VA loans are easy to qualify for. That is because they were designed with this in mind. Created in 1944 as a thank you for returning service personnel, this loan guarantee is designed to make buying a home easy, affordable, and safe. Part of the design is to make the loan accessible to borrowers with bad credit.
One of the main purposes of the program was to cut the hassle of obtaining a home loan. Many veterans did not have credit due to their time spent overseas or lacked the funds for a down payment. The government found the best way to assist veterans after their completed service was to help veterans get a home loan. A few changes have occurred over the years, including an increase in the amount veterans may borrow and the ability for active duty to apply. The maximum $0 down loan limit varies between $417,000 to over $1,000,000 depending on what county you plan to buy in. The VA Loan Program gives lenders the assurance that the loan will be paid for and gives veterans the support needed to obtain a house.
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The credit needed to obtain VA loans is determined by a few key factors: satisfactory payment history, and present and anticipated income. This means that your income needs to be stable and enough to cover all current bills, give you enough disposable income to meet the VA standards plus the additional mortgage payment. Stable income is equivalent to 24 months of consistent employment. If the time of employment is less than this, the underwriter will have to evaluate the probability of your future employment. In California the FICO Credit Score must be a least 530, for other states it is 620.
If you are without credit, qualification is determined based on past payment history of rent, car insurance and other expenses. To be deemed a borrower with satisfactory credit a number of factors will be analyzed. Over the past year, you may not have made any late payments. If there are any unpaid or untimely debts, your credit will be deemed unsatisfactory. This will not result in a denial, if you have a special circumstance, this rule can be forgiven. If you have any open collection accounts you may still be considered eligible, as long as there is a timely payment plan in place. If you are participating in a Consumer Credit Counseling program or are in a Chapter 13 bankruptcy, in lieu of negative credit ratings, this actually can be a positive factor. The important thing is that you are currently on a regular, consistent payment schedule, and those payments are being made on time.
In regards to a chapter 7 bankruptcy, if it has been over two years since the bankruptcy was discharged or forgiven, the bankruptcy will not play a factor in determining satisfactory credit. As mentioned before, a Chapter 13 does not have to be discharged, and you may still qualify even in Chapter 13 bankruptcy, as long as you repaying your debt as agreed. Also, it will not count against you if you filed bankruptcy due to circumstances out of your control (such as unemployment and medical bills not covered by insurance). Lastly, it's not a negative factor if bankruptcy was filed due to a failed self-employed business venture if the borrower has regained employment, and there is no derogatory credit information since then or prior to self-employment.
Lastly, to ensure acceptable credit, you can't have too many inquiries on your credit report. In doing so, the credit rating drops dramatically. In addition to the low score, multiple credit inquires can look like new credit lines and this can affect your ability to repay the debt. Because of this, multiple credit inquires can cause delays in your loan approval.
The last thing you need to know to get a VA loan, you need to be sure there aren't any savings or checking overdraft fees. If you are a veteran in the market for buying a house, take the time to fill out a VA loan application. The VA home loan centers are here to help.
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