Can a 500 Credit Score Get a VA Home Loan?
In this blog, we will be covering a common frequently asked question: can a 500 credit score get a VA home loan? The team at Gustan Cho Associates are experts in VA loans with low credit scores. One of the most popular loan programs we help borrowers with is VA and FHA loans with credit scores down to 500 FICO. We are also experts in manual underwriting of VA and FHA loans. The Team at Gustan Cho Associates has a national reputation for being able to do home mortgage loans other lenders cannot do. Gustan Cho Associates, empowered by NEXA Mortgage, LLC, are mortgage brokers licensed in 48 states with a network of 190 wholesale lenders.
Obtaining a VA Loan With Low Credit Scores
Our nation’s veterans deserve more recognition than they receive. VA benefits are offered to those brave individuals who serve this great nation. The benefits are a small token of appreciation and are well deserved. One of the main benefits is a VA mortgage loan. A VA mortgage loan is designed to help veterans achieve homeownership without a down payment.
The credit and income requirements on a VA loan are also slightly more relaxed compared to FHA and conventional lending. In this blog, we will explain the VA mortgage loan, some benefits of using a VA mortgage loan, and how to apply for a VA mortgage loan with Gustan Cho Associates.
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What Is a VA Home Loan?
A VA mortgage loan is a highly competitive mortgage program designed for those who served our country. This mortgage loan is available directly through the U.S. Department of Veteran Affairs. These programs are available to all qualifying veterans, service members, and their surviving spouses. A VA loan does not require a down payment!
How Much Money Do I Need To Buy a House With a VA Loan?
The down payment is the main hurdle for most mortgage borrowers. Saving for a down payment can be very difficult, especially during times of rapid inflation. Since many veterans are currently serving our country and don’t have the means to save for a down payment during that time, a down payment is not required. Even if you are buying a home later in life, you will not need a down payment to utilize your VA home loan. A VA loan can be used to purchase or refinance a primary residence. They may also be used to build or renovate a home. More on that later.
What Are The perks of a VA Home Loan?
What are the perks of a VA mortgage loan? Besides the obvious no down payment requirement, there are numerous other perks to VA mortgage loans. VA mortgage loans are partially guaranteed by the United States government. This protects lenders in the event of default (foreclosure). Since this layer of protection exists, the terms on a VA mortgage loan are very beneficial for a mortgage borrower.
VA Mortgage Rates Versus Other Home Loan Programs
Typically, a VA loan will have a lower interest rate compared to conventional financing. And while the interest rates may be similar to FHA financing, there is no monthly mortgage insurance due from a VA mortgage loan. Long story short, a VA mortgage loan can save you thousands of dollars over the life of your loan compared to conventional financing.
This program is designed to set our veterans up for long-term financial success. Owning a home is very important for long-term wealth. Whether you borrow against your home later in life or pass the home down to your children, the equity in your home can dramatically increase your overall financial health.
Best VA Mortgage Lenders With No Overlays
A few other perks of VA mortgage loans include looser underwriting requirements compared to FHA and conventional financing. Homebuyers can qualify for VA loans with bad credit. We specialize in VA mortgage lending for veterans with less-than-perfect credit. Many banks and lending institutions have additional lender overlays on their VA mortgage programs, but Gustan Cho Associates does not. Our no overlay VA mortgage lending platform allows us to help veterans who may have collections, charge-offs, bankruptcies, foreclosures, and other derogatory remarks reported on their credit reports.
What Is The VA Minimum Credit Score Requirements
Technically, there is no minimum credit score requirement for VA mortgage lending. Most banks will tell you you need a 620 or a 640 credit score to qualify for a VA mortgage loan, but that is not accurate. While their bank may require a 620 or a 640 credit score, Gustan Cho Associates does not.
Mortgage Rates on VA Home Loans
Since your interest rate will be determined based on your current credit score, we want to make sure your score is as strong as possible before you apply. Our team of loan officers are expert with credit scoring. We have seen every credit profile possible from perfect 800’s credit scores to below 500. We know how to utilize your assets to increase your credit as strongly as possible. But once again, we do not have a minimum qualifying credit score on our VA mortgage programs.
Buying a Home With No Money Down With a VA Loan
Buying a home with little or no money out of pocket with a VA mortgage loan. Most veterans know that they do not have a down payment requirement, but some veterans are unaware that they still are required to pay closing costs. Closing costs can add up quickly just like the cost of everything else these days. It is still possible to purchase a home as a veteran with little or no money out of pocket. Buy a home with VA loan, click here
Solutions on Not Coming Up For Closing Costs on Home Purchase
You must work with your loan officer and realtor to put in your offer on a home with seller-paid closing costs. We help hundreds of veterans a year purchase a home with minimal out-of-pocket expenses. Depending on the purchase price of your home, property taxes in your area, and the cost of insurance in your area, it is possible to purchase your home with no money out of pocket.
