VA Loan With Collection And Charged-Off Accounts

In this blog, we will cover and discuss qualifying for VA loans with collection and charged-off accounts. One of the frequently asked questions we get at Capital Lending Network is can I qualify for a VA loan with outstanding debts and collections. The answer is YES. Veteran homebuyers can qualify for VA loans with collection and charged-off accounts without needing to pay them off.

VA Loans Versus Other Loan Programs

VA Loans Versus Other Loan Programs

VA loans are the best loan program for owner-occupant home loans. Mortgage rates on VA loans are lower than conventional loans. There is no mortgage insurance required on VA loans. 100% financing and no down payment required. There are no credit score requirements and no caps on debt to income ratio requirements. However, this great loan program is only limited to Veteran Borrowers who have a Certificate Of Eligibility (COE)

What is a Collection Account?

A collection account is a type of debt that has been turned over to a third-party collection agency. This happens when you fail to make payments on a debt for an extended period of time. Collection agencies are then able to collect the debt from you through various means, including phone calls and letters.

There are a few things you should know about collection accounts:

  • Collection accounts can damage your credit score: Any time a debt is turned over to a collection agency, it will show up on your credit report as a negative mark. This can cause your credit score to drop significantly, making it harder to get approved for loans and credit cards in the future.
  • You may be able to negotiate with the collection agency: If you’re unable to pay off the full amount of the debt, you may be able to negotiate a payment plan or settlement with the collection agency. This will allow you to pay off the debt over time, and it will also remove the negative mark from your credit report.
  • You have rights: Collection agencies are regulated by federal law, which means you have certain rights when it comes to dealing with them. For example, collection agencies are not allowed to harass or threaten you, and they must provide you with written notice of the debt before they can begin trying to collect it from you.

If you have a collection account on your credit report, it’s important to understand how it will affect your credit score and what you can do to improve your situation.

Do All VA Lenders Have the Same VA Loan With Collection and Charged-Off Accounts

The team at Capital Lending Network is an expert in helping borrowers qualify and approve borrowers on VA loans with bad credit, low credit scores, outstanding collections, and high debt-to-income ratio. We are also experts in manual underwriting on VA loans. Our borrowers often qualify for a VA loan with outstanding debts and collections as well as charge-off accounts.

Collection and Charge-Off Account Guidelines on VA Loans

Borrowers do not have to pay outstanding collection accounts nor charge off accounts to qualify for our VA loan program at Capital Lending Network. However, most Lenders will have VA lender overlays. These lenders have higher VA guidelines and requirements than those of the U.S. Department of Veteran Affairs. For example, VA does not have a minimum credit score requirement. However, most lenders will require a 620 credit score which is not a VA guideline. The 620 credit score requirement required by a lender is a VA lender overlay. Capital Lending Network has ZERO OVERLAYS on VA loans.

Collection Accounts And Derogatory Credit Accounts

Veteran home buyers owing the debt and that debt is in default of that debt, they do not have to pay to qualify for a mortgage. Creditors and collection agencies are relentless and will try to collect the debt. Many collection agencies will even try to collect on an outstanding debt after the statute of limitations on a debt has passed. If the creditor has no luck they may outsource outstanding debts to third-party debt collectors. Debt collectors normally enter into an agreement with the original creditor and work on commission. Debt collectors will take a percentage of the debt they collect from the creditor.

How Collection Agencies Work in Trying To Collect Past Due Debts

If debt collectors do not collect anything from you, they do not get paid. Debt collectors are regulated by the Federal Trade Commission. They need to abide by certain laws in going about collecting debts. Unfortunately, thousands of debt collectors do not abide by these mandates. They go about their own way of threatening and/or harassing debtors in order to have them pay. Just last year, the Federal Trade Commission logged in more than 210,000 consumer complaints against debt collectors in the United States

Who Are Debt Collectors?

DTI on VA Loans and Debt

Debt collectors are normally third-party private collection agencies hired by creditors. Banks, credit unions, credit card companies, and other creditors hire third-party collection agencies to collect on unpaid debt or charged-off accounts. Creditors also sell bad debt for a reduced price to third-party collection agencies. Some may sell them for pennies on the dollar. Debt collectors need to abide by the Fair Debt Collection Practices Act

Collection Practices By Debt Collectors

Debt collectors need to abide by the hours of collection activities set by the Federal Trade Commission but hundreds if not thousands of debt collectors do not abide by those rules. Those who get collection calls super early in the morning or late at night can file a consumer complaint with the Federal Trade Commission. The Federal Trade Commission gets thousands of complaints each month from consumers against collection agencies because of their non-compliant debt collection practices and activities.

Consumer Rights And Debt Collection Activities

Consumers can request debt collectors not to contact them over the phone. They need to write them a cease and desist letter. Need to contact each debt collector via registered mail to stop the harassment. Consumers in the middle of a bankruptcy process, debt collectors cannot contact them. Or they are in violation of federal collection laws

VA Loan With Outstanding Debts And Collections And Statute Of Limitations

Another important thing consumers need to find out is to see if the statute of limitations on a debt has expired. A statute of limitations is a window of time a debt collector has to legally collect or sue for an unpaid/unsatisfied debt. Statute of limitations periods vary among the different states. In most states, it is normally is 5 years. Collection agencies still try to collect on a bad debt after the statute of limitations period has expired.

Debt Collectors Cannot Threaten Consumers

Debt collectors and collection agencies cannot threaten to garnish wages or sue without taking the consumer to court and the judge issues a monetary judgment. They do have a right to file a lawsuit as any other person or company can. It’s their right but they cannot try to put the fear of God and threaten consumers that they will start garnishing wages, lien homes, emptying out bank accounts, or filing criminal fraud charges. Consumers can sue collection agencies and/or debt collectors if they have violated their rights.

Paying Old Bad Debt and Collections When Qualifying For VA Loan

VA Mortgage Loan Process Timeline

Never pay an old-aged debt unless absolutely have to. If the consumer decides to pay outstanding debt, request pay for delete settlement. Paying an old debt can drop credit scores. It re-activates the old debt which has no impact on credit scores as new bad debt. I have seen people pay old debt and have their credit scores drop substantially.

How Long Does Bad Credit Stay On Your Credit Report

Remember that bad credit falls off the credit report in 7 years from the date of the last activity. Making a partial payment on old bad debt, the credit report will have the date re-activated. The new date of the last activity has just gotten re-activated and the statute of limitations clock restarts new again. Consumers that really need to pay an old unsatisfied debt, then negotiate with the creditor and/or debt collector and settle with them only if they delete the derogatory item off the credit report in lieu of payment.

Qualifying For VA Loans With Collections and Charged-Off Accounts

Veteran homebuyers who need to qualify for VA loans with collections and charged-off accounts can contact us at Capital Lending Network at 800-900-8569 or text us for a faster response. Or email us at contact@capitalendingnetwork.com . Capital Lending Network, Inc. has no lender overlays on government and conventional loans. We are available 7 days a week, evenings, weekends, and holidays. Capital Lending Network, Inc. just goes off the minimum agency mortgage guidelines with zero lender overlays on VA loans.

Talk To A Loan Officer



Peter is a licensed Mortgage Loan Originator and Realtor. He helps people to meet FHA guidelines and obtain a financing for their dream home.