[Gustan Cho]

Here’s the straight answer to all four of your questions, specific to your situation in Brownsdale, MN.

1. Manual underwriting with no credit score (yes, that’s possible), but you have to find the right lender.

This is the single most important gate in your file. The vast majority of lenders will run you through an automated system (Fannie Mae’s Desktop Underwriter) which is predicated on having a score. If the reports come back as “unscoreable” the automated approval will typically fail, but that doesn’t mean you’re automatically rejected.

• Fannie Mae and Minnesota Housing are both looking at the prospect of manual underwriting for files that don’t fit in the automated system and Minnesota Housing goes so far as to state that lenders “originate and close loans under their individual underwriting and closing procedures”.
• Fannie’s own manual underwriting matrix (HomeReady/HomeStyle) permits manual files with a maximum DTI of 45% so a strong documented file can be manually approved.
• What you need is a lender that will do non-traditional credit / manual underwriting. The big banks often won’t. Credit unions, portfolio lenders, and some of the lenders that are part of the Minnesota Housing program will participate. Ask specifically: “Do you do manual underwriting for borrowers with no FICO score using non-traditional credit?” If they hesitate at all, move on.

You’ve got 9 years of perfect $600/month payments from 2017 onwards. That’s precisely the kind of alternative credit paper trail that manual underwriters are looking for.

2. Yes, paying off a contract for deed via refinance is the standard.

A contract for deed payoff refi is a normal refi in all respects: you go through the application, the income, the credit, the appraisal. You’re not ‘buying’ the house at all as you already effectively own it, so it’s just a standard refi which pays off the contract seller and puts you into a first lien position. One caveat in terms of structure: Minnesota law does treat a contract for deed differently from a mortgage (the term ‘mortgage’ doesn’t cover a contract for deed under state statute), but again that doesn’t stop it being a refi. It just means the payoff and title work has to be done properly.

Two things to nail down:

• Get a written payoff statement from the contract seller. Don’t just go on the $25,879 that they’ve said.
• Confirm the seller doesn’t have a senior mortgage with a due-on-sale clause, which could complicate the title. If the seller has an underlying loan, then you’ll want the title to confirm that it clears.

3. The $40k-$50k loan is fine, though small loans have their own set of quirks.

$25,879 payoff so you’re looking at somewhere in the region of $14k-$24k of cash out or to cover your closing costs. That’s a fairly standard sized small loan. Two quick warnings:

• Some lenders have a minimum loan amount (e.g. $50k, $75k) so you’ll need to check that before you apply.
• On a small loan the fixed costs of closing (appraisal, title, VOE) will have a much bigger impact as a % of the loan. Get a Loan Estimate early, so there are no surprises.

Minnesota Housing has the Start-Up and Step Up programs which are worth looking at. Start Up has a restriction against being used to refinance an existing mortgage so you’d need to check whether your contract-for-deed payoff would qualify or whether a straight conventional refi would be the better option.

4. Alternative credit documents to gather (build a thick file).

Since you have no score, the manual underwriter will use documentation instead. Send:

1. 12 to 24 months of cancelled cheques or bank statements showing every $600 payment to the seller. That’s your #1 document. Perfect 9-year history.
2. A signed 12-month rent/payment history letter from the contract seller (name, address, phone, amounts, dates, “paid as agreed”).
3. Utility bills (12 months, all in your name, all paid on time: electric, gas, water, internet).
4. Insurance premiums (12 months paid) – auto, home, life.
5. Any other recurring obligations which are paid on time (phone, cable, gym, child care, etc).
6. Bank statements (2-3 months) showing reserves and steady deposits.
7. Proof of income (pay stubs/W-2s or if self-employed, then tax returns).
8. The contract for deed and the payoff statement.

Three to four tradelines of on-time payments (utilities, insurance, phone, your $600 payment) is generally the threshold that a manual underwriter will use to create a ‘non-traditional’ credit report. You’ve got more than sufficient material.

Bottom line: this is doable. The refi is standard, the loan amount is appropriate, and your payment history is excellent. It all comes down to finding a lender that will do manual underwriting on a non-traditional credit profile (that’s your make-or-break). Call 2 or 3 local Minnesota credit unions and ask that very specific question before you send a single document.

