VA Loan With Recent Late Payments

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This guide will cover getting approved for a VA loan with recent late payments.  The Veterans Administration has helped thousands of veterans and service members buy or refinance homes with VA loans. VA loan is a mortgage program that benefits eligible borrowers greatly, such as no down payment required on a home purchase. Ronda Butts, a dually licensed realtor and loan officer at Gustan Cho Associates, explains about VA loan with recent late payments:

VA loans are the best owner-occupant home loan in the nation. There is no minimum credit score requirement. There is no maximum loan limit. VA loans does not have a maximum debt-to-income ratio cap as long as the borrower has strong residual income. However, it is difficult to get an automated underwriting system on a VA loan with recent late payments.

No private mortgage insurance (PMI) is required on VA loans. VA loans have low-interest rates and closing costs. Flexible credit and income requirements. Assumable by another VA-eligible borrower. However, you may also wonder if you qualify for a VA loan if you have recent late payments on your credit report. Late payments can significantly decrease your credit score and affect your possible approval for any loan. In this guide, we will discuss getting qualified for a VA loan with recent late payments.

Can You Get Approved For a VA Loan With Recent Late Payments

A late payment is any payment over 30 days past due on any debt account. Suppose you are late by more than 30 days on any credit tradelines that report on credit bureaus such as credit cards, car loans, student loans, etc., you are considered late. Your credit score can be affected negatively for seven long years if you have a late payment that remains on your credit report. Alex Carlucci explains the difficulty of getting an AUS approval on a VA loan with recent late payments:

It is next to impossible to get an approve/eligible per the automated underwriting system on a VA loan with recent late payments in the past 12 months. HUD, the parent of FHA loans, is more forgiving on late payments in the past 12 months with a large down payment.

However, the VA does have a general guideline that says you must have a satisfactory credit history for the past 12 months. You should have at most one late payment on any debt account in the last 12 months. Remember that the VA does not directly provide loans to borrowers. Instead, it only guarantees a portion of the loan to safeguard against default. The loans themselves are issued by banks and mortgage companies that adhere to VA guidelines, but they may impose additional criteria. Certain lenders may have stricter policies, such as not accepting late payments within the past 12 months or demanding a higher credit score.

Can You Qualify For Manual Underwriting VA Loan With Recent Late Payments

The chances are you will not get an automated underwriting system approval on a VA loan with recent late payments.  VA allows manual underwrite. However, manual underwriting guidelines on VA loans require a 12-month timely payment history.  Suppose your credit report displays recent instances of late payments. VA and FHA loans are the only two mortgage programs allowing manual underwrites. However, you need 12 months of timely payments on VA loans for a manual underwrite, explains Angie Torres, the National Operations Director at Gustan Cho Associates:

The Veterans Administration has lenient guidelines. However, it is very difficult to get an approve/eligible per the automated underwriting system with late payments in the past 12 months. VA has no minimum credit score requirements or maximum debt-to-income ratio caps on VA loans.

In that case, it is possible you may get the late payment waived if the late payment was due to medical or extenuating circumstances on a VA manual underwrite. It would be advisable to be ready to explain their occurrence and demonstrate how you have taken steps to address them. There could be many reasons for having late payments, such as financial hardship due to job loss, medical emergencies, divorce, etc. Error or dispute on your credit report or billing statement. Forgetfulness or mismanagement of your finances is not an acceptable excuse for late payment.

Late Payment Due To Being a Victim of Identity Theft

If you were a victim of identity theft, you could get the derogatory credit tradelines removed from all three credit reports in a matter of days. You need to file a police report. With the police report, you must dispute the negative credit tradelines to all three credit bureaus.  You need to state the reason for the derogatory credit tradeline is due to being a victim of identity them and present the police report. Danny Vesokie, a commercial mortgage training instructor with Affiliated Financial Partners, said the following:

If you have an identity theft police report, you can take that to the three credit bureaus and the bureaus will delete all disputed derogatory credit tradelines in a matter of days.

