Mortgagerateslocal.com – If you’re a veteran or a service member who wants to buy a home, you may have heard of the VA home loan program. This program offers many benefits, such as no down payment, no mortgage insurance, lower interest rates, and easier qualifications. But what if you have poor credit? Can you still get a VA home loan with poor credit?
The answer is yes, you can. The VA does not have a minimum credit score requirement for VA home loans. However, the lenders who issue these loans do have their own credit standards.
Tthey may vary depending on the type and amount of the loan. So, having poor credit does not automatically disqualify you from getting a VA home loan, but it may make it harder or more expensive.
In this article, we’ll explain how to get a VA home loan with poor credit, what factors affect your eligibility and interest rate, and what steps you can take to improve your credit and financial situation. We’ll also answer some frequently asked questions about VA home loans and poor credit.
What is a VA home loan?
A VA home loan is a mortgage loan that is guaranteed by the Department of Veterans Affairs (VA). This means that if you default on your loan, the VA will pay a portion of the loss to the lender, reducing the risk for the lender and allowing them to offer more favorable terms to eligible borrowers.
VA home loans are available to veterans, service members, and some surviving spouses who meet certain service and discharge requirements. You can use a VA home loan to buy, build, improve, or refinance a home for your own personal occupancy. You can also use a VA home loan to buy a manufactured home or a lot.
To get a VA home loan, you need to obtain a Certificate of Eligibility (COE) from the VA, which proves that you are eligible for the program. You also need to find a VA-approved lender who can issue the loan and verify your income, assets, debts, and credit history.
How does poor credit affect your VA home loan eligibility and interest rate?
The VA does not set a minimum credit score for VA home loans, but the lenders who issue these loans do. Each lender has its own credit criteria and underwriting guidelines, and they may vary depending on the type and amount of the loan, the market conditions, and the borrower’s profile.
Generally speaking, the higher your credit score, the easier it is to qualify for a VA home loan and the lower your interest rate will be. A higher credit score indicates that you have a good track record of paying your bills on time and managing your debt responsibly, which makes you a less risky borrower in the eyes of the lender.
A lower credit score, on the other hand, indicates that you have had some financial difficulties or mistakes in the past, such as late payments, collections, bankruptcy, foreclosure, or repossession. These negative items can stay on your credit report for up to seven or 10 years, depending on the type of the item and the state laws. A lower credit score makes you a more risky borrower in the eyes of the lender, and they may charge you a higher interest rate or impose stricter requirements to approve your loan.
According to the VA, the average credit score of VA home loan borrowers in fiscal year 2020 was 708, which is considered good by most credit scoring models. However, this does not mean that you need a credit score of 708 or higher to get a VA home loan.
Some lenders may accept credit scores as low as 580 or even 500, depending on the loan type and other factors. Some lenders may also offer manual underwriting, which means that they will review your loan application on a case-by-case basis and consider other factors besides your credit score, such as your income, employment, savings, and payment history.
The bottom line is that having poor credit does not automatically disqualify you from getting a VA home loan, but it may limit your options and increase your costs. Therefore, it’s important to shop around and compare different lenders and loan programs to find the best deal for your situation.
How to improve your VA home loan poor credit score
If you have poor credit and want to get a VA home loan, there are some steps you can take to improve your credit and financial situation. Here are some tips to help you:
Check your credit report and score
You can get a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once every 12 months through AnnualCreditReport.com. You can also get a free credit score from some websites, such as Credit Karma or Credit Sesame.
Review your credit report and score carefully and look for any errors or inaccuracies that may be hurting your score. If you find any, dispute them with the credit bureau and the creditor and get them corrected as soon as possible.
Pay your bills on time
Your payment history is the most important factor in your credit score, accounting for about 35% of it. Paying your bills on time and in full every month shows that you are responsible and reliable with your finances, which boosts your credit score and your chances of getting approved for a VA home loan. If you have trouble remembering or managing your payments, you can set up automatic payments or reminders to avoid missing any due dates.