[Gustan Cho]

Most of the time, borrowers pay for their Verification of Employment (VOE) or Certificate of Employment (COE) through their employer, and this cost is included in the loan’s closing costs.

Here’s how these costs typically work:

Who usually pays the fee

• You’ll find this fee listed on your loan estimate or closing disclosure as a third-party service fee. It might show up as its own line item, or be grouped under ‘verifications’ or ‘credit report and related fees.’ The borrower pays this as part of their closing costs or through lender credits.
• Usually, the lender or broker pays the VOE vendor up front when they order the verification, since they have accounts with vendors like The Work Number, Truework, Verifier, and Equifax. They then pass this cost on to the borrower at closing.

Loan officers or branch owners rarely pay the VOE fee themselves, since they work on commission and margin. The $100-$200 VOE fee is usually passed straight to the borrower, so it doesn’t affect the loan officer’s pay or the branch’s profit and loss.

• Sometimes, though, the loan officer or broker will cover the fee. Some loan products have a flat fee or ‘no closing cost’ setup, where the lender pays third-party fees as a marketing strategy.
• 1. In a competitive situation, a loan officer might pay the VOE fee to win the deal.
  2. Sometimes, brokers will pay part of the lender’s verification fees to make things easier for the borrower.
  3. If the VOE needs to be done again, like after a job change or a delay, the lender or broker will often pay for the second or third verification instead of charging the borrower again. Paying $100-$200 for another check can seem high, and often it is.
• An automated VOE through the Work Number can cost as little as $5 to $30. A manual phone or written VOE from the employer usually costs between $50 and $150.
• The $100 to $200 fee usually covers the markup, the vendor fee, or a ‘verification package’ that often includes an SSN trace, employment check, income check, and tax transcript check. Some lenders also cover the credit report fee, which can be surprising. Large employers, like big companies, government agencies, or staffing agencies, may pay the vendor directly, which can add to the cost.

Key point to remember

• In most cases, both by law and in practice, the borrower pays this as a closing cost.
• The loan officer, branch manager, or broker owner only pays if they are covering the cost for pricing or marketing reasons, or if it’s a re-verification not started by the borrower. If you’re a loan officer or branch owner and want to avoid looking like you’re overcharging, the simplest approach is to use a vendor like Truework or a direct Work Number integration, which is much cheaper than older verification companies, and just pass through the actual cost instead of using a bundled fee.

If you’d like, let me know if you’re asking as a borrower or as a broker or loan officer. I can then give you more specific advice about who can be billed and how the costs can be set up.

[Gustan Cho]

A credit supplement is a request you make via your credit reporting vendor asking them to add, verify, or update information that is missing, out of date, or inconsistent on the borrower’s tri-merge report. You’d do this if, for example, a trade line is missing from one of the bureaus, a paid collection or judgment is still showing as unpaid, a balance or payment history is incorrect, or a creditor needs to confirm the status of an account. Both the borrower and the creditor may be required to provide documentation, and at times the vendor will arrange a three-way call with the creditor to confirm the details. The intention is to ensure the credit file is accurate and complete, not to artificially inflate the score.

A rapid rescore is different. It’s used when the borrower has made a verified change to their credit that hasn’t yet appeared on the credit bureau files. This could be as simple as paying down a credit card, paying off a collection, correcting a reporting error, or removing negative information that was reported in error once the creditor has confirmed the error. The credit vendor will send the creditor’s documents to Equifax, Experian, and/or TransUnion. Once the bureaus have updated the file you can pull a new report and score. This typically takes 3-5 business days (though the timing can vary by vendor and bureau). The cost will vary by vendor, by the number of bureaus, and by the number of items you need to update/rescore. A credit supplement is typically $15-$20 each, while a rapid rescore is about $25-$50 per item per bureau. If you’re updating multiple accounts and/or bureaus the total cost can quickly add up. Who pays for the service is up to your broker’s policy. It’s common for the lender or broker to pay for the rapid rescore and the borrower to pay for the credit supplement. Always check with your broker, your credit vendor and your compliance department to confirm the policy before you tell the borrower anything. Never assume you can charge the borrower directly for a rapid restore without checking RESPA, state, investor and company rules. Correcting missing or incorrect information can help to avoid a delay in underwriting and, in some cases, can even prevent a rejection. The main benefit of a rapid rescore is speed. If the borrower is just below a score threshold a rapid rescore can quickly improve their score and get them approved for a loan, get them a better rate, meet a conventional loan requirement or keep their purchase contract on track. A small increase in score can make a big difference in terms of getting a better rate or meeting a lender’s requirement.

