In a perfect world, when you’re ready to purchase a home using your VA loan benefits your financial slate is clean.
Our Lighthouse program can coach you through credit problems and help you achieve your dream of homeownership. But debt can be a different issue.
When it comes to having debts, lenders can live with a certain amount. They’ll often have an in-house cap for the amount of derogatory credit (things like collections and judgments) for a loan file. Maybe it’s $3,000 or $5,000 or more. Prospective borrowers who come in under that benchmark can move forward with the process. But problems with one type of debt in particular can stop a loan application in its tracks: Federal debt.
Veterans and active military members who are either delinquent or in default on a federally assisted loan cannot meet the VA’s definition of a satisfactory credit risk. And that means VA lenders will be forced to turn you away.
Student Loans and More
VA lenders will run your name through a specialized database called CAIVRS, which stands for Credit Alert Interactive Voice Response System. The U.S. Department of Housing and Urban Development maintains this system, which includes federal tax liens and information from these governmental agencies:
- Department of Housing and Urban Development (HUD)
- Department of Agriculture (USDA)
- Department of Veterans Affairs (VA)
- Small Business Administration (SBA)
- Department of Education
For example, veterans who have yet to settle overpayments on education or disability income may trigger a hit in the CAIVRS system. Defaulting or being delinquent on student loans is perhaps the most common CAIVRS issue, and a big reason why staying current on federal education loans is so critical.
Lenders are required to screen all loan applicants through the CAIVRS database, including co-borrowers. So what happens if your name turns up in this system?
Help with Credit
Often the answer is not much. Getting the debt repaid or making satisfactory arrangements with the federal agency involved are the two basic paths to clearing your CAIVRS hit. And if you’re having trouble with default or delinquency on federal debts, it stands to reason that your credit score might be suffering — that’s another crucial element of prequalifying for a VA home loan.
If you’re struggling to stay on top of your credit score, consider talking with a credit expert in our Lighthouse Program at 888-392-7421. This special wing of Veterans United helps veterans, active duty service members and their families for free to get a handle on their credit situation and possible steps they can take to turn around their scores.
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