With all the scary press that the mortgage industry has received over the past three years it is no wonder that lenders have been wary of loosening guidelines. Up until recently it was extremely difficult to find FHA financing if your middle credit score was below a 640 and if you didn’t have 20% to put down you could forget about conventional financing unless you were above a 680 score. This past week I have received several announcements from many of my lenders reducing their credit score requirements by 20 points on both FHA and conventional loans. So now, if you are a 620 score you can qualify for pretty much all of the government financing available through FHA, VA or USDA and if you are a 660 and above you qualify for conventional with as little as 5% down.

I know that 20 points doesn’t sound like much but in America it is estimated that over 20 million Americans are between a 620 and 640 credit score so how about that for adding to the potential pool of buyers! I understood why lenders kept tightening and tightening during the middle of the credit crunch of 2008 and 2009 but I also knew that it was counterproductive for the economy as a whole. The fewer potential buyers there are for more and more homes hitting the market means ever reducing home prices which means even more foreclosures and even more homes hitting the market. It is a slippery slope we are on right now but, hopefully, with this recent change we can start to climb our way out of this housing debacle we’re all in.

Fortunately for me, I had recently been faced with a similar situation and knew exactly how to document the file. So now you are probably wondering where the conundrum is…..right? Well, anytime I am faced with a somewhat peculiar loan scenario I like to double check my handbooks to make sure that my killer loan officer instincts are correct. I emailed my number one investor and lo and behold, I got shot down! Even though I had just read in the VA handbook that it was allowable, here my Account Executive is telling me it isn’t. To make a long story short I found out that it was simply an investor overlay (I’ll get to those in a future post). After a few more emails I finally found a couple of investors that will buy the loan.

Here’s the skinny: If you are a veteran and you are going to keep your current residence while purchasing a new home you are allowed to use the anticipated rent to offset the mortgage payment on the home you are vacating.  The rent cannot be used as effective income so only an amount equal to the vacating mortgage payment can be used. Some investors will require 3 months reserves on both the current residence and the new home. Obviously, if the home you are vacating is currently held by a VA mortgage you will have to pay it off or refinance it with a different loan type as the VA doesn’t allow multiple open loans on one certificate of eligibility. To properly document the file the buyer will need to provide an executed copy of the lease agreement.

If you have any questions regarding VA loans please contact us.