Seller Concessions on VA Loans
A VA mortgage loan allows the seller to pay up to 4% of the purchase price as the seller paid closing costs. So, for a $250,000 home, the seller can pay up to $10,000 of your closing costs. If a home is less than 250,000, you may need some money out of pocket. The only caveat to this 4% rule is the home must appraise for the agreed-upon price.
Homes Selling Over List Prices and How It Affects the Mortgage Progress
Many veterans are offering over the asking price and asking for a 4% seller credit, which is a great strategy. Just note, that the hole must appraise for the higher amount. Over the past few years, we have seen home values skyrocket but over the past few months, we have seen these values level out. Since the days of rapid appreciation may be over, we need to make sure you put an offer in with realistic expectations and ask your realtor if they are comfortable offering over the asking price.
VA Manual Underwriting Guidelines
Gustan Cho Associates are experts in manual underwriting with VA mortgage loans. The term manual underwriting may scare many borrowers, but with a team of experts, it is nothing to fear. The manual underwriting process is something we specialize in at Gustan Cho Associates Depending on your overall credit profile, income, and assets available, you may receive an automated approval through the U.S. Department of Veteran Affairs.
VA Manual Underwriting Guidelines on VA Home Loans
If their automated underwriting system comes back with a refer/eligible decision, you may still qualify for a VA loan. Many lenders do not participate in manual underwriting and will tell you they cannot assist you, but that is why we encourage you to reach out to our team for a second opinion. We are experts in the manual underwriting process. For more information on VA manual underwriting, contact Gustan Cho at (800) 900-8569 or via email at gcho@gustancho.com.
VA Loan Chapter 13 Bankruptcy Guidelines
What about veterans with an act of Chapter 13 Bankruptcy? If you are a veteran who has filed for a Chapter 13 Bankruptcy, you may still be eligible for a VA mortgage loan under some basic criteria. Many bankruptcy attorneys will tell you you are not able to purchase a home during an active chapter 13 bankruptcy, but that is not accurate.
VA Guidelines During Chapter 13 Bankruptcy Repayment Plan
A veteran may obtain a VA mortgage during an active chapter 13 bankruptcy as long as they have made at least 12 on-time payments to the bankruptcy plan. After your 12th on-time payment, you can utilize your VA benefits to purchase or refinance a property. The basic requirements include no missed payments from the date you filed for chapter 13 bankruptcy to the trustee or any other monthly obligations.
How Soon After Filing Chapter 13 Bankruptcy Can I Qualify For a VA Loan?
Assuming you have 12 on-time payments, the process is very similar to buying a home without bankruptcy involved. The main difference in the process is the trustee approval. Since we specialize in chapter 13 mortgage lending, our team can help you with the trustee approval process. Assuming your mortgage payment will be similar to what you are currently paying for rent, the trustee should have no issue signing off. If your mortgage payment is going to be significantly higher than your current housing expenses, the trustee will need additional paperwork. Once again, we are here to assist you with this entire process.
Mortgage Options and Homebuyer Benefits For Veteran Borrowers
Above and beyond your standard VA mortgage loans, Gustan Cho Associates is excited to offer our veterans even more loan options. We have the ability to offer renovation loans directly through the VA. A veteran is eligible to borrow up to $50,000 above and beyond the purchase price for qualifying renovations. The process is quite detailed. So, we encourage you to reach out to our team for more information.
VA Interest Rate Reduction Refinance Loan: VA IRRRL
VA interest rate reduction refinance loan. Often referred to as an IRRRL, this program allows veterans to take advantage of current market interest rates to get an overall lower mortgage payment. This streamlined refinance is incredibly easy to get to the finish line. Since rates are currently higher than they have been in the past, many veterans who enter a mortgage soon or entered a mortgage this year will more than likely be eligible to take advantage of this program in the next few years (if and when interest rates fall again).
How Does The VA IRRRL Mortgage Process Work?
The IRRRL program simply refinances the current balance of your VA mortgage loan into a lower rate based on current market conditions. A veteran must recoup all closing costs associated with the loan within 36 months and interest rates must be reduced by at least half a percent. This program does not require an appraisal or income verification.
An underwriter will simply verify you have made your previous 12 mortgage payments on time to qualify for this loan. And if you have not been in your mortgage for an entire 12 months, as long as 210 days and six payments have been made since you closed, you are eligible to utilize the IRRRL program.
VA Construction Home Loans
One of the most popular VA mortgage loan options for our borrowers are VA construction loans. Gustan Cho Associates is incredibly lucky to offer our veterans a one-time close construction loan that can be used to build a new property. This program can even be used with manufactured housing.
The VA One-Time Close Construction Home Mortgage
The VA one-time close construction loan allows you to qualify for a mortgage loan, purchase a vacant lot, and finance all the costs to build a home on the property. It is called a one-time close loan because you will not be required to verify income and assets or any other qualifying factor after the initial closing. Once you close on the transaction, the builder can start right away. This program does have its own setup overlays above and beyond the minimal VA guidelines. Once again, please reach out to Gustan Cho at (800) 900-8569 for more information.
