4) Other payments you’re responsible for making (such as credit card and car payments, child support, etc.).

What’s left is the amount you have available for expenses such as gas, car insurance, life insurance, Cable/HBO/Cinemax, health club memberships, cell phone bills, Wi-Fi, groceries, lunch, dry cleaning, kid’s lunch money, toiletries, entertainment, incidentals, and so on.

So how much residual income does VA suggest? It’s based on your family size and the region of the nation in which you reside. See the table below:

Table of Residual Income by Region

For loan amounts of $80,000 or more

Family Size Northeast Midwest South West
1 $450 $441 $441 $491
2 $755 $738 $738 $823
3 $909 $889 $889 $990
4 $1,025 $1,003 $1,003 $1,117
5 $1,062 $1,039 $1,039 $1,158
Over 5 Add $80 for each additional member up to a family of 7

Please note that throughout this post I’ve indicated this is a guideline. That’s because it’s not an inflexible requirement, but is considered in conjunction with other loan factors such as your debt-to-income ratio (though different there is a relationship between the two—one can change the other). Keep in mind that these calculations can get rather technical. Your Sidwell Mortgage professional is thoroughly experienced with VA loans and will perform the calculations and answer any questions.

Until the next post … may health and happiness abound!

Hello World!!

Hello World!!

Welcome to the FIRST EDITION of the VA Information Portal Blog. This blog is a resource of the Sidwell Companies.

And so, it’s come to this. After more than 20 years of arranging mortgages in the state of California and encountering every type of borrower, loan program and mortgage scenario imaginable, we’ve been told that we must start blogging. Our millennial associates insist that such knowledge has to be shared. With that in mind, treasured reader, please be empathetic as we make our first foray into the blogosphere. Does this blogging thing require some type of license? Should it?

The objective of this blog is fairly simple. First and foremost we want to make servicemembers aware of their VA Home Loan Benefit. In a 2014 survey of 2,000 members of the Iraq and Afghanistan Veterans of America (IAVA) association, only 36% said they had applied for a VA home loan. The percentage is so low because many veterans were never made aware of the benefit. Sidwell Mortgage is changing that.

Secondly, we want to explain VA home loans in a clear, understandable and sometimes funny manner. The goal is to remove fear and intimidation from the mortgage lending process. We understand that in life Stuff Happens! And in military life Stuff Really Happens! Regardless of the circumstance there’s usually a way for the servicemember to buy a home, or at least start down the path to home ownership. We want to show you that path.

We’ll also discuss topics and post videos that don’t always relate to mortgages, but are nonetheless engaging and rewarding.

So thanks for reading our first blog and I look forward to you joining us for future posts. You can even subscribe so you won’t miss a word.

Until the next post … may health and happiness abound!