home buying

The easy way to get a VA loan with bad credit

When it comes to finding options for home loans for folks with bad credit VA loans rarely make the list. Most people don't think about VA loans as being for people with bad credit, however, as you will see in this article, VA loans for those with bad credit are actually easy to qualify for as long as you meet their criteria. The current state of your finances will also play a huge role in whether or not you can get a VA loan. Before we dig into this, however, understand that the VA not only offers multiple programs but they also offer ‘work arounds’ if you don’t quite meet the criteria in certain areas. I’ve never heard of a bank offering any kind help like that.

Let’s get started here.

First things first, you must have no current outstanding collections and no outstanding judgments against you. You must also be able to show a stable income and a median credit score of 620 or higher.

The VA loan program was created in 1944 as a thank you for service personnel returning from World War II. The goal was to make it possible for servicemen who likely would not have had any other chance, to purchase a home and become a homeowner.

Making this loan accessible to borrowers with less than perfect credit is considered the easy part. And it is true that the VA loan program has helped untold thousands of people get into homes and become property owners who would never have had a chance otherwise. For those who qualify, this program is a real godsend.

Cutting out the common hassles of obtaining a home loan such as good credit, down-payment, closing costs, etc.is what this loan is all about.

For multiple reasons, many veterans lack positive credit or the funds for a down-payment. The government decided one of the best ways to assist veterans after their completed service was to help them get home or some land.

VA loans with bad credit

Over the years two major things have changed which includes an increase in the amount veterans may borrow and the ability for active duty to apply to get a VA home loan.

Currently, homes below $484,350 and in some areas $726,525 and depending on what county you plan to buy in, can be purchased with $0 down. Think about that for a minute because it is a HUGE benefit to you if you are trying to purchase a home.

Because of the VA Loan Program lenders have the assurance that the loan will be paid for, veterans have the support needed to obtain a house and some land. This is one of the very few government programs that have had long-term success in accomplishing its goal. Untold thousands of people have been able to become homeowners thanks to the VA loan program.

There are only a few important elements that when obtained can and will ensure approval for your VA loan. As stated a satisfactory payment history is arguably the most important, followed quickly by present and/or future anticipated income. To be a success at this you need an income that is stable over time and bills current plus; you must be able to easily afford the loan payments given your current financial situation. To really impress the powers that be at the VA loan office, you must be able to show enough disposable income to meet the VA standards for cost of living as well as the VA loan mortgage payment.

Stable income is normally considered 24 months of steady solid income. If there are potential future income opportunities, the underwriter will have to evaluate that and offer his/her expert opinion. They like to see a FICO Credit Score of a least 620 even though there are officially no actual rules about this.

Here’s an article from the Veterans Loan Center to help you: https://www.vamortgagecenter.com/va-loans-bad-credit.html

But don't worry; the VA has loans for people with no credit or even scores below 620. If you fall in the no credit area, then your potential qualification is determined based on past rent payment history, car insurance, and other monthly expenses.

Even one or two late payments in the last year or any unpaid or untimely debts can easily get you denied, however. But this is an area that the VA offers a ‘work around’. Let me explain.

Just because you have late payments, though, this may not result in an automatic denial. There is an exemption for this rule under special circumstances. You would still be eligible even with open collection accounts just as long as you have committed to a payment plan and put it in place. It might be a good idea to meet with a Consumer Credit Counseling program or possibly file Chapter 13 bankruptcy as those can show as a positive step for a VA loan.

For a normal bankruptcy called a Chapter 7, at least two years must have passed since the bankruptcy was discharged or forgiven for the VA to consider you as having satisfactory credit.

As far as the VA is concerned, as long as you are making your payments, a Chapter 13 does not have to be discharged for you to qualify.

Another special circumstance would be if you were forced to file bankruptcy because of medical circumstance or any number of other issues out of your control. These types of situations will not be held against you.

Another special circumstance involves if you were forced to file bankruptcy because of a failed business venture and at present you have employment, you will still be considered for a VA loan. You must also have no derogatory credit information since the bankruptcy or prior to the self-employment to qualify for this special exemption.

Your VA loan approval will be delayed in most cases by too many inquiries on your credit report but in most cases, that alone won’t disqualify you completely. In case you were not aware, non-mortgage inquiries can cause a huge drop in your credit rating. Truth is multiple non-mortgage credit inquiries can look like new credit lines and couple with a low credit score this can look like it will affect your ability to repay the debt.

Let's take a look at a few important questions and answers about VA loans

What are the VA loan eligibility requirements?