Neither of those services is credit repair and neither can remove valid negative credit history. They can’t create a better score out of nothing. What they can do is accelerate or clarify the accurate, verifiable information in the report. If the updated information results in a lower score, that’s the score you’ll get. Before you order either of those services, you must check the report, identify the issue, get the documentation from the creditor, get the borrower’s consent and note the expected benefit. That process protects the borrower, protects your broker and protects your NMLS record.

[Gustan Cho]

Mortgage rates are out of control. Borrowers with decent credit are paying discount points. Most rates are over 7% plus points.

• This reply was modified 2 days, 8 hours ago by  Gustan Cho.

[Gustan Cho]

Here’s the landscape as of today, October 13, 2026. One important framing first: “par” means zero points, zero lender credits — the base note rate. Most of what’s published online isn’t par; it’s either an average APR or a rate that already includes discount points. So I’ll give you the real rates, then flag which ones are inflated.

Par rates by loan type (30-year fixed)

• Conventional: ~7.40% national average, per Freddie Mac’s survey — but that’s for pristine 80% LTV files, so treat it as a floor, not your rate. Broader market averages run 7.37% APR.
• FHA: ~7.24% national average.
• VA: ~6.75% (Veterans United purchase average, down from 6.849% last week) to 7.22% national average — VA averages trend below all other loan types.
• USDA: no clean national par number in the sources above, but USDA typically prices near or slightly below FHA and VA given the government guarantee.

Now the part that matters for you — and this is where your 592 changes everything.

Almost every rate above assumes a score of 620+. Your file doesn’t qualify for these quoted averages.

Here’s what actually happens at your score band:

• Conventional is basically off the table at 592. The 7.37–7.40% conventional numbers assume 620+, and pricing gets ugly fast below that.
• FHA is your lane — and FHA explicitly exists for “less-than-perfect credit scores” and high DTI. But note the headline FHA average of 7.24% is a prime-borrower number. Expect a real adjustment above that for a sub-600 mid-score.
• VA is the wildcard if you or your wife are eligible — VA has no set minimum credit score, and many lenders accept below 620. VA rates are the lowest of the four, and the credit hit is softer.
• USDA is worth checking — zero down, and USDA doesn’t hammer low scores the way conventional does.

The APR trap you need to catch

Notice Money.com quotes FHA at 8.12% APR versus Bankrate’s 7.24% interest rate for the same product. That gap is mostly the FHA upfront mortgage insurance premium (1.75% rolled in) plus annual MIP. When you shop, make every lender quote you the same thing: par note rate + total APR + monthly MI. Otherwise, the two no-overlay shops you’re talking to will quote different structures, and you’ll compare apples to oranges.

Blunt answer for your file

At 592, don’t anchor to the 7.24–7.40% national averages — those are 740-score numbers.

Realistically, you’re shopping FHA or USDA, mid-to-upper 7s par, before MI. VA, if eligible, could pull you lower. The good news: your clean 12-month history and never-late mortgage are exactly the compensating factors that let an underwriter price you closer to the average than the score alone suggests.

Ask each shop for a par FHA quote with a 592 mid-score and your actual LTV — that single number tells you whether this is worth pulling credit.

Do you or your wife have any VA eligibility, or should we stay focused on FHA and USDA pricing?

Compare Current VA Loan Rates Today | Bankrate
https://www.bankrate.com/mortgages/va-loan-rates/

Compare Today’s 30-Year Mortgage Rates | Bankrate
https://www.bankrate.com/mortgages/30-year-mortgage-rates/

[Gustan Cho]

You’re asking exactly the right question. The good news is your file stands a strong chance, and those 90-day late payments probably aren’t the real hurdle here.

