Although having poor or damaged credit can impede the mortgage acquisition process, borrowers qualified to secure VA loans may often secure these loans, even after bankruptcy, short sale, or foreclosure. Essentially, the U.S. Department of Veteran Affairs (VA) guarantees mortgage loans, rather than originating or issuing them. With lenient credit requirements, these loans can be secured with a relatively low FICO score. Additionally, since the loan is insured, the lender assumes less risk when originating the mortgage and can thus approve riskier borrowers with less-than-perfect credit histories. Furthermore, the VA understands the various complications involved in homeownership while serving in the military and considers these factors when determining approval for loan applications.
No Credit History
One of the major reasons behind many VA borrowers having bad credit is that many have not established a sufficient amount of credit during their lifetime. If a veteran attends college, he or she is typically not forced to secure student loans, as the ROTC program covers a significant majority of college expenses for many military veterans. In addition, many veterans do not secure car loans, credit card debt, or other forms of debt, due to spending much time invested in active duty service.
Long Distance Billing
In addition to credit concerns, many VA-qualified borrowers find it challenging to keep current on debts, as paying bills during deployment abroad can be quite challenging. Although direct payment methods may be available through certain financial institutions to resolve this problem, these veterans may not have the time or means to discuss the issue with the bank. If an unexpected debt comes due while abroad, borrowers may not have any way to deal with the problem, and credit can plummet within only a few short months abroad.
Acquiring a VA Loan with Poor Credit
For these reasons and several others, returning from deployment with damaged credit is fairly typical, and the Department of Veteran Affairs seeks to address this issue. With an exceptionally low down payment requirement, VA loans are considered to be both the cheapest and most advantageous loan program available, although they can only be acquired by military veterans who fully meet VA Eligibility Requirements. While borrowers whose bad credit has arisen from less excusable circumstances, such as defaulting on a loan with no extenuating circumstances or holding too much debt, borrowers whose bad credit is related to military service will almost always qualify.
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