If you’re a military service veteran shopping for a new home, or if you’re thinking of refinancing your current mortgage, you may be considering a VA mortgage loan. If your credit isn’t the best, you may wonder if you can still qualify. The short answer is “yes”.
VA Loans
A VA loan is a mortgage loan guaranteed by the Department of Veterans Affairs(VA). This program was designed to allow military veterans to obtain financing for the purchase of single-family homes, condominiums, manufactured homes, or newly constructed homes. The VA doesn’t originate these mortgages, but the VA does set the qualification guidelines and guarantees the loans.
One of the main features of this program is that it allows veterans to purchase a home with no down payment. With a VA loan, an eligible veteran can borrow 103.6% of the sales price. Unlike conventional or FHA loans, backed by the Federal Housing Administration, VA loans don’t require the additional purchase of private mortgage insurance. Without the cost of private mortgage insurance, the veteran can qualify for a larger mortgage amount.
To qualify for a VA loan or refinance, one must be an active duty service member, an honorably discharged veteran, or the spouse of a current service member or veteran. If the borrower is the widow or widower of a veteran, they must be unmarried at the time of the loan.
Credit Report and Credit Scores
The credit qualifications for a VA loan are different than the qualifications for any other type of mortgage loan. Although the VA sets the basic qualification requirements, they don’t set a standard minimum score to qualify for a loan. Those minimums are determined by the lenders.
Veterans and service members who have less than perfect credit can still qualify for a VA loan in many cases. Remember that the VA doesn’t set the credit criteria, nor do they actually make the loans. The VA merely guarantees the loans once they’re made by a bank or mortgage company. Because of those guarantees, the lenders may set a minimum credit score requirement that is more lenient than other types of loans.
Your credit score might impact your closing costs if you purchase discount points. Discount points allow you to buy a lower interest rate on your VA loan. If your credit score results in a higher rate, you may decide to buy discount points to lower the rate. In some cases, you may be able to add the cost of these points to the loan amount, or you may be required to pay them upfront.
Other Factors
Lenders will look at several factors besides your credit score. Like any other loan, you’ll need to meet income and financial requirements to get your loan approved. A prospective lender will review your credit history and see if you pay your housing costs, credit card bills, and loan payments every month. Paying your bills on time for the last 12 months will tell the lender if you can meet the financial obligations of a new mortgage. They’ll look at your income, assets, employment history, and other loan obligations to decide if you qualify.
How to Improve Your Credit
There are several steps you can take to improve your credit:
- Correct any credit problems- Request copies of your credit report from the three big ones-Experian, Equifax, and Transunion. If there are errors, you can ask that they be corrected through the agencies’ dispute resolution process. If the negatives on your credit report are valid, you’ll have some work to do.
- Pay all of your bills on time every month in addition to servicing your debt, it’s important to consistently pay any other bills you may have. There are lenders that will use your timely payments toward rent, utilities, or your cell phone as an alternative form of credit. This is particularly true if you don’t have very much credit.
- Pay off some accounts-Paying down your debt with recurring payments is a good way to improve your credit scores. If you have no credit, get some accounts in your name, then make consistent monthly payments.
- Increase your income-A higher monthly income will help to improve your debt-to-income ratio. You can apply for higher-paying positions or take a part-time job. You can also use the increased income to lower your total amount of debt.
- Don’t max out your credit limits-Use your credit wisely by controlling the total amount of your debt relative to how much credit you have available. If you have a credit card account that you’ve paid off, don’t close the account, leave it open but don’t use it. The available credit on that card will help to lower your credit utilization.
Let Us Help!
We all make mistakes, and if you’ve damaged your credit in the past you can still recover. Reach out to us with any questions or concerns you may have relative to financing your new home. For over 20 years, Oklahoma’s premier mortgage company, Financial Concepts Mortgage, has been providing mortgage assistance to the citizens of Oklahoma with some of the best rates in the nation. We do our best to relieve you of the stress surrounding the home-buying or refinancing process.
Our goal is to create lasting relationships with each and every client and to continue providing excellent service for years to come. If you’re a first-time home buyer, a previous homeowner, are interested in refinancing, or are looking to consolidate debt, we can help. Our Oklahoma-based team will work with you and your family to ensure that you get a home loan solution tailored to your specific needs.
For more information about our company or the services we offer, visit our website. To speak directly to one of our loan officers, give us a call at (405) 777-4281 or visit us in person at any of our four locations in Enid, Edmond, Midwest City, or Eufaula.