Pay down your debt
Your debt-to-income ratio (DTI) is another important factor in your credit score and your VA home loan eligibility. Your DTI is the percentage of your monthly income that goes toward paying your debt obligations, such as your mortgage, car loan, student loan, credit card, or personal loan. The lower your DTI, the better your credit score and your ability to afford a VA home loan. The VA does not have a specific DTI limit for VA home loans, but most lenders prefer a DTI of 41% or lower. To lower your DTI, you can pay off some of your debt, especially high-interest debt, or increase your income by getting a raise, a second job, or a side hustle.
Save money for closing costs and reserves
Although VA home loans do not require a down payment, you still need to pay some closing costs, such as the VA funding fee, the appraisal fee, the title fee, and the origination fee. These costs can vary depending on the lender, the loan type, and the property, but they typically range from 1% to 5% of the loan amount.
You can pay these costs out of pocket, roll them into your loan balance, or ask the seller or the lender to pay some or all of them for you. However, paying them out of pocket or getting them paid by the seller or the lender can lower your interest rate and save you money in the long run. Therefore, it’s a good idea to save some money for closing costs before applying for a VA home loan.
Shop around and compare different lenders and loan programs
Not all lenders offer VA home loans, and not all lenders who offer VA home loans have the same credit criteria, interest rates, fees, and services.
Therefore, it’s important to shop around and compare different lenders and loan programs to find the best deal for your situation. You can ask for referrals from your friends, family, or real estate agent, or look for reviews and ratings from other borrowers.
How to apply for a VA home loan with poor credit
If you have poor credit and want to apply for a VA home loan, here are the steps you need to follow:
1. Get your COE
The first step is to get your Certificate of Eligibility (COE) from the VA, which proves that you are eligible for the VA home loan program. You can get your COE online through the [VA eBenefits portal], by mail, or through your lender.
To get your COE, you need to provide proof of your service and discharge status, such as your DD Form 214, your NGB Form 22, or your Statement of Service. You may also need to provide proof of your income, such as your pay stubs, your W-2 forms, or your tax returns.
If you receive VA disability compensation or if you are a surviving spouse of a veteran, you may also need to provide proof of your exemption from the VA funding fee, such as your VA award letter or your death certificate.
2. Find a VA-approved lender
The next step is to find a VA-approved lender who can issue the VA home loan. You can use the [VA Lender Locator tool] to find a list of lenders in your area who participate in the VA home loan program. You can also ask for referrals from your friends, family, or real estate agent, or look for reviews and ratings from other borrowers.
3. Apply for the loan
The final step is to apply for the loan with the lender of your choice. You can apply for the loan online, by phone, or in person, depending on the lender’s preference and availability. To apply for the loan, you need to provide the lender with some information and documents, such as:
- Your personal information, such as your name, address, phone number, email address, and Social Security number.
- Your income information, such as your pay stubs, W-2 forms, tax returns, bank statements, and other proof of income.
- Your debt information, such as your credit card statements, loan statements, alimony or child support payments, and other proof of debt.
- Your asset information, such as your savings, investments, retirement accounts, and other proof of assets.
- Your property information, such as the address, description, and purchase price of the property you want to buy or refinance, or the estimated value of the property you already own.
- Your COE, which proves that you are eligible for the VA home loan program.
- Your consent to a credit check, which allows the lender to access your credit report and score from the credit bureaus.
The lender will review your information and documents and verify your income, assets, debts, and credit history. The lender will also order an appraisal of the property to determine its value and condition. The lender will then evaluate your loan application and decide whether to approve or deny it, or to ask for more information or documents.
4. Close the loan
The last step is to close the loan with the lender and the title company. The closing is the final stage of the loan process, where you sign the loan documents, pay the closing costs, and receive the keys to your new home or the funds to your bank account.
The closing can take place at the lender’s office, the title company’s office, the real estate agent’s office, or your home, depending on the preference and availability of the parties involved. The closing can also be done remotely, electronically, or by mail, depending on the state laws and the lender’s policies.
Conclusion
Getting a VA home loan with poor credit is possible, but it may be challenging and costly. The VA does not have a minimum credit score for VA home loans, but the lenders who issue these loans do. Each lender has its own credit criteria and underwriting guidelines.
They may vary depending on the type and amount of the loan. Having poor credit does not automatically disqualify you from getting a VA home loan, but it may limit your options and increase your costs.
