VA loans were actually designed to benefit borrowers. Created in 1944, the VA home loan program was actually a thank you for all the service personnel who returned from the World War II. Through this program, military veterans and active military members could buy homes in an affordable, easy and safe manner, without worrying about down payments, closing costs or even credit scores.
Perfect credit score was never a criterion when it came to qualifying for a VA loan. There are many VA lenders who give loans to even those who have bad credit. In fact many such lenders may even have contacted you via VA mortgage leads that they must have purchased from lead generating firms.
Yes, you can get a VA loan if you have bad credit. However there are a few things you need to make sure of:
You need to make sure you have a stable income
If you are an active military member, this shouldn’t be a problem. As a Veteran also, you may be getting your monthly pension. However, if that is not sufficient for taking care of your living expenses, you may want to take up a part-time job or start something on your own. Whatever step you take, make sure you have enough income to pay up the monthly mortgage payments once you buy your home through a VA loan. This should give the confidence to the VA lender that you will not default on your loan.
There should not be any outstanding judgements
It is better to settle off any previous debts before the lender files a debt collection lawsuit against you. Any outstanding judgements may cause a whole lot of damage to your credit report. You can either pay it through the court or directly to the creditor, as per the rules of your state.
You should not have any outstanding collections
Having outstanding collections may make it difficult for you to get any loan approved, be it a bank loan or a VA loan. It is always better to pay off your debts on time. So, whether it is a car loan, credit card payment or a mortgage, it is advisable to clear them off before applying for a VA loan. By doing so, not only are you eliminating the risk of being sued, you are also preventing any of these outstanding collections from showing up on your credit score.
You should have a median score of 620 at least
Although you need not aim at obtaining a FICO score of 850, you have to try to reach a median score of 620 at least. The first thing you need to do for this is to get a free credit report. If you are okay with paying up a small fee, you can get it directly from a credit reporting agency. Else, there are websites that help you obtain your credit scores for free. You need to make sure the credit report is accurate and your credit score is estimated properly.
Next thing you need to do is look into your payment history. Look out for missed payments if any. Pay those as early as possible and make sure you have nothing outstanding. Once you are current, make sure you pay all your bills on time so as to improve your score.
So, before you say yes to a VA lender who contacts you via those VA mortgage leads, make sure you take the appropriate steps to improve your position.