Most members of the regular military, veterans, reservists and National Guard are eligible to apply for a VA loan. Spouses of military members who died while on active duty or as a result of a service-connected disability also can apply.

Active-duty military personnel generally qualify after about six months of service. Reservists and members of the National Guard must wait six years to apply, but if they are called to active duty before that, they gain eligibility after 181 days of service.

You may qualify if you:

●      Served 90 consecutive days of active service during wartime

●      Served 181 days of active service during peacetime

●      Have been an active member of the National Guard or Reserves for 6 years or more

●      Are married to a service member who died in the line of duty or as a result of a service-related disability

Do VA loans require PMI?

Unlike other low down-payment mortgage options, a VA loan doesn’t require PMI.  Federal Housing Administration (FHA) loans and conventional loans with less than 20 percent down require PMI, which can end up costing the borrower thousands over the life of the loan.

The benefit translates into significant monthly savings for VA borrowers. For instance, a borrower who makes a 3.5 percent down payment on a $200,000 purchase with an FHA-insured mortgage would pay $139.19 a month for mortgage insurance alone.

What are VA loan funding fees?

Although the costs of getting a VA loan are generally lower than other types of low-down-payment mortgages, they still carry a one-time funding fee that varies, depending on the amount of the down payment and military category. This fee helps offset taxpayers’ costs since there’s no PMI or down payment required.

Any old or current savings or checking account overdraft fees need to be paid up and cleaned up as this will look bad and the VA frowns on any unpaid debts.

Here are your top 5 keys to getting a VA loan

These loans are easier to obtain than conventional mortgages because they are backed by the VA and are ideal for many veterans who may not qualify for other loans. Take a look at these five key elements to help you succeed in getting a VA backed loan.

1. The loans are NOT Issued by Veterans Affairs

No matter what the situation you are still dealing with standard banks and lenders. What the VA does is guarantee they will pay a large portion of the loan should you default on it. What this does is offers the bank or lender some security that the loan will be repaid should you default for any reason.

A mortgage lender who specializes in obtaining VA loans is going to be where you need to start. You will need to show the lender your Certificate of Eligibility (COE). This document confirms that you are eligible for a VA-backed loan so the lender can proceed.

It's very simple to apply for a COE through your eBenefits account. You can also apply by mail by completing Form 26-1880 and sending it to the Atlanta Regional Loan Center if you would rather do it by mail and avoid the internet. If your lender has access to WebL GY system you may be able to apply for a COE that way as well.

 2. Bottom Credit Score Not Required

Using a VA backed loan over conventional loans has 2 major benefits. To the lender you are a much lower risk because the VA has backed your loan so, if your house costs less than $484,350 there is no down payment required. This can save you thousands of dollars right off the bat.

The second great advantage is that there are no minimum credit score requirements for borrowers to qualify for a VA loan. An applicant with a score below 620 in most cases would not qualify for a home mortgage loan. A VA-backed loan may be the only option someone in that position has.

So where is the catch in this deal?

So you must be asking, where's the catch? Here it is; there is a downside and it's called the VA’s Funding Fee. This fee, which is typically between 2% and 3.5% of the loan, rather than being due upfront, it’s normally just added to the loan. To help keep the VA home loan program going, the VA’s Funding Fee goes back into the program.

3. Refinancing With a VA Loan

VA-backed home loans can be used to refinance a current loan into a new VA home loan. There are two main types of refinancing options the VA supports. You’ll have to decide which is best for you.

If you currently have a VA loan and want to lower your monthly payment or reduce the length of your loan then you can apply for an Interest Rate Reduction Refinance Loan (IRRRL). This is also called a VA Streamline Refinance loan. Refinancing requires no appraisal or credit underwriting package and it can often be completed with no out-of-pocket expenses.

The Cash-Out Refinance Loan is the other type of VA refinance loan, and it can be used to obtain cash for home improvements, paying off debt, or other financial needs. You simply refinance up to 100% of the home’s value as mortgage debt, with the equity available as cash.

You can turn a conventional mortgage loan, USDA loan, or FHA loan into a VA home loan using the Cash-Out refinance loan option.

 4. How and when you served may play a Part in your Qualifying

If you don’t qualify due to poor credit or the lack of a down payment, a VA loan is great. But they are not available to everyone but are a special benefit solely for eligible service members, veterans, and their families.

There are also specific eligibility requirements, particularly regarding their terms of service. Whether you served during wartime or peacetime, and whether you are a Selected Reserve or National Guard member.

