Getting a VA loan with a collection on my credit report.

Asked by Tony, Simi Valley, CA Wed Oct 3, 2012

We are hoping to buy a house within the next 6 months or so. My credit scores are about 700. All credit cards are payed off. Available credit is about 20K. No car paymnets, no student loans, etc. We had to do a shortsale on our house in 2009, but have had a solid history since then. I have a collection from a credit card ($13K, also from 2009) that was the same company as the mortgage holder. Will the collection account prevent me from getting a VA loan?

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Claudia Mull…, Mortgage Broker Or Lender, Fremont, CA
Thu Oct 4, 2012
Okay heres the deal VA has their own guidelines and then each lender adds their own rules on top of that.
The collection account is going to be an issue.
Medical collection accounts are, in the case of VA and FHA, are okay to leave outstanding.
Collection accounts in excess of $1000 are not okay to leave outstanding.
As stated below, these larger amounts can be attached to your property as a lien and compromise the lender's (the loan that VA is guranteeing) collateral.

In your case, if I were your lender, I would suggest that you leave the collection account as it stands until we go to close escrow. Should you pay this collection account now, although you make it zero, you will make the age of it 'fresh'

I would suggest, as your lender, that you submit your loan for preapproval and state that you will pay the collection account at close of escrow.

This allows you to negotiate a VA transaction where the seller and/or lender or combination give you a credit for your closing costs. On a VA transaction, the seller may give you a credit of up to 6% of your purchase price. These funds can be used for closing costs and, in this case, to pay toward your collection account. The remainder of the balance can be paid cash by you or additional credit from the rebate from your chosen interest rate.
1 vote
Eddy Milanes, Agent, Westlake Village, CA
Wed Oct 10, 2012
Hi Tony, First of all Thank You! for your service to our country. As many of my collegues have stated, the collection may be an issue. It is imperative that you have a lender who knows how to and has had a history of dealing with VA loans. Due to the timeframe that you're looking at to hopefully buy, my suggestion would be for you to meet with a loan officer now and find out what you would possibly qualify for, and if there are any issues that need to be taken care of now that would either be a lender requirement or VA requirement, you can address them now. Preparation is the key. If you do know who to contact to get the ball rolling, please email me and I would be happy to give you the names and nmbers of lenders who may be a good fit for you. My email is: Thanks.
0 votes
Trevor Curran, Mortgage Broker Or Lender, Great Neck, NY
Thu Oct 4, 2012
Good afternoon Tony and THANK YOU for your Service to our Nation!

Not sure if you mean the collection account is paid or not, so I'm going to assume not. I'd hazard a guess that an open collection account of that size is going to be an obstacle to a successful loan approval. I'd recommend you meet with a Local Mortgage Banker to get Prequalified. Your Mortgage Banker can review your credit, discuss the collection account and the appropriate actions to take in order to resolve this issue and get Prequalified.

Trevor Curran
NMLS #40140
0 votes
David Drown, Agent, CA,
Wed Oct 3, 2012
It depends on the Lender. Some will ask for it to be paid because it could become a lien. On a purchase transaction the lien will have second priority if that happens. On a refinance, it could record in front of the new deed of trust because you already own the property. If this becomes an issue, try entering into a payment agreement with them and show the Lender your agreement so they can see there is no danger of the creditor attaching the property.
VA loans are probably the most flexible in today's market, however it will depend on how many Lender overlays are in place from the wholesaler's contract with VA or special inter office rules that they apply to minimize default.
0 votes
Charlene Cla…, , Simi Valley, CA
Wed Oct 3, 2012
as long as it has been 3 years you are should be me at 805-797-0834
0 votes
Cindy Slack, Agent, Simi Valley, CA
Wed Oct 3, 2012
Hi Tony,
Very good questions and congratulations on exploring the financing aspect of homeownership before looking at homes. The good news is that there are positive options for you to become a homeowner once again. I would recommend you direct your initial questions to my lending partner, Laura Berg at On Q Financial. Her phone number is 818-517-7111. Her email address is
We work closely together and she is currently working with one of my VA clients who had a Bankruptcy. We are in escrow.
Please feel free to contact me if you have any questions.
I am very happy to answer all of your questions and help you get to where you need to be.
Cindy Slack
Keller Williams Exclusive Properties
0 votes
Shane Milne, Mortgage Broker Or Lender, South Jordan, UT
Wed Oct 3, 2012
VA doesn't require collections to be paid, however it is up to underwriter discretion. The reason for the collection (as well as the short sale) will need to be explained and the underwriter will look at the overall situation to determine if they'll require it to be paid or not. If credit is otherwise clean, you aren't stretching what you can qualify for, and have reserves (checking, savings, retirement) still available to you after closing then the chance of the collection requiring to be paid would lessen.

Our underwriters can review the details of your situation before you make an offer on a home so you'll be thoroughly pre-approved knowing if you'll have to pay the collection or not.

Shane Milne | Lending in all 50 states | NMLS #81195
0 votes
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