Let me walk you through why that’s the case, and then I’ll tackle your specific questions one by one.

Your direct questions

1. Do we follow FHA guidelines and the automated results as they come back? Yes, that’s exactly what “zero-overlay” means. If the AUS (TOTAL Scorecard for FHA, GUS for USDA) says Approve/Eligible, we go with it. We don’t add extra lender rules that would block files FHA itself would approve.
2. Licensed in Michigan? Yes.

Why your file is in good shape

FHA’s rules say your situation is okay: no missed housing or installment payments in the last 12 months, and no more than two missed payments (no more than 30 days late) in the last two years. You have 12 clean months, and your current mortgage has never been late. The late payments in May and July 2025 are outside the 12-month window. Ninety-day late payments on non-housing accounts are usually only a problem if they were on credit cards and there were more than three over 60 days late. You have two, and one is already paid off and closed.

The unpaid $420 charge-off is actually more important than the late payment. It won’t block you outright, but the lender will want to see it paid or at least on a clear payment plan. This is standard FHA practice, not an extra hurdle. Your spotless 12-month history proves you’ve rebounded, and the impact of late payments fades as time passes.

Here’s something key: a 592 score sits just below the FHA’s comfort zone of 580 and well under the 620 needed for conventional loans, so FHA is your best bet—which you already figured out. Even more important, the lender won’t use the 592 you see. Mortgage lenders pull from older FICO models (FICO 2, 4, and 5), which can be higher or lower than what Credit Karma or your bank app shows. You’ll only know your true mortgage score once your credit is checked. If your middle score lands above 580, FHA is in play. Bringing your wife’s 653 as a co-borrower can help, as long as her income and debt-to-income ratio fit the guidelines.

What would sink this

• DTI is the real make-or-break factor here. Your credit scores aren’t the main obstacle; it’s likely your debt-to-income ratio. FHA prefers 43% or less, though a strong application can sometimes stretch to 50% with other positives. If your DTI is on the high side, a score of 592 makes things trickier.
• The $420 remains unpaid, with no plan.
• The 90-day late payment is on a housing obligation. They’re not on housing — good.

A no-overlay lender that sticks to AUS results is a great fit for your file—and you already have one approval in hand. A history of 90-day late payments, 12 clean months, and a mortgage that’s always been on time is a profile FHA often approves. The charge-off is the one piece that needs to be addressed. Pay it off or set up a payment plan before you apply.

Keep in mind, with scores in this range, the first lender who checks your credit might see a different middle score than you expect. If you’re considering a second no-overlay lender, ask each one if they’ll quote you based on the AUS result before you commit. Also, make sure they’ll pull your credit again on the same day, so the inquiries don’t stack up against you.

Is your DTI the tight part, or is that comfortable?

[Gustan Cho]

Potential Financing Strategy for the $2.1 Million Purchase

We are going to review several possible ways to structure the financing for the $2.1 million home purchase. One of the strongest possibilities may be to qualify the husband on the mortgage by himself, using his W-2 income as CFO of a technology company, income from his investment properties if it qualifies, and potentially asset depletion if he has sufficient eligible liquid assets.

The husband earns approximately $315,000 per year in W-2 income, which equals roughly $26,250 per month before taxes. That provides a solid income foundation. However, with a home purchase at this price point, we need to carefully analyze the full proposed housing payment, including principal and interest, real estate taxes, homeowner’s insurance, HOA dues if applicable, and any other housing-related expenses. We also need to factor in all existing liabilities and mortgage payments tied to the current residence and investment properties.

One potential advantage of keeping the wife off the mortgage loan is that it may help avoid complications arising from the recent dental practice acquisition. Although she has historically earned W-2 income as a dentist, underwriting may treat her income differently now that she owns or is acquiring a dental practice. A recently acquired business can create additional documentation requirements, and the lender may need to review business income, business liabilities, the acquisition financing, operating expenses, and the practice’s current profitability. If the practice has not yet developed a longer history under her ownership, leaving her off the initial loan may create a cleaner and stronger approval profile.

