VA Loans: Bankable privileges for veterans, even with troubled credit histories

Posted on November 07 By Peter Andrew

You're an eligible veteran, wanting a mortgage, who has had some problems in the past with credit. Just how bad must things be before you stand no chance of getting approved for a VA mortgage? Well, different lenders use different criteria to reach their decisions, but some mortgage brokers place the current cut-off point as a credit score of about 620.

Unfortunately, that's not a fixed number. Your "debt-to-income ratio" (how comfortable you're going to find it making mortgage payments after you've met your liabilities out of your regular income) is also going to play a part, and the tighter that's looking, the better your credit score needs to be.

Improving your chances of approval

If your credit score is within spitting distance of 620, there may be things you can do to bring it up quickly. FICO, the company behind many credit scoring systems, recommends:

  1. Paying down your credit cards as much as you can. Your aim is to bring down your "credit-utilization ratio," which is the proportion of your available credit (your credit limits) that you are actually using (your card balances). Any reduction would be good, but a ratio under 30 percent would be great.
  2. Not making any applications for any credit close to trying for a home loan because this can cause your score to fall, and mortgage lenders hate it.
  3. Checking your credit report carefully, and making sure any genuine errors are corrected. They're more common than you may think.

If your credit score is way short of 620, you may well have no choice but to postpone applying for a VA mortgage until you can raise it. Follow those three rules for a while -- and, even more importantly, be sure to pay every bill on time -- and you might be pleasantly surprised by how quickly you make progress.

Why choose a VA mortgage?

The popularity of VA mortgages is skyrocketing, with 71 percent more purchases and 20 times as many refinances in 2012 than in 2007. On October 26, the Department of Veterans Affairs revealed that it had recently guaranteed its 20 millionth home loan.

When you look at the list of benefits elsewhere on the Department's website, it becomes clear why their popularity is rising. To pick just a few, VA mortgages:

  • Often come without the need for a down payment.
  • Eliminate mortgage insurance premiums.
  • Allow you to prepay without any penalty.
  • Tell you the appraiser's assessment of the home's "reasonable value."
  • Let you buy a home with a much lower credit score than is available to those who have never served.

Wow. Real, bankable privileges for veterans. Who'd have thought?

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