VA Loans and Bad Credit

| January 2, 2012

The Department of Veterans Affairs will guarantee loans granted to veterans and their spouses who have received honorable discharges and active duty personnel. If you have thought about buying a home, the first step you should take involves getting a copy of your credit report. Lenders consider a VA loan less risky, but they still need to check and consider your credit history before granting or denying your application. If you know or think you and/or your spouse have a less than favorable credit history, obtaining your credit report will help you, if you work to correct the problems. It may take awhile, but it will prove worth your time, especially if you want to own a home.

The VA specifies how they believe the lender should look at your credit history. For instance, if have several unpaid collections, paying those off and then making payments on time for 12 months to other creditors, means you have satisfactorily reestablished your credit. Some collections, like a couple unpaid medical bills and others, could prove inconsequential. The lender should still consider them as recent credit when examining your total credit history. The lender should consider you a satisfactory credit risk if you have reestablished your credit in a positive manner.

One advantage of looking at your credit history before applying for a VA loan centers on any disputed accounts. If you see something on your report that you think should not count, you have the time to have the error corrected. You can also write a letter stating why you dispute the charge and attach it to your application. However, if the disputed account is a judgment by a court, you must pay off the account. It will look good on your credit report if you previously set up a payment plan, and you have made timely payments for more than a couple months.

Having a lot of unpaid collections will not look good and the lender will more than likely deny your loan application. Checking out your credit report before you apply will give you an idea of where you stand. The credit report will have the names, addresses, phone numbers, and loan information on all the accounts you and your spouse have had. With this information you can work towards cleaning up your credit and hopefully make it possible for you to realize the dream of owning your own home.

Category: Home Loan

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