Why VA Loans Are Great For Credit-Challenged Veterans
President Abraham Lincoln once famously called for fair the treatment of military veterans.
Aside from active duty service, our U.S. military veterans are subjected to a number of unique challenges that be unfamiliar to those with no military experience.
As a veteran, for example, it is not unusual to move frequently. Recurrent moving, which results in frequent address changes over a short period of time, can adversely impact your credit score.1
Fortunately for veterans, the VA is aware of these challenges and offers more relaxed underwriting guidelines.
Credit Requirements for VA Home Loans
Being eligible for a VA home loan doesn’t necessarily guarantee you will be approved for one. You will still need to meet a lender’s underwriting requirements.
In addition to your income, debt and employment, lenders will view your credit as one of the most important factors when qualifying for a VA home loan.
Veterans that make timely payments, especially over the past 12 months, are more likely to repay future credit obligations on time.
The VA does not have credit score requirements. Lenders, however, impose their own minimum credit score criteria.
Most lenders will want to see minimum credit scores between 580-620 before approving a VA loan.
In general, the lower your credit score, the riskier lenders view you as a borrower.
Fortunately, however, unlike conventional mortgage loans, VA loans don’t carry risk-based pricing adjustments. As such, veteran homeowners with low-credit scores may be able to get similar rates to those with higher credit scores.
But what if, as a veteran, you do not have a strong credit history?
According to the VA, the lack of established credit should not be a deterrent to loan approval. A satisfactory payment history on items such as rent, phone bills, utilities, etc. may be used as an alternative means of establishing credit history.
Speak with your lender about different options for establishing non-traditional credit.
Know Your Credit Before Applying for A VA Mortgage
A study by the Federal Trade Commission found that 25 percent of consumers found errors on their credit reports that affected their credit scores.2
As a veteran, you should always check your credit report before applying for a mortgage.
There may be minor discrepancies on your credit report that can be remedied quickly and easily.
All three bureaus allow free copies of your credit report. You can request your free copies online at annualcreditreport.com.
Once you’ve obtained your credit reports, carefully review them for errors. You should immediately address the mistakes by filing disputes with each agency reporting the error.
Boost Your Credit Scores Before Applying for A VA Loan
There may be other ways to increase your credit scores with very little time and effort.
For example, ideally your credit balances will stay at or below 30% of the available limit. But what if you can’t afford to pay down your balances to that key 30 percent mark?
Sometimes a simple phone call to your creditor requesting a higher credit limit can be a quick fix for freeing up your available credit limit.
Another quick and easy way to get a credit score boost is by becoming an authorized user on a friend or relative’s credit card. Just make sure the payment history on their account is satisfactory, as well as their credit utilization.
Get Qualified for a VA Home Loan
VA mortgage loans are one of the best home loans for today’s veterans. Aside from being able to purchase a home with no money down, VA home loans have the unique advantage of not requiring mortgage insurance.
Fortunately, veterans don’t have need perfect credit to obtain VA financing.
Put your well-earned VA eligibility to work. Start shopping for VA mortgage rates today.
1. “How Does Moving Affect Your Credit Score?” Creditreport.com.ConsumerInfo.com, Inc. 20 Jun 2011. Web. 25 Jan 2017.
2. “In FTC Study, Five Percent of Consumers Had Errors on Their Credit Reports That Could Result in Less Favorable Terms for Loans.” ftc.gov. Federal Trade Commission. 11 Feb 2013. Web. 25 Jan 17.
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