Contrary to popular belief, VA loans for those with bad credit are actually easy to qualify for if 1) you have no outstanding collections, 2) no outstanding judgements, 3) stable income, 4) a median credit score of 620 or higher. This is because VA loans were designed to be a benefit to the borrower.
The “easy” part of the design is to make the loan accessible to borrowers with less than perfect credit.
One of the main purposes of the program was to cut the common hassles of obtaining a home loan such as good credit, down-payment, closing costs, etc.
Many veterans who have spent time overseas lack positive credit. Others lacked the funds for a down-payment. To change this, the government found that one of the best way to assist veterans after their completed service was to help them get a farm or a home.
A few changes have occurred over the years, including an increase in the amount veterans may borrow and the ability for active duty to apply to get a VA home loan.
The maximum $0 down loan limit currently varies between $417,000 to over $625,000 depending on what county you plan to buy in.
The VA Loan Program gives lenders the assurance that the loan will be paid for and gives veterans the support needed to obtain a house.
The credit needed to obtain VA loans is determined by a few key factors. The most important of those are satisfactory payment history, and present and/or anticipated income. This means that your income needs to be stable and enough to cover all current bills, give you enough disposable income to meet the VA standards for cost of living plus the additional VA loan mortgage payment.
Stable income is equivalent to 24 months of consistent employment. If the time of employment is less than this, the underwriter will have to evaluate the probability of your future employment. In most areas, the FICO Credit Score must be a least 620.
However, there are VA loans for some borrowers who have no credit score or even a score less than 620. If you are without credit, qualification is determined based on past payment history of rent, car insurance and other regular monthly expenses.
To be deemed a borrower with satisfactory credit a number of factors will be analyzed. Over the past year, you may not have made any late payments. If there are any unpaid or untimely debts, your credit may be deemed unsatisfactory.
Late payments however, will not result in an automatic denial. If you have a special circumstance, this rule can be forgiven. If you have any open collection accounts you may still be considered eligible, as long as there is a timely payment plan in place. If you are participating in a Consumer Credit Counseling program or are in a Chapter 13 bankruptcy, in lieu of negative credit ratings, this actually can be a positive factor. The important thing is that you are currently on a regular, consistent payment schedule, and those payments are being made on time.
In regards to a Chapter 7 bankruptcy, if it has been over two years since the bankruptcy was discharged or forgiven, the bankruptcy will not play a factor in determining satisfactory credit.
As mentioned before, a Chapter 13 does not have to be discharged, and you may still qualify even in Chapter 13 bankruptcy, as long as you repaying your debt as agreed.
Also, it will not count against you if you filed bankruptcy due to circumstances out of your control (such as a medical issue not covered by insurance).
Lastly, it’s not a negative factor if bankruptcy was filed due to a failed self-employed business venture if the borrower has regained employment, and there is no derogatory credit information since then or prior to self-employment.
Finally, to ensure acceptable credit, you can’t have too many inquiries on your credit report. In doing so, the credit rating drops dramatically. In addition to the low score, multiple credit inquires can look like new credit lines and this can affect your ability to repay the debt. Because of this, multiple credit inquires can cause delays in your loan approval.
The last thing you need to know to get a VA loan, you need to be sure there aren’t any savings or checking overdraft fees. If you are a veteran in the market for buying a house, take the time to fill out a VA loan application or call 888-573-4496 to get assistance. The VA home loan centers are here to help you learn all you want to know about the VA loan process.