That does not mean we should ignore her income or the business. We should fully document her prior W-2 earnings, current income, ownership structure, dental-practice financials, business debt, and expected income going forward. Once we review the complete financial picture, we can compare whether the stronger option is a husband-only loan or a joint application. It is possible that her income may help; however, the business debt, the new ownership transition, or early business financials could reduce the overall qualifying strength of the application.

The goal would be to structure the purchase in the strongest possible way today and then consider refinancing in the future once the dental practice has a longer, well-documented operating history. If the couple purchases the home now using a husband-only structure, they may be in a better position to refinance in approximately one year, assuming the wife has sufficient documented income from the practice, their credit scores improve, the property appraises favorably, and interest rates are lower than. This future refinance should be treated as a possible improvement strategy rather than something the initial approval depends upon.

Husband’s W-2 Income

To properly evaluate the husband-only option, we need his most recent 2 years of W-2s, the most recent 30 days of pay stubs, and his most recent 2 years of complete federal personal tax returns with all schedules. We also need to know whether he receives any annual bonus, commissions, stock compensation, restricted stock units, deferred compensation, profit-sharing, or other income in addition to his base salary.

If he has a variable income, we will need documentation showing the history of receiving that income and evidence that it is likely to continue. A base W-2 salary of $315,000 is a strong start, but documented bonus income, stock compensation, or other recurring earnings could potentially improve his qualifying income if they meet the lender’s requirements.

We will also need confirmation of whether the husband has any personal debts not already reflected on credit, such as business guarantees, private notes, alimony, child support, student loans, margin loans, loans against retirement accounts, or unsecured lines of credit. At this loan amount, even smaller recurring monthly obligations can impact debt-to-income ratios.

Investment Properties and Rental Income

The husband’s three investment properties could be very helpful if they produce positive qualifying rental income. However, we cannot simply use the gross rent collected from each property. We need to determine the actual qualifying result after accounting for each property’s mortgage payment, taxes, insurance, HOA dues, and any other mandatory expenses.

For each investment property, please provide the property address, ownership percentage, current mortgage statement, mortgage balance, monthly principal and interest payment, property-tax amount, homeowner’s insurance, HOA dues if applicable, and any second mortgage or HELOC. We also need the current lease agreement, the actual monthly rent collected, and evidence of rent deposits when available.

We will also need the husband’s most recent two years of tax returns, including all Schedule E pages, depreciation schedules, and any K-1s. The tax returns are important because lenders often review the reported rental history, depreciation, expenses, and net income or loss from each property. A property that appears profitable based on rent collected can still show a tax-return loss after expenses and depreciation. Conversely, depreciation may sometimes be added back in an underwriting analysis, depending on the loan program and the documentation available.

Each property will need to be evaluated individually. If a property has positive net rental income, it may increase the husband’s qualifying income. If it breaks even, it may simply offset its own housing payment. If it has a monthly loss, that loss could reduce the husband’s qualifying income and potentially hurt the loan approval. Rental-income eligibility and documentation must meet the applicable program requirements, and lenders will generally evaluate stability, ownership history, lease documentation, tax returns, and the full monthly housing expense for each rental property.

We should also identify whether these properties are solely owned by the husband, jointly owned by both spouses, owned through an LLC, or held in another type of entity. Ownership structure can affect how rental income, expenses, assets, and liabilities are calculated for underwriting purposes.

Assets and Asset Depletion

Asset depletion may be another important tool for this transaction if the husband has significant liquid assets after the down payment, closing costs, prepaid expenses, and required reserves are deducted. Asset depletion allows certain loan programs to convert eligible assets into a calculated monthly qualifying income amount.

We need to see the most recent 2 months of statements for all checking, savings, money market, brokerage, retirement, stock, trust, and other investment accounts. The statements must show account ownership, current balances, transaction history, and enough identifying information for underwriting review.

Please identify which accounts are owned solely by the husband, solely by the wife, or jointly by both spouses. This is especially important if the husband will be the only borrower. Some loan programs have restrictions on using jointly owned assets for asset depletion when one owner is not a borrower. For example, Fannie Mae’s employment-related asset-income option is limited and generally requires joint account owners to be borrowers; it also includes age and employment-related asset restrictions. Other jumbo, portfolio, or non-QM programs may have broader asset-depletion options, but eligibility varies by lender, investor, loan-to-value ratio, reserves, and the type of assets held.

