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VA Loan Reader Questions: How Does Bad Credit Affect My Chances?

April 24, 2012


VA Loan Reader Questions: How Does Bad Credit Affect My Chances?

A reader asks, “My husband is 100% service connected disabled. We are wanting to inquire about getting a VA home loan…problem being we both have horrible credit. Would we be eligible, or not?”

Technically speaking, a VA loan applicant is eligible to apply for a VA mortgage when he or she has met the minimum time in service and/or discharge requirements where applicable. But obtaining VA loan eligibility is not the same thing as VA loan approval.

VA mortgage loans require credit qualifying information the same as any other line of credit. Borrowers for all types of home loans (conventional, FHA, or VA guaranteed loans) are encouraged to begin preparing for a home loan at least one year prior to applying for it.

Anyone who is serious about applying for a VA home loan should plan to request a copy of their credit report, examine credit scores and work on improving their credit where needed.

According to the Cleveland VA Regional Loan Center publication Steps To A VA Loan, “Home buyers may want to contact a lender even before they sign a contract for a home, so that they can be pre-approved to determine their maximum mortgage amount.”

But before taking that step, the VA encourages borrowers to fill out a Prequalifying Worksheet, which “will give you a general idea of what you can afford, and whether you are within VA underwriting guidelines for approval. This Prequalifying Worksheet is not a commitment to lend, nor can it be used to determine whether a lender will approve the VA loan…”

Borrowers who already suspect they have poor credit should consider credit counseling or housing counseling to learn how to improve a credit score prior to applying for a VA guaranteed home loan. Did you know there’s a list of government-approved housing counseling agencies you can search to find a reputable agency near you?

These agencies, while not directly affiliated with the Department of Veterans Affairs, are FHA/HUD approved and can help borrowers learn ways to become better candidates for a VA home loan.

Do you have a question about VA guaranteed home loans? Ask us in the comments section.

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  1. marvin haynes

    I need some help i dont know wher to begin on how to purchase a 100% disable and seeking some asst or info on wut to do,,,,my credit is not so good due to a student loan in which it was cancel out but it still on my credit report and for some reason it hasnt been removed....with that my credit score would be rather would be nice to know how to move forward with this issue.....can anyone help me?...

    • Joe Wallace

      Best advice on the credit issue is to contact the three major credit reporting agencies--Experian, TransUnion, and Equifax, and dispute the student loan.

  2. sandy

    My husband and I had prime credit up until we both lost our jobs in 2009. We did everything we could to keep from loosing our home, including drying up our savings, we tried modification = didn't qualify, tried short sale = had two offers fall through, tried deed in lieu = ran out of time and ended up foreclosed in June 2011. In May of 2010 we moved out to CA to both accept job offers, and are now two years in our jobs, making good income and have built back up a significant savings account. I have heard conflicting information as to how long we will have to wait to purchase a home again. My husband is a vet, and has not used his VA loan yet. Please help us to know, how long is it after a foreclosure until we may be eligible to buy a home again? Thank you in advance for any assistance!!

    • Joe Wallace

      Hi Sandy, thanks for your question. You'll find that while actual VA requirements may be shorter, many lenders require at least a three-year wait between actions such as bankruptcy and foreclosure before you are eligible to apply for a new home loan. Borrowers should not expect to be approved for a new VA home loan any sooner than two years at the very minimum, with requirements varying from lender to lender.

  3. rick

    Would like to know how i can find out how much can i get for a va loan. Back in 93 I had a house outside of Ft Hood Texas. I got a divorce and was told to put my home on the market for sale in-lew-of forclosure. My quest: is how do i find out if i can get another va loan for a home in michigan.

    • Joe Wallace

      You'll need to apply for a VA Certificate of Eligiblity--contact the VA at 1-800 827 1000 or have a lender help you apply for the VA COE. The COE will tell you how much eligibility you may have left, assuming you have fulfilled the VA eligibility requirements for time in service.

