Thursday, June 28, 2012

Securing Va Home Loans With Bad Credit: Making Home Buying Affordable

Retirement from military service can bring a lot of difficulties. Even when a career has ended, financial responsibilities still need to be met. With limited income, this means large loans, like mortgages, can be very hard to find. But thankfully, getting a VA home loan with bad credit is less troublesome.

There is no doubt that job security is a very important aspect of any loan application, and especially when seeking mortgage approval despite low credit scores. But, there are other aspects too, and traditional lenders are not always open to accepting the risk involved in lending to bad credit borrowers that have basically retired.

The good news for former members of the military is that competitive terms are attainable from trusted lenders through VA home loans. Of course, it is necessary to qualify for such options, and there are terms and conditions to consider too.

How to Qualify for a VA Loan

Meeting set criteria is essential when applying for any loan. For those applying for a VA home loan with bad credit, the principal requirement is to prove they are entitled to a VA supported loan. So, income and affordability are secondary, with the credit score having little influence at all.

A VA loan is exclusive to former military servicemen and women, and to the families, and is not available generally. So, former members of the armed forces, the National Guard and reservists, can qualify. The advantage offered is a greater possibility for loan approval despite low credit scores, but there are factors that can disqualify someone too.

For example, an applicant must have no bankruptcy ruling against them for at least two years prior to the date of submission, while no loan defaults should be on their record for 12 months. Also, a VA home loan must be used to buy a private residence, not a property for rent.

Proving Loan Affordability

Of course, repaying the loan in full is a core condition, and so getting a VA home loan with bad credit still comes down to the applicant being in gainful employment with sufficient income to meet the monthly repayments. Proving an ability to repay is done by providing pay slips or a bank account history. Self-employed applicants will have to show tax returns.

But more important than the income being earned is the amount of excess income there is to meet the repayments. So, the debt-to-income ratio needs to be healthy enough to allow for an extra debt. With a limit of 40% in excess income to be used for VA home loan repayments, it leaves 60% to meet regular monthly expenses. So, further financial strife is less likely.

If the repayments are more than 40%, taking out a small consolidation loan to clear some debts is one way of improving the situation. Then, getting approval despite low credit scores is more likely.

The Influence of the VA

But what advantage is there in getting a VA home loan with bad credit? And how does the loan actually work? Well, since the VA is not a financial institution, the loan itself is granted by a recognized lender.

But with VA support, the terms are typically good, with lower interest rates and better repayment terms. Getting approval is down to the lender, not the VA who view the applications after the lending institution has made their initial decision.

However, once the green light is given, the application is passed on to the VA to confirm their status. Typically, for a VA home loan, a maximum 25% of the mortgage is guaranteed, and it is this security that makes approval despite low credit scores so possible.

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