Tuesday, June 19, 2012

How Can I Still Get a VA Mortgage With a Low FICO Score

By Don Rafner

Mortgages insured by the U.S. Department of Veterans Affairs--better known as VA loans--come with many benefits. They don't require down payments. They don't require borrowers to take out private mortgage insurance, either. They also don't require qualified borrowers to boast credit, or FICO, scores as high as most traditional mortgage loans require. If you have a low FICO score--between 550 and 620--you might be able to qualify for a VA loan. You may have to be willing to pay slightly higher interest rates, however, depending on how low your credit score is.

Gather the information you need to prove to your lender or bank that you have enough monthly income to afford a mortgage loan. Lenders may vary slightly in what documents they request. Most times, though, they'll request that you send them copies of your most recent federal income tax return, your most recent paycheck stub and your bank savings and checking account statements.

Shop around for a mortgage lender or bank. Different lenders will offer different rates, so it's best to call several before deciding to work with one. For a list of VA-approved lenders in your area, go to va.gov or contact your VA regional service center.

Tell the lender that you choose to work with that you are interested in applying for a VA loan. Ask your lender to obtain your Certificate of Eligibility from the U.S. Department of Veterans Affairs. You'll need this certificate--which proves your military service--to proceed with a VA loan. Mention, too, that your FICO score (the most widely used credit scoring model) is low.

Give your lender permission to run your credit. This will give your lender your exact three-digit credit score. Credit scores under 620 are considered low. If yours is under this level, you'll have to accept a loan with higher interest rates. Lenders charge these rates to protect themselves from borrowers who have a higher risk of defaulting on their loans, such as those with low credit scores.

Send your lender the copies you made of your financial paperwork. The lender will study these to make sure that your gross monthly income is high enough to cover your new monthly mortgage loan payment.

Determine if the mortgage interest rate that your lender is offering you makes financial sense. You might decide that the rates are too high, as a result of your low credit score, and bump your monthly payment into uncomfortable territory. If you are comfortable with the interest rates offered by your lender, you can then sign the paperwork that makes your VA loan official.

If your credit score is too low to either allow you to qualify for a VA loan or to provide you with interest rates that you think are reasonable, it might be time to put off taking out a home loan until you can boost your credit score. You can improve scores by paying your bills on time every month and reducing your revolving debt.


http://www.lenderva.com

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