You are a veteran and you want a VA refinance or a VA mortgage loan. You would also like some advice on how to qualify. Let’s start with good credit. There are few things more important for home buyers than having good credit. You need to know your credit rating. If your credit rating is weak you need to know how to strengthen it. You can make decisions now that will begin to increase your credit score and bring you close to qualifying for that VA loan.
Your financial history and borrowing reputation are the primary deciding factors for a VA lender in determining your interest rate and credit risk. If you don’t have a good credit history and score, your VA lender can deny a loan outright, give you a higher VA loan rate or heavily reduce your borrowing amount. If you think you have bad or weak credit, there are a few things you can do now to fix it:
- Get a credit report. US law requires the three main credit reporting companies (Equifax, Experian, and TransUnion) to provide US citizens with one free annual credit report. Go to the credit report website (https://www.annualcreditreport.com) or print out a form through the Federal Trade Commission’s website to obtain your free copies electronically. Otherwise, call toll-free at 877-322-8228, or send a request to: Annual Credit Report Request Service P.O. Box 105281 Atlanta, GA 30348-5281.
- Investigate and correct any mistakes on your report. If you discover a mistake on your report, contact the consumer bureau and creditor immediately. Once you have proved a mistake, it is required to be corrected within 30 days.
- Manage your Debts. If current debt is pulling down your credit score, ACT! Initiate a plan to pay your debt down. Talk to your creditors and agree on a reasonable payment plan that is acceptable to all parties. Make your payments as agreed and watch your credit score rise.
- You may need professional help from trained debt specialists. Look for a nonprofit group that has a good reputation. Don’t go for a business proposition that promises a quick fix for a steep prepaid fee. Look carefully into your agreement with a company so you are not surprised by any hidden fees, costs, or other clauses that can hinder your financial recovery.
- Avoid bankruptcy if at all possible. Bankruptcy filing is a serious blow to your credit score and to institutions being willing to lend you money for any reason, especially banks or other lending institutions being willing to take the risk of financing you into a home.
If You Have Had a Bankruptcy
First of all, in this economy, loan officers are asking for detailed information about your financial history. So don’t take it personally. Underwriters want proof in their files so that can substantiate their decision if they are ever questioned.
If you have had a bankruptcy, here are four things you can do to recover and qualify for a VA mortgage loan:
- Your VA mortgage lender wants to see proof that you have been paying your creditors on time since the bankruptcy discharge.
- If you are serious about repairing your credit, start small. Get a gas credit care or Walmart credit card, then charge on it and pay it off promptly. The next step in the process is to apply for small secured loans. Don’t pay everything off at one time, but send more than the required payment. If you follow this method you will see a dramatic rise in your credit score over the course of several months.
- Avoid non-sufficient funds (NSF) reports on your credit. VA Loan officers will generally allow one NSF, but if they see many or random NSFs throughout your credit report, they will assume you do not manage your money well and that you are a poor credit risk. (If you can’t pay your small bills on time and are bouncing checks on those accounts, how will you make a house payment on time?)
- Most veteran mortgage loan officers will have in place a minimum credit score requirement to issue a loan. Therefore, paying attention to your credit score, repairing poor credit, establishing good credit, are all important as you work to reestablish your financial reputation.
What the VA Says to Lenders About Bankruptcy
You may find the following VA loan information to lending institutions helpful to you if you have had a bankruptcy. These points are summarized from the VA’s website concerning bankruptcy:
- A bankruptcy in your (or your spouse’s) credit history does not in itself disqualify the loan.
- What are the facts and circumstances of the bankruptcy? Consider the reasons for the bankruptcy and the type of bankruptcy filing.
- You may disregard a bankruptcy discharged more than 2 years ago.
- If the bankruptcy was discharged within the last 1 to 2 years, it is probably not possible to determine that the applicant or spouse is a satisfactory credit risk unless both of the following requirements are met:
- the applicant or spouse has obtained consumer items on credit subsequent to the bankruptcy and has satisfactorily made the payments over a continued period, and
- the bankruptcy was caused by circumstances beyond the control of the applicant or spouse such as unemployment, prolonged strikes, medical bills not covered by insurance, and so on, and the circumstances are verified. Divorce is not generally viewed as beyond the control of the borrower and/or spouse
You can make a big impact on your credit history in a relatively short time. It begins by making some simple commitments and decisions that will establish, improve, or restore your good credit. If you have questions about qualifying for a VA mortgage loan (whatever your history), contact us at Low VA Rates.