Can a 500 Credit Score Get a VA Home Loan at Gustan Cho Associates
Applying for a mortgage with Gustan Cho Associates is a simple process. We have re-engineered the application process to fit our client’s needs. We understand you are busy, so we have streamlined the process as much as possible. The first step is to call Gustan Cho at (800) 900-8569 (or email gcho@gustancho.com). Mike will have a one-on-one consultation going over your initial qualifications. It is important to go over any details that you feel may be an obstacle throughout the mortgage process.
Start The Mortgage Process With an Expert Loan Officer on VA Loans With No Overlays
Gustan Cho is well-versed with VA mortgage guidelines and is here to assist. After the initial phone call, you will be paired with a licensed loan officer in your state. Your loan officer will send you an online application link to fill out. After you fill out the initial application, you will receive a secure portal to upload your income and asset documentation.
After your application is complete, your loan officer then has permission to pull a tri-merge credit report. Once the credit report is received, your loan officer will then reverse engineer your income and asset figures to issue a pre-approval letter. Get qualify for VA loans with no onverlays, click here
Can a 500 Credit Score Get a VA Home Loan With Bad Credit?
If there are any hiccups on the credit report, your loan officer will go over those in detail with you. You will then create a financial plan to qualify for a VA loan as soon as possible. The basic qualifications for a VA loan are a clean 12 months of on-time payments. So, if there are any late payments or derogatory credit items within the past 12 months, you usually need to wait for those to be seasoned for at least one year. Your loan officer will go over your specific scenario in great detail.
Start Your VA Pre-Approval Mortgage Process With Us
After reading this blog, hopefully, you realize we are well-versed in VA mortgage lending. Gustan Cho Associates are always excited to help our nation’s veterans. We strive to stay up to date on the changing guidelines and offer competitive mortgage terms on all VA programs. Our no overlay VA lending platform allows us to help more clients than most banks and lending institutions.
Even if you have been turned down in the past for a VA mortgage loan, please reach out to our team of experts for a second opinion. Even if you do not qualify today, our team will create a custom financial plan to have you qualify as soon as possible.
You can contact us by calling us (800) 900-8569 or text us for a faster response. You can also email us at alex@gustancho.com. We are available seven days a week to assist you with your VA mortgage needs!
This guide on Can a 500 Credit Score Get a VA Home Loan was written and published on February 12, 2024.
Frequently Asked Questions (FAQs)
- Is it possible for me to be eligible for a VA home loan with a 500 credit score?
While the VA doesn’t set a minimum credit score requirement, most lenders do. A credit score of 500 is very low and may make qualifying for a VA loan difficult. For VA loans, lenders typically look for higher credit scores, generally around 620 or above. - Are there any exceptions for veterans with a 500 credit score?
Certain lenders might evaluate individuals with lower credit scores individually, considering their circumstances on a case-by-case basis, especially if the borrower has factors that could offset a low credit score, such as steady income and a favorable debt-to-income ratio, or significant cash reserves. - What steps can I take to improve my chances of getting approved with a 500 credit score?
Enhance your credit score by ensuring timely payment of bills, reducing credit card balances, and addressing any errors on your credit report. Additionally, consider seeking assistance from a credit counselor who can provide personalized advice. - Are there any alternative loan options available for veterans with low credit scores?
Suppose you need help to meet the eligibility criteria for a VA loan despite having a low credit score. In that case, you may explore other loan programs such as FHA, USDA, or conventional loans. Each program has its credit score requirements and eligibility criteria. - Would a larger down payment improve my chances of securing a VA loan with a credit score of 500?
A larger down payment might improve your chances of approval with a low credit score, as it reduces the lender’s risk. However, VA loans typically don’t require a down payment, so this may only be a viable option for some borrowers. - Should I work with a credit repair company?
Exercise caution when working with credit repair companies; some may engage in unethical practices or charges high fees for services you can do yourself. Instead, focus on improving your credit through responsible financial habits and seeking guidance from reputable sources such as HUD-approved housing counselors. - What documents must I provide when applying with a credit score of 500 for a VA loan ?
You’ll typically need to provide documentation of your income, employment history, assets, and liabilities. Moreover, lenders might ask for recent tax returns, bank statement, and pay stubs to verify your financial status. - How long does it take to get approved for a VA loan with credit score of 500?
The process of approval for a VA loan differ based on factors like the lender’s workload, the complexity of the application, and any additional documentation needed. On average, it may take several weeks to a few months to complete the approval process. - Can I use a co-signer to help meet the requirements for a VA loan with a credit score of 500?
While VA loans typically do not allow for co-signers, you may consider adding a co-borrower who is also a veteran or spouse to strengthen your application. Remember that borrowers’ credit histories and financial situations will be considered during the underwriting process.