  4. Bradley Hirtz

    This website is very informative, but I haven't quite found the answer to a question I have just yet. Hopefully I can get a definative answer. Background info: In 2007 I bought my first home through the VA in the Cocoa Beach Florida area, for 162k. Ever since I signed the papers on the home, the average home value for the area slowly declined. Then, NASA lets on that the shuttle program is going to be cancelled, BUT there is a program in place, Constellation, that will take the shuttles place. Again, property values went down a little more, but not too terrible. And was announced that Constellation was cancelled. This is where the fun starts. Property values across the Space Coast tanked almost overnight. Over 6,000 people lost their jobs the moment the final shuttle mission ended, and with that came a mass exodus of engineers, technicians, and other workers leaving the area in search of work. I was one of those people, and was able to take a job offer in Oklahoma. This was back in late 2010. Since that time I tried to make paying a mortgage on a home that I will never live in again and make rental payments, and was able to continue that until Nov. 2011. At that time I made the decision to attempt to sell the home, but the lender would not take a short sale unless I was behind. My realtor listed the house for full loan payoff, and not one bite. She then listed it for 80k, HALF of what I owed, and still no bites. It FINALLY sold through short sale just yesterday for 60k. The lender stated they will not hold me liable for the negative equity as it's a VA loan and they will just have the VA pay for it. I've contacted the VA and they said I can still use my remaining entitlement, and quite possibly have my used portion restored since short selling the home was the ONLY choice I had given the area the home was in. Now, here's the question: Do I still need to wait the two years out in order to qualify for a loan? I have heard of instances where people in my situation were able to get a new loan less than a year after the short sale, so long as all the other credit requirements were met. To me, it doesn't seem fair that a bank will not allow a short sale to happen unless you're in default, even if the area has fallen victim to government cutbacks and shutdowns and caused EVERY home to lose value. And sorry for the length, but the more info you have, the better, right?

    • Joe Wallace

      The basic answer to your question is that it's situational, you'll need to discuss your specific circumstances with the VA AND find a lender willing to work with you. The VA loan rules state that in general you're required to wait two years at a minimum after a short sale, but to get a more specific answer you'll need to discuss your unique situation with a VA rep.

  5. Meg

    My husband and I are trying to get a new house. We submitted our application, were given a pre-qualification, and received his EOB Certificate. We were two months into the loan process, sold the house we currently live in, and will potentially be homeless in two weeks and have found a temp. house to rent. Just found out today that our VA loan was denied due to our credit. My question is, what are the guidelines to VA approval with a bankruptcy? I don't want to have our credit torn apart by going from bank to bank begging for an approval. The issue is I was discharged from Chapter 7 over 3.5 years ago. Since then, I have not been late on anything. My husband had a stint of bad credit back in 2006/2007 when he was unemployed. He had a lot of things get charged-off, which I eventually paid off when he was deployed in 2009. When the bank pulled our credit, there was a GECRB account that was still listed as an open account even though it's been charged off since 2008. To this day he has never received any collection calls on this account. I had no idea that it was an issue until the bank brought it up. I've offered to pay it off, they won't accept that either. The other thing is a collection account that showed up at the beginning of this year, and he disputed it with the collection agency - it's listed that way on his report too. Is there any chance we can get a VA loan, is there an exception or waiver that can be done to help with this? We meet the credit score requirements, have good income, great DTI (even with the new house factored in), both have been on our jobs, him for 5 years, me almost 9. I don't have any derogatory marks on my credit accept for my BK, and he only has those two above items on his. Please help me figure this out... Thank you!!

    • Joe Wallace

      Many lenders will require a three year wait in cases of bankruptcy except under certain circumstances. Any open issues on the credit report would need to be resolved--or explained to the satisfaction of the lender--in order proceed. The issue is basically between you and the lender in such cases--VA guidelines establish a minimum, but the lender's policies also play a big part in how things go. Best advice--contact the VA directly for assistance and/or advice on this situation. Call them at 1-800 827-1000.

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