The investment properties themselves do not typically count as asset-depletion assets simply because they have equity. Real estate equity may help only if it is converted into acceptable, documented, liquid funds through a sale or another financing strategy. Any such strategy must be reviewed carefully because it may create new debt, reduce cash flow, affect qualifying income, or introduce timing complications.

We also need to know whether any assets are restricted, pledged as collateral, subject to a margin loan, recently transferred, or coming from a business distribution. Any large deposits, stock sales, transfers, gift funds, or new accounts will need a clear paper trail.

Wife’s Income and Dental Practice

We should request the wife’s two most recent years of W-2s, her most recent pay stubs if she is still receiving W-2 income, and her most recent two years of personal federal tax returns. We also need complete information on the dental practice acquisition and current operations.

Please provide the practice purchase agreement, settlement statement, business entity documents, ownership percentage, EIN letter, operating agreement, business bank statements, current year-to-date profit-and-loss statement, current balance sheet, and a complete list of business debts. This should include any SBA loans, conventional business loans, seller financing, equipment financing, lease obligations, lines of credit, business credit cards, working capital advances, or personal guarantees.

If available, it would also be helpful to obtain the prior owner’s historical practice financials and tax returns. We want to understand whether the practice has stable recurring revenue, whether it is performing in line with expectations, whether there were meaningful changes after the ownership transition, and whether the wife’s current income can be documented in a manner acceptable to the lender.

We should also request a letter from the wife’s CPA describing the practice acquisition, the ownership transition, the business’s current performance, expected recurring income, material add-backs, and any nonrecurring expenses that may have affected current-year profitability. A CPA letter does not replace underwriting documentation, but it can help clarify the story behind the financial statements.

The wife’s prior W-2 history as a dentist may support the overall explanation of her earning capacity and professional background. However, if she is no longer a W-2 employee and is now self-employed through practice ownership, the lender may require a more detailed review of the business and may not automatically use her prior W-2 income as ongoing qualifying income. That is why it is important to build a complete file and compare the husband-only option against a joint-borrower structure.

Current Home Sale and Equity

The purchase contract contains a contingency requiring the current home to be sold. This means the sale of the existing residence is a critical part of the overall transaction. We need to know the current mortgage balance, any second mortgage or HELOC balance, estimated market value, expected sales price, anticipated closing costs, Realtor commissions, repairs, seller concessions, and the expected net proceeds after all obligations are paid.

The estimated equity figure needs immediate clarification. The reference to “$80,0000” may mean $80,000 or $800,000, and the difference is extremely important. If the current home generates approximately $800,000 in net proceeds, that could materially increase the down payment, reduce the loan amount, strengthen the reserve position, and potentially improve loan terms. If the net proceeds are closer to $80,000, the structure may need additional support from other liquid assets, rental income, or a different down payment strategy.

Please provide the current mortgage statement, HELOC statement if applicable, estimated payoff figures, property-tax bill, insurance declaration page, and any existing listing agreement, purchase offer, or executed contract related to the sale. We will also need a realistic estimated net-proceeds worksheet from the Realtor or title company.

Until the current property is sold, the existing housing payment may need to be considered in the underwriting analysis. The sale contingency and timing of the current home sale could therefore affect the debt-to-income calculation, required reserves, and closing schedule.

Subject Property Documentation

For the proposed $2.1 million purchase, please provide the fully executed purchase contract and all addenda. We need to review the agreed sales price, planned down payment, earnest money, seller concessions, financing contingency, home-sale contingency, appraisal contingency, closing date, and all related deadlines.

We also need the listing sheet, property tax information, homeowners’ insurance estimate, HOA or condominium dues, if applicable, and details of any special assessments. At this price point, property taxes and insurance can have a major impact on the total monthly payment, so we should use actual or highly reliable estimates rather than broad assumptions.

We also need a clear explanation of the source of funds for the down payment, closing costs, and reserves. Every dollar should be accounted for through bank or brokerage statements, sale proceeds, documented transfers, gifts, if applicable, or other acceptable sources.

