The United States Department of Veterans Affairs (VA) has been helping potential home buyers into homes for decades. VA home loan bad credit packages are more available than you think. Here are six things that you need to know about qualifying for a VA loan.
1. What is my median credit score?
Borrowers who do business with the VA have a median score of around 620. Even with late payments, missed payments, and defaults, you can maintain a score of 620. This is not a hard and fast rule, so the 620 is not a hard floor, but you should try to maintain this score for your best chance at acceptance.
If you challenge items on your credit report, it is usually quite easy to get your score to this level, so the credit score should be much less of a concern than it is for most people. Keep in mind that mortgage lenders will be looking at a slightly different score than you are looking at, but the common score affects the mortgage credit score in a very substantial way.
2. Do I have any outstanding collections?
If you have current collections on your record, you should take care of them first. One of the easiest improvements that you can make on your financial record is to get rid of these immediate collections. In theory, banks and the VA will view your records in a positive light if you are paying your bills on time even if you have a few too many lines of credit out.
Even if you will be charged fees to convert outstanding collections, paying those fees will certainly pay off if you can get a VA loan and save thousands in fees and on the down payment. Also, late payments are not considered a cause for automatic denial as long as you are on a payment plan. The VA also makes considerations for special cases.
3. Do I have a stable income?
The income that you make does not have to be high; you can get a VA loan on a part time job. What is more important is the consistency of this income. The mortgage comes at the same time every month, and the VA just wants to know that you can handle paying it when it comes.
The size of your income does not matter as much as the consistency:Â If you do not save, then having a larger amount of money in January does not matter for the February mortgage payment. If you are self employed, it is very important that you separate your business from your personal expenses and pay yourself in a consistent way from your business.
Stable income is defined as consistent income over 24 months. Make sure that you can prove your income through pay stubs or bank statements.
4. Do I have any judgments?
Judgments are one of the few things that can stop a VA loan in its tracks; fortunately, most people are not in this situation! It is also usually easier than you think to get rid of a judgment as long as you focus your financial resources on that judgment.
Even if you are in Chapter 13 bankruptcy, you can still get a VA loan if you are enrolled in a Consumer Credit Counseling program. A Chapter 7 bankruptcy does not affect your ability to get a VA loan if at least two years have passed since the forgiveness or discharge of the bankruptcy. No bankruptcy counts if it was discharged because you have an unexpected emergency such as a medical problem that is not covered by your insurance.
Self employment bankruptcy is also forgiven as long as you have some other form of employment.
5. Do I have multiple inquiries on my credit?
Having too many inquiries on your credit can be a problem, and most people think that this stops them from conducting day to day business. However, the credit reporting agencies have a contingency that views many inquiries as a single inquiry if they were made for the same purpose within a short amount of time.
You will usually create a credit inquiry if you are trying to open a new line of credit or buy a large asset such as a car, and the easy way to stop these inquiries is to stop buying large assets and taking out additional lines of credit!
6. Are there any overdraft fees on my checking and savings accounts?
In order to show financial consistency and responsibility, VA lenders may also check to see if there are any overdraft fees on your checking or savings accounts. These fees will give you the best ROI of your life if you simply pay them. Once you have done this fairly simple task, you should have a clear path to a VA loan that will help to put you in the house of your dreams.
2 Point Highlight
The size of your income does not matter as much as the consistency: If you do not save, then having a larger amount of money in January does not matter for the February mortgage payment.
You will usually create a credit inquiry if you are trying to open a new line of credit or buy a large asset such as a car, and the easy way to stop these inquiries is to stop buying large assets and taking out additional lines of credit!