All derogatory credit tradelines will be deleted or corrected in a few days with no questions asked. A police report or identity theft affidavit that shows the fraud. By furnishing these documents, you can substantiate to the lender that you possess the responsibility and ability to settle the loan and that the late payments were an isolated occurrence rather than a recurring pattern of behavior.

How To Rebuild Your Credit To Get VA Loan With Recent Late Payments

If you have recent late payments on your credit report, you should also improve your credit score and payment history before applying for a VA loan. Here are some tips you can do. Pay off any outstanding debts or collections that are past due or in default. Establish automatic payments or set up reminders for your monthly bills to prevent missing any payments. Marga Jurilla, a loan officer at Gustan Cho Associates, explains the damage maxed-out credit cards can have on your credit scores:

High credit card utilization can plummet your credit scores. You should have under a 10% credit utilization ratio on all revolving debt. It is best to maximize your credit scores when applying for VA loan with recent late payments.

Reduce your balance and interest on debts by paying more than the minimum amount or making additional payments. Maintain a low credit card utilization by utilizing lower than 30% of your available credit limit. Avoid applying for new credit accounts or closing old ones unless necessary. Regularly review your credit report and challenge any errors or inaccuracies that you come across.

Is It Possible To Get Approved For VA Loan With Recent Late Payments

If you have more than one late payment in the last 12 months, it is not always a deal killer on VA loans.  If you incurred more than one late payment on any debt account in the last 12 months, it might be an issue in getting an automated underwriting system approval. There are alternatives to see if you can get an approve/eligible per automated underwriting system with multiple late payments in the past 12 months, said Alex Carlucci of Gustan Cho Associates, Inc.

Consider the following options. Make a larger down payment: Although VA loans do not require any down payment, making one can lower your loan-to-value (LTV) ratio and reduce the risk for the lender.  A lower LTV ratio can also lower your interest rate and monthly payment and give you better odds of getting an approve/eligible per an automated underwriting system.

VA loans only allow a married spouse for a co-borrower. If you are unmarried but have a non-occupant co-borrower with good credit, you may want to consider going for FHA loans versus VA. If you have someone, like a spouse, family member, or friend, who is also VA-eligible and has good credit, you can apply for the loan together as co-borrowers. This can increase your income and credit score and improve your chances of approval.

VA Refinance Loan With Recent Late Payments

If you need to do a rate and term refinance due to low rates, you can qualify for a VA streamline refinance loan or VA IRRRL. There is no appraisal or income documentation required. However,  timely payments on your VA loan in the past 12 months are required. If you are beyond your VA loan and do not qualify for a VA IRRRL, you can qualify for a loan modification on your VA loan, says Alex Carlucci:

A repayment plan entails gradually agreeing to repay the missed payments over time. On the other hand, a loan modification involves modifying the terms of your loan, which could involve extending the loan term, reducing the interest rate, or decreasing the principal balance. Apply for a repayment plan or loan modification: If you encounter difficulties meeting the mortgage payments on your current VA loan, reach out to your lender and request either a repayment plan or a loan modification.

These alternatives can assist in avoiding foreclosure and enhancing your payment track record. Seek help from the VA: If you are going through a financial hardship and are at risk of defaulting on your VA loan, you can also seek help from the VA. The VA has a loan guarantee division that can assist you with finding solutions to avoid foreclosure and keep your home. To obtain assistance and guidance throughout the process, you can contact your nearby VA office and request to speak with a loan technician who can address your inquiries.

Solutions To Get Approved For a VA Loan With Recent Late Payments

VA loans are excellent for veterans and service members seeking to purchase or refinance a home. However, qualifying for a VA loan with recent late payments on your credit report can affect your eligibility and approval. The main points to remember are you should not have more than one late payment in the last 12 months on any debt account for VA loan eligibility. You should be able to explain and document the reasons for having late payments and how you have resolved them. You should strive to improve your credit score and payment history before applying for a VA loan. John Strange, a loan officer who is an expert in helping borrowers with VA loan with recent late payments, advised the following:

One option if you cannot qualify for a VA loan with recent late payments is try to go with an FHA loan. FHA loans are more forgiving with late payments in the past 12 months if you put a large down payment. VA loan with recent late payments is harder to approve than an FHA loan with late payments. HUD is more forgiving with recent late payemts versus VA loans.