Recommended Next Step : The immediate approach is to build the husband-only scenario first. We will begin with his $315,000 W-2 income, analyze all real estate obligations and rental properties, determine whether the rentals generate usable net qualifying income, and identify the amount of eligible liquid assets remaining after the down payment, closing costs, and reserve requirements.

At the same time, we should collect the wife’s W-2 history and the dental-practice documentation. This allows us to compare the husband-only option with a joint application and determine whether including her makes the file stronger or weaker.

The strongest possible initial structure may be a husband-only mortgage using his stable W-2 income, documented rental income from the investment properties, and qualified asset depletion from eligible liquid assets. The wife’s dental-practice income can then be evaluated as either a potential addition to the initial loan or as part of a longer-term refinance strategy after the business has developed a more established ownership history.

Once the income, asset, property, and business documentation is complete, we can identify the most workable structure and determine whether the purchase is best supported by a jumbo conventional loan, portfolio loan, asset-depletion program, non-QM option, larger down payment, lower loan amount, or a combination of strategies.

[Gustan Cho]

Introduction and Purpose

The letter should begin with the borrower’s name, loan number if applicable, and the property address. Include a brief opening statement indicating that this letter explains the four late payments that occurred within the past 12 months.

Chronological Explanation of Events

The body of the letter must map each late payment to a specific military or life event in chronological order. For the first late payment, explain that it occurred during a Permanent Change of Station move from one base to another, and reference the specific dates involved. For the second late payment, describe how it coincided with the spouse’s unemployment period that resulted from the mandatory relocation. The third late payment should be connected to the maternity leave period following the birth of the child. The fourth late payment should be tied to any remaining transition difficulties during this period. Each event should reference specific months and explain how the sequence of military orders, spousal job loss, and family medical leave created a compressed timeframe of financial strain.

Explanation of Causation

For each late payment, the letter should explain three elements. First, describe the triggering event, such as receiving PCS orders to a new base and the 30-day transition period that followed. Second, explain the financial impact by noting when the husband’s employment ended due to the relocation and the specific income gap that resulted during that timeframe. Third, clarify why the specific payment was missed by stating that, despite prioritizing housing and vehicle expenses, the credit card or auto loan payment was delayed due to cash flow timing issues during the move.

Resolution and Current Status

The letter should state when and how each account was brought current. Confirm that all accounts now show current or paid as agreed status. Include a clear statement that all accounts have been current since a specific date with no further delinquencies occurring.

Mitigating Factors Specific to Military Service

The letter should explicitly address factors that VA underwriters view favorably. State that these late payments occurred solely during periods of military-mandated relocation. Emphasize that despite temporary disruptions, military income has remained consistent at sixteen thousand dollars per month for the duration of service. Note that the Basic Allowance for Housing covers a substantial portion of the proposed mortgage payment. Clarify that prior to these twelve months, credit history reflects multiple years of consistent on-time payments, demonstrating that this was an isolated event rather than a pattern of financial irresponsibility.

Future Risk Mitigation

Address how this situation will not recur by stating that the husband secured employment at the new location on a specific date, thereby adding additional income to the household. Mention that automatic payments have been established for all accounts to prevent future oversights. Note that an emergency reserve fund has been established covering three to six months of expenses.

Required Supporting Documentation

The letter must be accompanied by several key documents. Military PCS orders must show the exact dates of relocation. Leave and Earnings Statements for the past twelve months must demonstrate consistent income throughout the period. A letter from the commanding officer verifying deployment or PCS dates and circumstances is strongly recommended. Documentation of spousal unemployment should include a termination letter citing relocation as the reason, if available. Maternity documentation may include the birth certificate or relevant medical records. Current account statements must show all accounts now in good standing. Bank statements should verify liquid reserves remaining available after closing.

VA-Specific Underwriter Considerations

The submission should highlight that the borrower likely exceeds residual income requirements by a significant margin, given the $16,000 monthly gross income. Since the six hundred five credit score is below the six hundred twenty threshold that many lenders prefer, the submission must emphasize strong compensating factors. These include a low debt-to-income ratio, which should be calculated and highlighted, significant liquid reserves, and the stability of military service income, which is essentially guaranteed employment. The combination of military PCS orders, spousal unemployment, and maternity leave constitutes classic extenuating circumstances under VA guidelines. The file will likely require manual underwriting due to the credit score below six hundred twenty and the multiple late payments, but the service-connected nature of the credit issues should support approval.