During wartime need to have served at least 90 days of active duty without a dishonorable discharge, or less than 90 days with a discharge for a service-connected disability. During peacetime, it’s at least 181 days of continuous active duty and no dishonorable discharge, unless discharged for a service-connected disability. 

5. You May Qualify for Other Bad Credit Home Loans

The VA-backed loans are definitely a great choice for folks who qualify but don’t forget you may have other options when looking for a mortgage loan with bad credit — your chances of success increase if you have a decent-sized down payment. An FHA loan is possible if you have a credit score of 580 or above. Also if you have a score above 620 you may even be able to get a conventional mortgage.

VA backed loans are a real Godsend to many veterans who otherwise would not qualify for a mortgage loan. And the truth is because these loans are solid in the eyes of the bank; VA loans can be quite flexible as we have shown in many of the cases above.

FACTS ABOUT VA LOANS

The loan doesn’t come from the Department of Veterans Affairs. The VA only guarantees the loan; it does not issue the loan. What this means is that the VA provides assurance to the lender that a portion of that loan will be covered should the borrower default on the mortgage. In other words, the lender is covered up to the amount of the guarantee. This makes a VA loan a NO LOSE loan for the bank.

Only certain properties are eligible. Co-ops aren’t eligible for VA loan benefits. On its own, vacant land isn’t eligible for a VA loan, either. However, it may be eligible if it’s used simultaneously with a construction loan. And other properties, like modular or manufactured homes, are subject to the lender’s approval.

They must be used on primary residences. You can’t use your VA loan benefits to buy a vacation home or an investment property. There are residency requirements set by the VA that make these properties ineligible.

There are no pre-payment penalties. You can make extra payments over the life of your loan and pay off your loan sooner without getting penalized. These extra payments, made at any time you want, can save thousands of dollars in interest over the life of your loan.

They have a funding fee. This fee is the cost associated with obtaining a VA loan and helps to ensure that the loan continues to require no down payment and no monthly mortgage insurance. Which leads to…

There’s no monthly mortgage insurance. With other loan programs, if you don’t have at least 20 percent down on a new mortgage, you’re required to pay a monthly or upfront mortgage insurance fee. This requirement is eliminated by the VA’s Funding Fee.

You can reuse the VA loan benefit.  As long as you pay off your existing loan, you’re allowed to use your VA loan benefit as often as you’d like.  If you’re moving you may even have enough entitlement to get another VA loan without selling your current one. 

The real keys are simply to keep payments current, be sure and show the VA that if you have defaulted on payments that there were special circumstances (if there were) and ask for the exemption offered under these special circumstances. If you don’t show them and ask for it, it could mean you being denied when you could have been approved.

The best advice I ever got about VA loans when I started was to take your time and have patience with the process. A VA loan will likely take a little time but in the end, it can be well worth it to get a VA backed loan that you may not have had a chance at with the VA’s help.

Finding the best agent for buyers and sellers

No matter what your current homeownership status, your perfect, ‘once in a lifetime’ dream home could be right around the corner and you’d never know it unless you have the right agent.

Even if you are trying to dump a home that has no equity, needs repairs and you are pretty sure it's at least a little haunted...there IS a perfect real estate agent for YOU and YOUR SITUATION...you just need to know how to look and where to look. That is what you are going to learn in this article, so get buckled in and let's get started.

In this article, I’m going to share with you a little-known process that will ensure you have the exact right agent for whatever your needs are. It is vitally crucial that you have an agent with the right experience, resources, and expertise to help guide you through the process you are undertaking whether it be buying your dream home or selling your current house.

Many people take the finding of an agent for granted believing that any old agent can help them. That would be like if you have a foot problem and you walk into a doctors office who specializes in colon issues. Well, he’s a doctor right? He’ll do just fine for your foot problem huh?

The same thing goes with a real estate agent. First and foremost you need one who is actually active in the market. There are many ‘weekend warriors’ who got their license on a whim and have never really done much. That's absolutely not who you want.

The process of finding your dream home involves many elements like neighborhood research, locating a good match to your budget and lifestyle, initial contact and talks to work out the best deal on price and possible repairs. Buying a home is likely going to be one of the biggest purchases of your lifetime, so you must be committed to the process. For most people, doing all this alone is not a viable option, that's why you need to find a good agent.

This entire process will be MUCH easier when you have the guidance, connections, and advice of a great real estate agent that has the unique talents, skill set, and experience that fits your project perfectly. A great agent that is well matched to you have the inside knowledge to help you manage a great price, even in a hot market and save you thousands of dollars - whether you are the buyer or the seller. It really doesn't matter which side of the fence you are on, whether you are a buyer or seller, the following keys can help you find that perfect agent for you.

