VA Loans and New Debt
When a VA lender evaluates your VA loan request they’ll leave few stones unturned. A VA lender will review your last two years’ tax returns, your bank statements, your paycheck stubs and your W2 forms. And that’s just for starters. A VA lender will also look at your current revolving and installment debt listed on your credit report. Doing so, a VA lender will help determine affordability by comparing outstanding debt with your current gross monthly income. And once you submit a VA loan application, don’t apply for credit elsewhere in the meantime.
It’s not uncommon for those buying house with their VA loan benefit to begin shopping for new furniture and appliances for that brand new home. And sometimes if there’s not enough cash in the bank future homeowners will finance their new washer and dryer: with a brand new department store card. Bad move.
Why? When a lender reviews a credit report upon receiving a new loan application they also look at a brand new credit report right before the closing to make sure there are no new debts incurred. Lenders do this to make sure there are not new monthly obligations that can affect the ability to repay the new mortgage.
Even new debt that has yet to be reported to the credit bureaus can stop a VA loan in its tracks; even if the new monthly payments have yet to show up on the report. When a consumer applies for credit the credit issuer will look at the consumer’s credit report. Each time the credit report is reviewed by a potential creditor, that inquiry will be listed on the credit report. If a VA lender sees a new inquiry on the credit report they will want to know what the inquiry was for and if you bought anything new.
You’ll have to provide written proof of the existence of any new credit as well as any new monthly payment or balance. This means your loan will be delayed until you provide the requested documentation. Bottom line? When applying for a mortgage, don’t open up any credit accounts. You just might regret it.