Tuesday, June 19, 2012

Can I Get a V.A. Loan Even If I Have Bad Credit

By Sue-Lynn Carty

The U.S. Department of Veterans Affairs (VA) insures VA loans but does not offer the loans. The VA does not require a minimum credit score for its loans. However, private lenders that service the loans use a minimum credit score of their choosing. Because the VA insures these loans, some of the credit restrictions for obtaining a VA loan are more lenient than the credit restrictions for conventional loans.

The VA insures all VA loans if the borrower defaults. This insurance allows for the more lenient credit restrictions than conventional loans, because if borrowers default on their VA loans, the VA pays a percentage of the defaulted loan amount to the lender. When an eligible borrower obtains a VA loan, she must pay a funding fee to contribute to the costs of the VA loan program. The funding fee typically is around 1.5 to 3.3 percent of the loan amount, according to the VA Loan Requirements webpage. The funding fee percentage depends on the down payment and how many VA loans the borrower has.

According to several reports noted on The Credit Scoring Site website, lenders typically consider a combined credit score of 620 as the dividing line between good and poor credit. To obtain a combined score, the lender averages your credit score from the three major credit reporting bureaus, Equifax, Experian and TransUnion. Even though the VA does not require you to have a minimum credit score, it does have specific requirements regarding the debt reporting on your credit report. So, if your credit score is in the poor category, you may still be able to obtain a VA loan if you meet certain criteria.

To have an acceptable credit history with the VA, you must meet the following criteria: no debts written off by the creditor; no repossessions or foreclosures; no rent payments made more than 30 days late in the past three years; no accounts in which payments are more than 30 days late, and no new collection accounts or creditor judgments in the past year. You cannot have any past due or outstanding government debts or state and federal tax liens. It is all right to have government debts and/or tax liens for which you have payment arrangements, as long as the payments are current.

If your credit history has some negative entries, but you meet all of the requirements for acceptable credit history, the VA may require you to provide proof that your financial situation is stable. If your current poor credit history resulted from temporary circumstances, you will have explain those circumstances and how your financial situation has changed for the better when you apply for your VA loan. For example, if you lost your job and have since found a new one or if you had a temporary illness from which you have recovered.


http://www.lenderva.com

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