Can You Obtain A VA Loan With Bad Credit?

va loans bad credit

VA home loan bad credit is a popular subject these days. Contrary to popular belief, bad credit does not hinder veterans from becoming a homeowner. With today’s VA credit guidelines in place, veterans have the golden opportunity to purchase or refinance property.

Here’s a few important things you need to know about applying for a VA loan:

Veterans with Poor Credit are Considered – Fortunately, the VA does not require vets to have stellar credit to get approved for a loan. They will examine your payment history. This helps them determine if you have paid your bills on time.

The VA understands that some things are beyond your control. For example, a health issue can make it difficult for you to pay your bills on time. This is the primary reason why they will give you a chance to explain your credit history. It’s fair to say that VA lenders are more lenient than conventional lenders.

Getting Past a VA Foreclosure – Contrary to popular belief, having a VA foreclosure on record does not automatically disqualify you from getting the loan.

Being Patient During the Two-Year Waiting Period – Did you file for bankruptcy in the past? If so, you may still get approved for the loan from the Veterans Administration. However, you must wait two years before applying for a new loan.

The lender will be interested in seeing your bankruptcy paperwork. Please be prepared to submit your paperwork to the lender.

Flexible Bankruptcy and Credit Counseling Programs – Making timely payments with a credible credit counseling program, or a Chapter 13 bankruptcy plan can put you in position to be considered for a VA loan. The prospective lender expects to see a solid payment history during the last twelve-month period.

The Two-Year Waiting Period and Foreclosure – The two-year period rule also applies to foreclosures. The lender will you to submit your paperwork, so they can verify the discharge date.

Looking at the Whole Picture

Many veterans are gun shy when it comes to applying for a VA loan. They are under the impression that the lender will turn them down if they have derogatory marks on their credit file.

As we stated earlier, you don’t need excellent credit to get approved for a VA loan. The VA will take a close look at the following factors.

Your Payment History

Let’s say you have not been consistent with your credit card payments, but you’ve never been late with your mortgage or rent payments. This may seem strange, but the VA will consider you for a loan.

Your Past 12 Months of Payment History

You may be in the midst of Chapter 13 bankruptcy, or you may have several bad marks on your credit report. However, you should not allow this to discourage you from applying for a VA loan.

The VA will examine your payment history for the last 12 months. If it looks good, you will be considered for the loan.

Your Two-Year Payment History after a Filing for Foreclosure or Bankruptcy

When it comes to bankruptcy and foreclosure, the VA will look at your two-year payment history. If you have one late payment within this period, this could disqualify you from getting the loan. This is why it’s imperative for you to pay your bills on time.

VA Loans for Veterans with Poor Credit

If your credit score is low, the Veterans Administration will not impose restrictions on you. Besides doing a thorough credit check, the lender will review the entire loan package. A healthy income, a solid employment history, and a respectable bank account can offset a low beacon score.

It’s also important to mention that the VA will take your residual income into consideration.

Here’s the lender’s formula for determining your residual income:

The lender will subtract your housing expense, housing debt, and consumer debt from your net earnings.

Your residual income is the total amount of capital you have on hand after covering your living expenses and payments to your creditors.

The residual income plays a key part in bad credit applicants getting approved. Based on recent studies, lenders show more favor to applicants with sizable residual income.

VA Loans for Applicants with Low Beacon Scores:

No Down Payment VA Purchase Loans – Unlike conventional loans, there’s no need for you to have good or perfect credit for this loan program. This is probably why it’s the most popular VA loan today. Thousands of veterans apply for this loan daily.

VA Cash Out Loans – This is the ideal loan for applicants interested in debt consolidation. Getting this loan can help you pay off your credit cards. In return, your credit score will improve.

VA Interest Rate Reduction Loans – If your payments have been on time during the last twelve months, you may be the perfect candidate for this loan. If you have a recent late payment looming over your head, the lender may still give you the nod.

However, your lender will probably send your loan package to the Veterans Administration. The lender may need their approval to move forward.

What makes this loan program attractive? The lender does not need an appraisal, and you will not be asked to submit income documents. With minimum paperwork, you can get a lower monthly payment if you are approved.

Can Poor Credit Stop You From Getting Approved for a VA Loan?

VA home loan bad credit continues to be a popular subject for financial magazines and newsletters. Bad credit can hinder you from getting a conventional loan.

Fortunately, a low credit score will not stop the lender from considering you for a VA loan. However, you should take steps to raise your beacon score before getting in touch with a VA lender.

You can hire a professional credit repair firm. They can get negative remarks removed from your credit file, and your credit score will gradually improve. It’s also critical to point out that your credit score will determine the loan’s interest rate.

Credit is king when it comes to getting loans these days. Luckily, the VA offers viable lending solutions to veterans with bad credit.

Gina Wilson

Another post from Gina Wilson – Credit & Loans Specialist Blogger.

About the Author

Gina Wilson
I am an ex banking professional with over 6 years in credit administration and an avid blogger that writes useful posts to help those that want to navigate today's crazy world of mortgages, property loans and credit.

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