Monday, May 21, 2012

Va Home Loan With Bad Credit: Facts To Consider

Military veterans face the same financial challenges as the rest of us, especially when it comes to buying a home. But thanks to the Department of Veteran Affairs (the VA), they have been given a clear advantage that can help them buy the property they want, even with a poor credit history. Getting a VA home loan with bad credit is made simple.

Mortgage providers do not grant loans to just anyone, and there are plenty of stringent rules that work against veterans. As former military members, they earned a good but not large income, so the ability to buy a home is limited. Approval despite bad credit might seem unlikely, but through the VA, a mortgage is made much more affordable.

Of course, the VA does not issue mortgages, but simply underwrites them, guaranteeing 25% of the total sum borrowed. That is enough to make the difference necessary, making a VA home loan the mortgage of choice for veterans and their families.

Qualifying for VA Assistance

There is an idea that, when seeking a VA home loan with bad credit, simply being a former member of the armed forces, home guard or coast guard is enough to ensure qualification. But this not actually the case. There are criteria to meet, and rules that need to be adhered to.

For example, applicants will not succeed if they have defaulted on a loan recently, or if they have been ruled bankrupt at any time in the previous two years. The reason is that to gain approval despite bad credit, the lender needs to be satisfied the risk is minimal. And the lenders are not the VA.

However there are conditions to these rules too. With bankruptcy, for example, if it was brought on by circumstances beyond your control, then the wait to qualify is reduced to just one year. And if bankruptcy involved repaying some of the debts, then it is possible to apply for a VA home loan immediately.

The Role of the Credit Score

As with any kind of loan, improving the credit score helps the applicant greatly in securing a VA home loan with bad credit. There are ways to improve the score, with small personal loans useful in clearing individual outstanding debts. However, when bankruptcy was a feature in the past, there are other measures to take.

When confirmation of a bankruptcy discharge is received, it is a good idea to send a copy to the credit rating agencies. With this information, they will adjust the credit score upwards. Gaining approval despite bad credit is made easier when the term of bankruptcy is over.

Restoring the credit rating can also be done by opening up two secured credit card accounts, with modest balances (perhaps 0 each) allowing the borrower a chance to rebuild their credit score. And as the score improves, the chances of getting a bigger VA home loan increases.

Getting Secured Credit Cards

A great advantage with getting secured credit cards before applying for a VA home loan with bad credit is that credit scores can be improved in advance. Online lenders are easy to find on the Internet, and their secured credit cards are highly competitive in their terms.

Of course, the fact that secured credit cards are backed up by a deposit lowers the interest that is charged on them, but they present the opportunity to rebuild the credit reputation of the cardholder too. This improves the chances of getting approval despite bad credit.

But it is also worth remembering that the terms of a VA home loan ensure that the repayments are made more affordable. By guaranteeing 25% of the mortgage borrowed, the risk is 75% of the sum, thereby lowering interest and keeping repayments down. With an improved credit score, the savings can be even greater.

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