  1. Initial interview for a potential new agent and follow up.

  2. Take note of their communication style

  3. Discuss their negotiation strategy

  4. Review the agent's certifications and experience

  5. Obtain and contact everyone in the agent's network

  6. Discuss the agent's workload

  7. Search public records of the agent

Initial interview for a potential new agent and follow up.

What kind of experience does your agent have with clients like yourself? Have they sold in the neighborhood you’re looking at before, if so how much? If you are headed to a new state, your agent with your direct (and only) link to insights and info about the area you’re looking at - how much experience does he have here?

One simple question you ask all the agents references will sum up all you need to know. “Would you work with this agent on your next sale or purchase?” Austin, TX agent John May “if the answer is yes, you’re probably good to go but if there is ANY hesitation you should ask why and continue to dig into the agent's background

Get their style of communication

Chasing your agent around to get critical updates and info isn't going to work. Another question to ask references is if they had a hard time getting their agent on the phone or getting updates.

 Find out how they plan to negotiate on your behalf

Giving you suggestions for offers, competitive market guidelines, and closing table backup plans are all some of what a good agent should provide you. Negotiations are a huge part of the process and having an agent who is confident and experienced in this process can make or break a deal. 

You should feel like your agent is confident enough to turn down a deal that is not what you are looking for, especially when they know they can get you better. Understanding your needs and bringing a deal together without getting in the way is very important. There is a time to walk away and sometimes total silence is a great tactic to use.

Review the agent's certifications and experience

In addition to a real estate license, there are other certifications agents can get like a certified residential specialist (CRS) has specific training for residential real estate transactions as well as an accredited buyer’s representative (ABR) who have completed training to represent buyers.

What's the agent's network look like

Having a broad network of potential buyers and sellers, as well as great relationships with other agents is the hallmark of an experienced and successful agent. Having a team of trustworthy contractors, handymen, designers, and architects available to help you with renovations, small fixes, or designs is simply mandatory for an agent you need.

Agent workload

You need to find out how long an agent has been in the field as well as whether they are a full-time agent or whether this is just a part-time endeavor for them. This project is likely one of the biggest commitment YOU will make in your lifetime and you need a full-time, dedicated, and extremely experienced professional.

Public records of the agent

If your agent has been disciplined and why that's information you really need to know. It could be indicative of the quality of service they truly provide and maybe a reason to avoid any further research on them.

The bottom line is as buyers and sellers you need to be able to trust your real estate agent. You’ve probably found your match if you end up with a personal connection with an agent.

There are really no transactions that won't have some bumps and struggles. The agent needs to remember that the client is part of the team and may have a much-needed outsider’s perspective. 

You have to look at this as at least a 4 to 6-month commitment, so making sure your agent matches up with your needs in all of these areas is of vital importance. And once you find a really great fit, you’ll be able to call on them in the future knowing they will have your best interests at heart.

How agents get paid

You need to understand that the buyer’s agents split the commission with the seller's agent with no additional costs to the buyer. The commission is paid by the seller. Now you can likely see why the listing agent has a big incentive to make a quick sale in lieu of putting your needs first - because they get the full commission.

If things don't work out it can really cost you. You need to read the terms of separation that are disclosed in the buyer’s agent agreement. Make sure you understand what your signing and make sure there is a way out if you and your agent just don’t seem to click. This must be done BEFORE signing anything.

Here is the uncomfortable ‘truth’ about this industry

You simply cannot afford to be stuck with someone you aren’t comfortable with given the importance of this decision. One option: Try out a short-term initial agreement — perhaps 30 days or so — renewable for another 60 days upon mutual consent.

With the number of jobs in real estate expected to continuously grow by 6% through 2026, according to the U.S. Bureau of Labor Statistics, the competition for agents is and will remain strong. This simple fact makes your search for the right agent even harder BUT ALSO even more important. Don't get me wrong, it will be a challenge for any homebuyer or seller to find the right real estate agent to work with. But using the tools I've given you here, I just made the process at least 80% easier than without them.

Taking a future look at this marketplace it's not hard to imagine that with so many agents vying for clients, it might be easy to get overwhelmed with offers and opportunities as a buyer or seller. Just keep coming back to starting place which is matching the right agent to the right client. Matching your wants and needs with an agent who can provide you the personality, drive, and effort you are looking for can make the difference in whether you have a good experience or become another ‘home seller nightmare story’.