Can I Get A VA Loan With Bad Credit?

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Serving in the armed forces comes with quite a few benefits. Many veterans are able to pursue advanced education by taking advantage of these benefits, or they may be able to buy a home that they could never afford as a civilian, or they might be able to set up a retirement plan.

Unfortunately, your service record is not an instant fix for bad credit. If you had a college loan or a ton of consumer debt eating away at your credit score before you enlisted, and you’ve done nothing to correct it while serving, then those debts are still there, waiting for you, the next time you need to buy a house or a car or apply for a credit card.

So maybe you’re not looking for a quick fix, you’re just looking for a place to stay while you deal with that debt. So the question isn’t so much whether the VA loan exempts you from having to worry about your credit, but rather, does it make life a little easier?

The short answer to that question is yes. Getting the best loan possible with bad credit is always tough, but it’s going to be a little less tough with an organization like the VA in your corner. This is what they’re here for, after all. If you have great credit, then you don’t exactly need their help. It’s nice to have them around, but their help is less likely to make or break your loan than if you were trying to buy a new home with a less than stellar credit score.

Am I Eligible For The VA Loan?

In some cases, you might not be eligible. The qualifications, in addition to those pertaining to your service record, are as follows:

  1. You have no outstanding judgments against you
  2. There are no outstanding collections in your name, and…
  3. You have a median credit score ranking in at 620 or higher

On all three of these points there is some wiggle room, but you’re going to be fighting an uphill battle. If your credit score is at 600, it’s going to be a lot easier to bring it up another twenty points than it will be to try and find a VA lender who will cover you at your current number. And even if you do find someone who will cover you at 600, they might not cover you for the house you want.

How Can I Boost My Credit Score?

You have quite a few options for boosting your credit score. The first step, however, is to find out why your credit score is shrinking in the first place. Put a stop to bad habits. This means:

  • Pay your credit card bills on time
  • Don’t just move debt around, pay it off
  • Look for any errors in your credit report and get the bills, checks and receipts to prove it, you might owe less than they think
  • Don’t use credit cards when you don’t have the cash
  • Pay all your bills on time

Once you’ve plugged up the leaks draining your credit score, you can get to building your credit back up. Here are some ideas:

  • Apply for a credit card designed to help people repair their credit. You can use this to buy groceries with or pay your rent or put gas in the car, and build your score back up bit by bit
  • Negotiate a payment plan on old debts. If you’d rather get your credit back up sooner rather than later, you can do what you can to find money to pay it off quickly. Don’t use a new loan to pay off an old one, don’t use your credit card, but consider taking on a second job, selling that old motorcycle you haven’t ridden in years, etc.
  • Adjust your living expenses. Rent a cheaper apartment, clip coupons, take the bus to work. It adds up more quickly than you might think. You don’t have to phone up the people on that Extreme Cheapskates show and tell them to come videotape you for a weekend, you just want a nice healthy income-to-expenses ratio so you have more money to pay off your debt.
  • If you do have to borrow money in order to get your credit back on track quickly, borrow from friends, relatives, employers, co-workers, people who trust you and who can lend privately without it affecting your credit. Not bookies. We cannot stress that enough. Avoid borrowing from bookies.

Again, it’s possible to qualify even with very low credit, but bringing your credit up a few points might be considerably easier than trying to negotiate a loan without any solid ground to stand on.

Will Bankruptcy Disqualify Me?

When it comes to your VA loan, bankruptcy is a complication that it’s better to be without. But, bankruptcy will not immediately disqualify you depending on certain factors. So what are the stipulations?

  1. If you’ve filed for Chapter 13 in the past, then you won’t qualify for a VA loan for one full year
  2. If you’ve filed for a Chapter 7, then you won’t qualify for two years
  3. In either case, you must have no late payments over the course of the last year

As with many other requirements for the VA loan program, this third point is not necessarily a death sentence. In extenuating circumstances, late payments might be forgiven.

This is simply par for course when you’re dealing with privately-owned lending companies. What may be a hard-set rule for some will be more of a suggestion for others. All any of these lenders are really looking for is somebody who they can trust with their money, somebody who they can be fairly certain will be able to make the payments on time.

It’s much less of an uphill battle if you meet every requirement necessary, but there are options available to you even if you don’t. These options may be relatively limited, or in some cases, severely limited, but few of these requirements are absolutely requisite for the VA to back your loan. Ultimately, if you can find a lender who can overlook some of these concerns, then you may be able to get approval for your VA loan from the department itself.

How Can I Be “An Exception?”

We’ve been mentioning that there are exceptions. It really is taken on a case-by-case basis. If you have a strong record, good financial standing, reliable income, then you may well be an exception to the requirements listed above.

If at all possible, your best bet at getting the loan that you want is going to be to try and correct your low credit and bring it up to at least 620. But, if that’s not really an option, if the home that you want to buy might not be on the market once you can bring your credit up or if you have a loan that’s going to take a long time and a lot of small payments to cover, there are some things that you can do to improve your odds of being an exception:

  • Make more money. Good, strong income is one of the chief determiners as to whether or not someone wants to lend money to you, and this is true even if you have great credit. If you can make a nice big down payment comfortably, if you can handle higher monthly payments than another borrower might be comfortable with, then this can go a long way towards getting you the loan that you want.
  • Improve your credit. Okay, this is what we’ve been saying, but we’re not talking about getting it over 620, but showing lenders that it will, eventually, be over 620. If you can prove that you improved your credit by a significant margin over a relatively short period of time, a year, six months, even less, then this will help your lender and the VA to see that you’re on your way there.
  • Keep a clean record. If you can go a year paying all your bills on time, if you manage your finances so that you have more cash to bring to the deal up front, if you can prove that you are fiscally responsible, then you may well prove to be an exceptional case.
  • Select a modest home. The less you’re trying to borrow, the more likely you’ll be able to take out a loan with a very low credit score. We would not advice settling for a home that just isn’t right for you, of course. If the only reason you’re moving to a certain town is so that you can have a shorter commute to work, and then your commute winds up taking twice as long, then what are you really gaining? You’ll generally want to stick to your key demands for your new home, be flexible where you can be flexible, and if you still don’t qualify, then you may simply need to be patient.

We can’t exactly calculate your odds for you, as the exceptional cases really are just that, exceptions. There’s no way to guarantee that you’ll be an exception, and you might not find a single lender who will make an exception for you. But even if none of the above-listed suggestions help you to get your loan without hitting all of the requirements, the fact remains that they will help you to improve your credit and get closer to hitting those requirements, so they’re just good practice anyway.

What About Military And Veteran Debt Relief?

If your debt really does seem to be insurmountable, the good news is that you may qualify for military debt relief. The military offers a debt relief program that connects you with experienced counselors who will help you to pay your debts off over the course of a few years, typically between three and five. The counselors will help you to negotiate lower interest rates and better payment plans so that your debt becomes manageable even without any big boost in income. And of course, if you do get a raise, you can renegotiate again for a quicker timeframe and lower interest. You can see your credit score being improved even before you’ve paid the loans off in full, and of course, putting this effort forth looks good to a lender.

Although taking out a VA loan with bad credit is a challenge, it’s not impossible. Of course, the better your credit, the easier a time you will have getting into the home of your dreams, but you have a lot of options before you in the meantime, from debt consolidation and relief to forgiving lenders and so on. You may feel confused, frustrated and even hopeless regarding your debt, but you do have options if you will only take some time to explore them.

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