How to Avoid Defaulting on a VA Home Loan

There is no real difference in budgeting for a VA home loan versus budgeting for a traditional home loan. In both cases, you can use simple advice on money management to avoid default and boost equity in your home. Budget for the debt, automate the payment system, and seek options if you feel you may face default due to a change in your financial situation.

Budgeting for Debt

Many new home owners think of a home's cost in terms of the total lump sum they offer when they buy the home. In reality, this sum has little effect over your day-to-day expenses. Your monthly payment will have a much bigger impact. Make sure you can afford the payments before you move forward with the loan. You have to budget for debts just like you budget for other expenses. As a rule of thumb, financial advisers recommend your total debts do not exceed more than half of your monthly income. If you are in the military, you will generally have very low living expenses, so you may be able to stretch this budget a little more. You will also be aided by your VA home loan guarantee. This reduces the interest rate on your mortgage by assuring the lender the VA will foot the bill if you default. With these factors combined, you should be able to arrive at a monthly payment option that assures you can meet your debts.

Automate Payments

One challenge facing individuals with VA home loans is the possibility they will be abroad for an extended period of time. This concern usually applies only to active duty members of the military. Even though the loan guarantees are issued through the VA, active duty individuals may still apply. They must be extra cautious when it comes time to make payments. It is best to link the mortgage accounts directly with a bank account through an automatic debit system. This guarantees a payment will be made no matter where a person is at a given time. An active duty individual may also ask a friend or family member to help keep track of the loan while he or she is otherwise occupied.

Loan Modification Options

If you experience a change in your financial abilities, you should contact your lender immediately to learn your options for modifying your loan contract. Changes in ability to pay would include losing your job, suffering from an extended illness or becoming disabled. The sooner you contact your lender, the more likely you will be able to modify the loan. You can refinance to lower payments or even defer payments for a period of time. Defaulting on a VA home loan carries significant repercussions. You will see your credit score drop, your home will go into foreclosure, and you may owe payments on the loan for years to come. In addition to these standard penalties, you will be precluded from receiving government assistance on any loan in the future. This includes college loans, home loans and business loans that may have previously been extended to you.

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