Tone and Format Recommendations

The letter should be limited to one or two pages maximum. The tone should remain factual rather than emotional, avoiding defensive language. It should be written in the first person by the borrower rather than the loan officer. Specific details should include exact dates, dollar amounts, and account numbers, limited to the last 4 digits. The borrower must sign and date the letter.

Additional Submission Notes

When submitting to underwriting, include a brief cover memo highlighting that this is an active-duty service member with credit issues directly attributable to PCS relocation and family transition, with high residual income and compensating factors present. Calculate the debt-to-income ratio to show that with sixteen thousand dollars in monthly income and a five hundred twenty thousand dollar purchase price, the housing ratio is approximately twenty percent, which is excellent. Emphasize that although the 605 score is low, VA loans do not have a minimum score requirement, and the compensating factors should carry the file. Ensure the letter of explanation is dated within thirty days of submission to meet timing requirements for the October fifteenth closing date.

[Gustan Cho]

Hi,Thank you for reaching out and for providing a good overview of the scenario.
Yes, I believe this is worth reviewing. I would not rule out the transaction simply because your credit score is around 610 or because your wife purchased the dental practice less than 12 months ago. However, at approximately $2.1 million with 20%+ down, we need to evaluate the entire file before determining which jumbo or non-QM program, if any, is the best fit.
The biggest item we need to address is your wife’s income.
Recently Acquired Dental Practice
The practice being acquired on January 23, 2026 does not necessarily mean we have to stop the analysis because there are not yet 12 months of business bank statements or tax returns under her ownership.
What matters is whether we can document a stable, supportable income stream and find a program whose guidelines accommodate the shorter ownership period.
There are several positive facts worth evaluating:
– Your wife is a dentist operating in the same profession.- She purchased an established practice rather than starting a brand-new business from scratch.- The practice reportedly has approximately a 50-year operating history.- The former owner remains involved with the practice.- Current business performance is reportedly stronger than prior years.- You have strong W-2 income.- You are planning at least 20% down on a primary residence.
Those factors do not guarantee approval, but they give us something substantive to work with.
What We Would Need for a Feasibility Review
Before ordering an appraisal or spending unnecessary money, I would want our team to review the income, credit, assets, and structure of the transaction.
Please be prepared to provide:
– Most recent personal and business bank statements- Your recent W-2s and paystubs- Documentation covering the dental practice acquisition- Year-to-date profit-and-loss statement for the practice- Balance sheet, if available- Historical financial information for the practice from before the acquisition, if available- Documentation showing your wife’s history as a dentist and prior employment/income- Current mortgage credit report- Purchase contract, if already executed- Documentation of funds available for down payment, closing costs, and reserves- Information on existing personal and business debts
Depending on what the documents show, we can investigate jumbo, non-QM, bank-statement, P&L, or other alternative-documentation programs rather than trying to force the loan into a program that does not fit the circumstances.
The 610 Credit Score Needs to Be Reviewed Carefully
At this loan size, a 610 score will reduce the number of available options and could affect the required down payment, reserves, pricing, and maximum loan amount.
That does not automatically mean the transaction cannot be done. We need to determine what is driving the score and review the complete credit profile rather than focusing exclusively on the number.
With a purchase of approximately $2.1 million, the combination of credit, documented income, liquidity, reserves, and the new ownership of the dental practice will determine which programs are realistically available.
30–45 Day Closing
A 30–45 day closing may be possible, but I would not promise that timeline until we complete the initial feasibility review and identify the appropriate program.
With an unusual jumbo/non-QM scenario, I would rather determine the correct loan structure upfront than rush the file into the wrong program and discover an eligibility problem after appraisal or underwriting.
Send us the basic documentation first, and we can determine whether there is a workable path before you make unnecessary commitments or incur additional costs.
This is exactly the type of mortgage scenario where looking beyond the credit score and standard underwriting box can make a difference.
Thank you for posting your scenario on the GCA Mortgage Forums.

• This reply was modified 1 week, 6 days ago by  Sapna Sharma.