Even though the VA loan is more lenient than conventional mortgage programs, there are still credit requirements in order to be approved for a VA loan. Most banks require a minimum 620 credit score and 12 months mortgage history with no lates.
Types of imperfections on a credit report that may affect the VA loan approval process:
- Late payments
Payment History Factor
Re-payment history is an important factor in getting approved for a VA loan. Your rental and mortgage payment history signify your ability to pay your housing payment and will better qualify you for a VA loan.
If you lack credit history, provide explanations for any of the following:
- If you are a veteran who has been recently discharged and have not been able to establish credit
- Use cash instead of credit on a regular basis for bill paying and purchases
- Veteran has not used credit since reconciliation of bankruptcy and judgments
Bankruptcy does not immediately disqualify a veteran who is applying for a VA loan. If you have had a bankruptcy discharged over 2 years previously to applying for a VA loan it may not be considered. If the bankruptcy discharge was within 1-2 years of applying for a VA loan there are a couple things that are taken into consideration that may still help qualify a veteran:
- If you have obtained credit following the bankruptcy and made satisfactory timely payments
- If reasons for Bankruptcy were above and beyond the control of the veteran-Loss of job, medical bills, divorce, loss of a business etc.
Foreclosure is still another issue that will be a deciding factor in qualifying a veteran for a VA loan. The same rules apply as did with bankruptcy, but if the foreclosure is on a VA loan that may change the amount of entitlement available to be used.
Plan ahead and improve credit
When applying for a VA loan, work in advance to reconcile issues on your credit report by paying collection accounts in full or setting up payment plans with judgments against you.
Here are several things you can do:
- Get a free copy of your credit report in order to review
- Letters from creditors stating balances have been paid in full
- Pay credit card bills down to at least half of what open credit in on card
- Secured credit cards can help re-build credit
Close excess credit cards that are open only keeping necessary and low interest rate credit cards open—to much open credit can hurt you qualify for a VA loan.
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