5 Tips to Qualify for VA Home Loans with Bad Credit

It is a misunderstanding that VA home loans are easily available to borrowers with bad credit. These loans are offered to post-active duty military service persons and their families; most members of the military will qualify based on this eligibility requirement. They are also offered at low to no down payment and no necessary private mortgage insurance. Despite these options that made a VA loan easier to get, there are still minimum credit requirements. If you have bad credit, try these tips to qualify for the loan.

#1 File Credit Disputes

For a number of individuals serving in the military, it is common to have a low credit score because debts went unpaid during active duty. For example, even an unpaid utility bill can become a nagging credit problem if a collections agency took over the process of collecting on the amount due. There may seem like there is nothing you can do, but there are options to dispute this type of negative report. First, a number of collections agents do not have a legal right to attempt to collect. You can challenge this issue by requesting validation of the debt. If the agent is unable to validate the debt, you can have the debt dismissed in small claims court. Second, there is a statute of limitations for collecting debt. If your debt was beyond this period of time when the lender reported you to the credit bureaus, you can dispute the report. Check laws in your state to see if your debts are past this limit.

#2 Submit a Written Explanation

Even if you were legally obligated to pay the debt, you can still minimize the affect it has on your ability to secure a VA home loan. You can write a written explanation to file with your credit report. This same explanation can be provided to the lender. With VA lenders in particular, there is a level of understanding for the challenges that arise when a person is on active duty. You can use this type of scenario to explain why your debts were unpaid, and the lender may understand. You will need to show there were extenuating circumstances in order for this to work to your advantage.

#2 Take a High Risk Personal Loan

A high risk personal loan is way to quickly build your credit. About 12 months before seeking your new home loan, take out a low limit personal loan. Even a loan for a few thousand dollars will help build your credit. Do not spend the money. Instead, allow the funds to grow in a savings account or CD while you repay the debt. Even if the interest on the personal loan is high, the interest you earn in the investment in a CD should help counter the expense. You will end up paying just a small amount for the loan. You will raise your credit with each successful payment, and you will substantially raise your credit when the loan is paid off. It is not uncommon to see a change of 50 to 100 points in just one year with this type of strategy. 

If I have bad credit, can I get a VA home loan with 50 percent down?

Despite your bad credit, placing a large down payment may help you secure a VA home loan. The VA will write your guarantee despite your credit; you are eligible based on your military status alone. However, you will still have to qualify for a private loan, and this can be challenging with a very bad credit score. By placing a large down payment, you are taking on extra risk on the loan. The lender can use both your down payment and the VA guarantee to largely reduce the risk of writing your mortgage. With 50 percent down and a VA guarantee, you should be able to get a home loan despite bad credit.

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