 

Impact of Different Types of Late Payments on VA Loans

1. Mortgage Late Payments

Significance:

• Late payments on mortgages are considered the most serious by lenders.
• They directly reflect the borrower’s ability to manage a significant financial obligation.

Impact:

• Even one late mortgage payment can significantly affect VA loan approval.
• Multiple late mortgage payments within the past 12 months can lead to a denial or require substantial compensating factors.

Mitigation:

• Provide a strong explanation for any late mortgage payments.
• Demonstrate that the late payment was an isolated case and not a pattern of behavior.
• Show recent on-time payments to indicate improved financial management.

2. Auto Loan Late Payments

Significance:

• Auto loan payments are also viewed critically, representing another significant financial commitment.

Impact:

• Recent late auto loan payments can negatively affect your credit rating and raise concerns about your capability to manage debt.
• Lenders may scrutinize your payment history more closely if there are recent late auto loan payments.

Mitigation:

• Explain the reasons for any late auto loan payments.
• Highlight any steps taken to ensure future payments are made on time.
• Provide evidence of recent timely payments.

3. Credit Card Late Payments

Significance:

• Credit card late payments can indicate poor credit management but are generally seen as less severe than mortgage or auto loan late payments.

Impact:

• Multiple recent late credit card payments can lower your credit score and impact loan approval.
• Lenders may consider the frequency and recency of late payments when assessing risk.

Mitigation:

• Pay off or reduce outstanding credit card balances.
• Show consistent on-time payments since the late payments occurred.
• Provide a credible explanation for the late payments.

4. Utility Bill Late Payments

Significance:

• Electricity bill payments are typically considered less critical than mortgage, auto loan, or credit card payments.

Impact:

• While they impact your credit report and score, they usually carry less weight in the VA loan approval process.
• A history of late utility payments might raise concerns about financial stability. Still, a few isolated incidents are less likely to be deal-breakers.

Mitigation:

• Ensure all utility bills are current and paid on time moving forward.
• Explain any late payments, especially due to circumstances beyond your control.

5. Medical Bill Late Payments

Significance:

• Lenders often view Medical bill late payments more leniently due to the unpredictable nature of medical expenses.

Impact:

• Lenders may overlook late medical payments if the rest of your credit profile is strong.
• Medical collections are less likely to prevent VA loan approval than other late payment types.

Mitigation:

• Provide documentation and explanations for any late medical payments.
• Demonstrate that you have addressed or are addressing any outstanding medical debts.

6. Personal Loan Late Payments

Significance:

• Late personal loan payments are considered serious as they indicate difficulty managing fixed installments.

Impact:

• Recent late payments on personal loans can negatively affect your credit score and VA loan eligibility.
• Lenders may be concerned about your ability to handle additional debt.

Mitigation:

• Show that late payments were isolated incidents and not part of a broader pattern.
• Provide documentation of on-time payments made since the late payments.

Conclusion

Different types of late payments can have varying levels of impact on VA loan approval. Late payments for mortgage and auto loans are the most critical. In contrast, late payments for utility and medical bills are typically viewed more leniently. Regardless of the type, explaining, demonstrating improved financial behavior, and highlighting any compensating factors to mitigate the impact of recent late payments when applying for a VA loan is essential.

 

Frequently Asked Questions (FAQs)

1. Can I use a VA loan with my recent late credit report payments?

You can still avail of a VA loan with recent late payments on your credit report. However, the impact of late payments will depend on the late fees’ severity, frequency, and recency. Lenders will evaluate your overall credit profile and financial situation to determine eligibility.

2. How do recent late payments affect my VA loan approval?

Recent late payments can negatively impact your VA loan approval by lowering your credit score and signaling potential financial instability to lenders. Lenders may require additional documentation or explanations for late payments and could impose stricter underwriting requirements.

