It’s time to bust a few myths about qualifying for a VA loan. There are plenty of misconceptions about qualifying for a VA home mortgage loan, but I have selected three of the most prevalent errors that people make when assuming they won’t qualify for a VA loan.
Myth 1: I can’t afford it.
Current VA interest rates are still among the lowest in half a century. In terms of value and affordability, these days are hard to beat! And VA mortgage loans are among the very best values in the home loan marketplace.
Next of all, a veterans mortgage loan does not require a down payment and, because the government guarantees the loan, you are not required to have home mortgage insurance either. No insurance required and no down payment represent significant reductions to you as you factor in the amount of money you need to get into a home.
The last part of affordability is to plan. You won’t get far without a plan. You will find that setting up a strategy to pay off debt, and putting into motion another strategy to save a little bit of money each paycheck—no matter how modest—will pay huge dividends when it comes to improving your financial situation. Having a plan, and sticking to it, will give you the ability to make progress toward your goal of home ownership.
Myth 2: My FICO score isn’t high enough to qualify.
First of all, let’s get this right: the VA has NO min FICO score requirement, so don’t abandon hope if you have a low FICO score. Each lender has their own overlays or underwriting restrictions that they place over the VA rules. One of the country’s most accomplished veterans mortgage loan companies works with approved lenders that have NO minimum on VA streamlines and others that go down to 580 score.
Here’s more good news. If you get a VA automated underwriting approval from FANNIE (DU or desktop underwriter) or FREDDIE (LP or loan prospector) some lenders will be OK regardless of your FICO since you have a guaranteeable loan.
If your FICO score is under 580, don’t despair. Stay tuned because I’m about to show you some practical things you can do to improve that score immediately.
Myth 3: My financial past has doomed me.
Bad credit serves as a deterrent for lenders. That much is true. Whether it’s an old debt in collection or a bunch of maxed-out cards, mortgage brokers don’t look kindly on low FICO scores. After a rash of loose lending requirements, the mortgage lending industry now expects borrowers to show up with the best credit score possible.
With discipline, patience, and strategic fixes to your finances, most people can quickly bring their FICO score up to an acceptable level. Here’s how:
- Obtain your credit report and make corrections. If there are errors in dates, payment amounts or other information, file a dispute to correct the problem. Also make sure to dispute any old negative collections. Weston writes, “The older and smaller a collection account, the more likely the collection agency won’t bother to verify it when the credit bureau investigates your dispute.”
- Pay off credit card debt. Banks like to see a borrower with no more than 30 percent of her possible credit in use. Any more than that takes a toll on the FICO score. Increase your payments and work to pay off each card. MSN Money says, “While most debt gurus recommend paying off the highest-rate card first, a better strategy here is to pay down the cards that are closest to their limits.”
- Resist consolidating debt onto a single card. It’s usually best to leave older accounts open and have several accounts rather than one larger one. Plus, applying for a clean card to make a balance transfer can ding your FICO score.
- Be very cautious of debt consolidation or debt-relief plans that offer a quick fix. Even though many of these businesses promise to remove bankruptcies, foreclosures and judgments, they often do little to earn the hefty up-front fee they charge. A slow, sure, steady approach is the responsible way to repair past financial mistakes.
- Verify that any default judgments are appropriate and legal. If there’s a judgment from a case that you don’t remember, it’s possible that the summons was purposefully served to an old address to elicit a default judgment against you. Go to the presiding court and file a motion to vacate. This takes a small payment and may require a new court date, but it could potentially knock a credit score-killing judgment from your record.
Don’t allow the past to ruin the future. Take advantage of the present to improve your financial health and open the door to that new VA financed home.