VA Home Loans

VA CREDIT ISSUES
Credit Problems and VA Loans

You are a veteran ready to purchase a home, but you have pre-existing credit issues...can you get a VA mortgage?

Your chances are good. When it comes to a VA Home Loan, your approved mortgage lender will make every effort to get you covered. Your lender will take everything about your credit history and your current financial status into account.

First, the lender will analyze your past credit performance. If you've made timely payments for the last 12 months, this may be enough to demonstrate your responsibility to repay your VA Home Loan.

But even if you have had some past credit issues, you may still qualify for a VA mortgage loan.

A period of financial difficulty does not disqualify a veteran if a pattern of consistent payments on debts has been established and maintained since then. Satisfactory credit is generally considered to be re-established after you or you and your spouse have made on-time payments for 12 months after the date of the last negative credit item(s). It's your overall pattern of credit behavior and your commitment to making payments rather than isolated cases of slow payments that are most important.

What if you're just starting out and have no credit history? Lack of an established credit history should not be a deterrent to getting your VA Home Loan approved. Good payment history on items such as rent, utilities, phone bills, etc., may establish the good credit history you need to qualify.

WHAT IF YOU'VE DECLARED BANKRUPTCY?

VA guidelines state that a minimum of two years must elapse since the discharge date of the veteran borrower and/or spouse's Chapter 7 bankruptcy. A full explanation of the bankruptcy will be required. You must also have re-established good credit, qualify financially and show job stability.

The VA will consider a borrower still paying on a Chapter 13 Bankruptcy if the payments to the court have been satisfactorily made and verified for a period of one year. Court trustee will need to give written approval to proceed. A full explanation of the bankruptcy will be required. You must also have re-established good credit, qualify financially and have job stability.

If you have any collections, judgments or federal debts pending, you may have to answer for them. If a collection is minor in nature, it usually does not need to be paid off as a condition for VA Home Loan approval; but judgments must be paid in full prior to closing. Veteran-borrowers can't be delinquent on a federal debt, including tax liens, student loans, etc. Bring all debts up to date to best support your chances of getting VA Home Loan approval.

Do you have any foreclosures on your record? A veteran borrower with a previous foreclosure or deed-in-lieu of foreclosure within the prior two years is generally not eligible for a VA mortgage.

If a veteran, or veteran and spouse, have prior adverse credit and are participating in a Consumer Credit Counseling Plan, the VA may consider you to be working on it, and deem that you are thus a satisfactory credit risk - once you demonstrate 12 months of satisfactory payments and the counseling agency approves the new credit.

Credit is never damaged beyond repair. Work with the proper agencies to get your credit history cleaned up and ready for inspection.

I am having trouble making my VA home loan payments. What can I do?

Are you experiencing trouble making timely payments on your VA mortgage? Are you still current but worried you could miss a payment soon? Here are five things to do to avoid missing your VA Home Loan payments and protect your investment.

GET COUNSELING

Take advantage of the free financial counseling available on base through the Family Support Center. Counseling sessions can show you how to take control of your budget, avoid common mistakes, and make your dollars stretch farther. This is a step best taken as a preventive measure, but if you find yourself in dire financial straits, don't overlook this free help—it can help you avoid similar situations in the future and teach you money saving tactics in the meantime that can help as you work with your creditors to pay your debts. It's never too late to learn something new about saving money.

CALL YOUR CREDITORS

If you are in danger of missing VA loan payments, work with all your creditors, not just the bank that issued your VA home loan. Make payment arrangements with all your creditors—and try to avoid missing payments on your credit cards, student loans and other debts. One of the first things you should do is to ask for a lower interest rate. In some cases, credit card companies will lower the rates for long-time cardholders or as a way to keep your business. Be honest, explain your situation and tell your creditors you want to make payments, but you need some assistance in this time of financial need.

CONSIDER REFINANCING OR CONSOLIDATION

Are you eligible for a better interest rate? Call the bank and ask about refinancing your VA home loan. You have many options including IRRRL/Streamline Refinance or Cash Out Refinance with your VA Home Loan. If you are already missing payments, consider applying for the HOPE for Homeowners program, which is designed to help those in trouble on their mortgages refinance into a more affordable home loan. If you have made at least six payments on a VA loan started before March 1, 2008, you may be eligible for this HOPE for Homeowners refinancing program. Ask your lender for details and how to apply.

You may also consider calling your military bank to discuss a debt consolidation loan. If you have too many credit card bills or high interest payments on the credit cards you do have, consolidation may be the answer. Consolidation loans should be considered very carefully and you should get financial counseling to help you avoid going back into credit card debt once the consolidation loan is approved. Your military bank's loan department has all the information you'll need to make an informed decision.

MAKE SOME FORM OF PAYMENT EVERY MONTH

Avoid going into default on your VA loan. Even if you can't make the full payment, send a check with whatever amount you can afford and contact your lender to explain the situation. Never walk away from a loan or mortgage. Doing so may disqualify you from any assistance from the government you may otherwise be entitled to.

Your veteran home loan is an important benefit. You can protect this important military benefit by taking quick action when you learn you are entering rough times financially. Get counseling, call your military loan officer or your VA loan officer, keep in touch with all your creditors and take direct action; your credit rating and the future of your home are at stake.