3. What types of late payments are most concerning to lenders?

Lenders are most concerned about late payments on significant accounts such as mortgage payments, auto loans, and credit cards. Late payments on these accounts suggest potential issues with managing substantial financial obligations.

4. How recent is “recent” for late payments when applying for a VA loan?

Generally, “recent” late payments refer to those that have occurred within the last 12 months. Payments that are late within this timeframe can have a more significant impact on your loan approval process.

5. Can one late payment disqualify me from getting a VA loan?

One late payment does not automatically disqualify you from getting a VA loan but can raise concerns for lenders. Suppose you have a strong overall credit profile and can provide a valid explanation for the late payment. In that case, you may still be eligible for a VA loan.

6. How should I explain recent late payments to my lender?

When explaining recent late payments to your lender, provide a detailed and honest account of the circumstances that led to the late payment. Include:

• The reason for the late payment.
• Steps were taken to resolve the issue.
• Documentation supporting your explanation (e.g., medical bills, job loss notice).
• Any changes made to prevent future late payments.

7. Will paying off past-due accounts improve my chances of getting a VA loan?

Paying past-due accounts can improve your chances of getting a VA loan. It demonstrates to lenders that you are taking responsibility for your financial obligations and can help improve your credit score.

8. Can I still get a VA loan if I have a history of late payments but have improved my credit recently?

A history of late payments does not automatically disqualify you from a VA loan if you have recently improved your credit behavior. Lenders look for patterns of responsible financial management, so consistent on-time payments and reduced debt can work in your favor.

9. What compensating factors can help mitigate the impact of recent late payments?

Compensating factors that can help mitigate the impact of recent late payments include:

• High credit score.
• Low debt-to-income ratio.
• Stable and sufficient income.
• Large down payment.
• Substantial savings or reserves.

10. How long should I wait after a late payment before applying for a VA loan?

It is advisable to wait at least 12 months after a late payment before applying for a VA loan, if possible. This waiting period allows you to demonstrate improved financial behavior and can help increase your chances of loan approval.

11. Should I work with a credit counselor if I have recent late payments?

Working with a credit advisor can be beneficial if you have recent late payments. A credit advisor can help you create a plan to improve your credit profile, manage your debts, and prepare for a VA loan application.

12. Can a high credit score offset recent late payments when applying for a VA loan?

A heightened credit score can help offset the impact of recent late payments when applying for a VA loan. Lenders consider the overall credit profile and a high credit score indicates responsible credit management despite recent late payments.

13. Are there any VA-specific programs or guidelines for borrowers with recent late payments?

The VA does not have specific programs for borrowers with recent late payments. Still, they do offer flexible guidelines compared to conventional loans. The VA allows lenders to consider the borrower’s overall financial situation, including compensating factors to offset recent late payments.

14. How can I enhance my possibility of getting a VA loan if I have recent late payments?

To improve your possibility of getting a VA loan with recent late payments:

• Focus on making all future payments on time.
• Lessen outstanding debts to improve your debt-to-income ratio.
• Save for a larger down payment.
• Provide a detailed explanation for the late payments.
• Demonstrate stable and sufficient income.

15. can I refinance my current mortgage into a VA loan if I have recent late payments?

Refinancing into a VA loan with recent late payments is possible, but it can be challenging. Lenders will review your payment history and overall financial situation. Providing a valid explanation for the late payments and showing recent improvements in your credit behavior can increase your chances of approval.

If you cannot get an approve/eligible for a VA loan with recent late payments, we can help you with alternative loan options. Explore alternative options if you have accumulated multiple late payments within the past 12 months. Try putting in a down payment and see if that will render an AUS approval. You can try increasing your down payment substantially, securing adding a spouse for a co-borrower with a good credit history, contacting the creditor to see if they can remove the late payment as a one-time mercy, adding positive credit to offset the negative credit, or try to go with an FHA loan. If you wish to apply for a VA loan with recent late payments or have inquiries regarding your eligibility, please don’t hesitate to contact us. Our team specializes in VA loan with recent late payments and is well-equipped to assist you in finding the optimal solution for your situation. Besides FHA loans, we can help you explore non-QM loans.  Feel free to contact us today.