It might seem that getting a VA home loan with bad credit is easy when a military veteran wants to buy a new home. But there are some aspects to these loans that need to be taken into account. Not least is the fact that there is criteria that need to be met.
As part of the 1944 Serviceman's Readjustment Act (also known as the GI Bill), war veterans can qualify for bad credit home loans guaranteed by the VA and purchase their own homes. All that is needed from them is a minimal down payment, and a commitment to repaying the loan on schedule - just like with any loan.
For that reason, getting VA home loan approval despite bad credit is easy if the applicant can tick all of the right boxes.
Seeking a loan, not just a VA home loan, with bad credit can be a challenge, with many traditional lenders preferring to stay clear of the perceived risks involved. But the significant aspect of VA loans is that they are partly guaranteed.
As a result, the pressure on the borrower to meet to the expectations of lenders is lessened. A bad credit home loan guaranteed by the VA basically means that the need to come up with a large down payment is removed, while the interest rate is lowered to reflect the security that such a guarantee provides.
However, the guarantee only covers 25% of the value of the home, so funds are limited. Getting VA home loan approval despite bad credit might be easier, but it does not provide enough to buy a large mansion. They are, after all, designed to help war veterans get back on their feet by having a home of their own.
It is important to understand that simply having been in the military is no guarantee that a VA home loan, with bad credit a factor or not, will be secured. This is why properly preparing your application is important.
The most pressing matter is the bad credit rating. This rating can be drastically improved by taking out a series of small short-term loans, and repaying them promptly, thus increasing the score. Even the terms of a bad credit home loan guaranteed by the VA can be improved if the credit score is higher.
Another choice is to take out a consolidating loan to take control of the various sources of debt. Lenders see this as a proactive move to handle existing debt, and so are more comfortable granting VA home loan approval despite bad credit.
The Qualifications Required
Of course, like any loan, in order to qualify for a VA home loan with bad credit, it is necessary to satisfy some criteria. The basic set to meet relates to identification, confirmation of military rank, age and even citizenship. But there are other pieces of information needed too.
First of all, there needs to be no history of defaulting on loans for a period of 12 months prior to making the application. Even with a bad credit home loan guaranteed by the VA, lenders need to be sure who they are lending money to.
Secondly, for two years prior to the application the applicant cannot have had a bankruptcy case filed. Bankruptcies are serious matters, so even if one was files 5 years prior, lenders will take interest in them. But they are deemed to be too recent if filed within a period of two years.
Finally, to get VA home loan approval despite bad credit it is necessary for an applicant to prove they are fully employed, with a reliable income. Like any other home loan, repayments can stretch over decades, so financial security is needed.