Though it is undeniable that credit score plays a vital role in determining the eligibility of an applicant and the qualifying interest rate for most types of loans, it might not become a dead-end in the case of VA loans. In fact, as long as the veteran meets the specific criteria, it is much easier to get a VA home loan with bad credit compared to conventional mortgage options. The below attempts to clarify a few doubts related to obtaining a VA home loan with bad credit.

1. Is there a minimum credit score limit on VA loans?

The Department of Veterans Affairs looks after the VA loan program and guarantees a portion of the loan, if a veteran defaults in repaying the loan. The VA, however, does not issue a loan and has no minimum credit score requirement. It is the lender who oversees the loan eligibility and approval process. Many lenders have credit score benchmarks and don’t approve VA financing if the applicant doesn’t have the minimum required credit score, which is usually 620.

2. What is the maximum borrowable amount?

The maximum amount for a VA home loan a lender approves varies from area to area. In Dallas/Forth Worth, and most of the surrounding areas, the maximum limit is $417,000 without a down payment.  Service First Mortgage will go up to $1,000,000 as long as the borrower pays a 25% down payment on the difference between the purchase price and the maximum limit. For example, a VA home loan applicant who is attempting to purchase a $450,000 home would pay a 25% down payment on $33,000, which is the difference between the purchase price ($450,000) and the maximum loan limit ($417,000).  This equates to a down payment of $8,250 (25% x $33,000).  One important caveat to the above is that the value of the home must equal, or be more than, the loan amount being sought.

3. Is it possible to get a VA loan post-bankruptcy?

The short answer is yes, but there are many influencing factors.  For loans under the $417,000 maximum limit a borrower must wait a minimum of 2 years.  If it was a Chapter 7 bankruptcy, a VA home loan applicant can expedite the wait period to 12-23 months if the credit is re-established, all payoffs were paid as agreed upon, and the bankruptcy was caused by extenuating circumstances.  On the other hand, if it was a Chapter 13 bankruptcy the VA home loan applicant could reduce the wait period to 1 year if the repayment period has elapsed and there is written permission from the bankruptcy court/trustee to enter into a new mortgage transaction.  For VA home loans over $417,000 it is much simpler; the borrower must wait a minimum of 7 years from the discharge date.

Conclusion

Don’t let the bad credit score delay your plans of buying a house.  But before you apply for a VA loan, it is important to conduct a thorough research and understand all relevant clauses and criteria. However, there can be certain finer lines related to loan approval, interest rate and other processes, for which you need expert consultation. To learn more about the terms and conditions involved in obtaining a VA home loan with bad credit, as well as for any other home mortgage-related assistance, you can get in touch with a loan officer at Service First Mortgage - The Davidson Group.