Mortgages and Credit: Getting a VA Loan
My name is John, I am a veteran of Operation Iraqi Freedom with the Army Reserves. I was one of the lucky people who was activated from inactive reserves (IRR). I also am a financial analyst and (until recently) I had bad credit. On December 18th I closed on a house I bought using a VA loan. The news lately had me pretty scared! I was worried that I would never get approved with my credit because of the sub prime market situation. I did a little research and a little hard work and I was able to get approved. With this blog I hope to inform you not only how to get a VA loan but also how to make your credit score look a little better!
Your Credit Report
The first time I had checked my credit report I was in my late 20′s and I just knew it was bad…plain and simple! I was the guy in college that would get credit cards, max them on pizza, and not pay…that was just the beginning! I didn’t mention my student loans I skipped out on! A few years later I was starting a successful career, my wife was about to become an RN, and we were renting a house. We started to look at homes and found one we liked. We spoke to the builder’s mortgage company and they offered us a 10% interest rate. Obviously we knew we had to wait! I went home and logged onto https://www.annualcreditreport.com. This is a site that gives you access to the 3 major credit reporting companies. From here you can access your credit report from each of the 3 companies once a year for free. Remember, this is your credit report…not your credit score! They may charge you a small fee to view your credit score. I pull my report and pay for the score at least twice a year. They also might sign you up for a credit monitoring service free trial. Make sure you cancel if you do not want the service! I cancel the day I pull my report so I don’t forget!The first time you pull your report it might seem like you are reading a foreign language. Review your negatives and make sure you recognize them. If you see anything on your report that you do not recognize then you can report it and it may be removed from your report. I don’t know if it is legal so check before you do it (in other words don’t blame me if it is illegal and you are busted) but I fought every negative on my credit report. I was shocked at some of the things that were removed! Clean it up the best you can (pay off some of the small debts).
Tips on improving your credit score
Ok so you see an ad in the paper where they will fix your credit for you…I don’t trust them! You can do it on your own a lot cheaper! The first step which I already mentioned is to dispute your negative items on your credit report. You can do this online or by sending a letter registered mail to the address on your credit report, I just did it online. Second you need to get new positive credit. The first step I did was to get a high interest, high annual fee credit card. Orchard Bank is who approved me, there are a few others like them. Don’t max it out, but use it for gas or something that isn’t too hard to pay quickly if you need to! Anther trick is to get a loan. I read an article about a website that is like eBay for loans. Visit http://www.prosper.com (if you join though my referral page you’ll get a $25 discount on your loan http://www.prosper.com/join/djohn78). The way prosper works is you create an ad (like on eBay) saying how much money you want and what interest rate you are willing to pay and that’s it! The lenders will see your credit history condensed. They will not see your score but they will see your rating. Lenders (who would be the buyers in the eBay example) see your ad and they bid on your loan. The nice thing is the bidder always wins! You can get a loan for $1000 and have 10 people bid $100. You now owe those people $100 (plus interest) each! Prosper will direct deposit the money into your checking account (minus a small fee). To make yourself more marketable you can sign up to have your payments come out of your bank automatically (just the minimum payment). You can also make additional manual payments. Every time a payment is made, it is split among the lenders.
Be Patient
Good credit scores are all about history so there is not a way to turn a score of 522 into a 615 in a month. It does take time. However small steps like this spread out over a year will make a big difference, they want to see a good payment history. If you are going with a VA loan there may be some other tricks that I’ll get to in the next section.
Getting the VA Loan
I’m not going to go into the steps of getting a VA loan, VA Joe has a good section on that, this is more about getting approved for the loan! Your mortgage company will be able to customize this for you but here are the basics. The VA is very forgiving when it comes to credit. You can have 10 maxed out, never paid credit cards from 10 years ago and it may not effect you. The VA looks more at history then they do score. They are mostly worried about the last 24 months. You don’t want to have any missed payments in that time frame. We had a couple of payments that were late in that time frame and our mortgage broker told us to write a letter to the underwriters telling them why we were late. Come up with a better excuse then “I forgot to pay” you may need to use your imagination! This is just an outline of what you need to know, again your mortgage broker will be able to customize this plan for you.
January 2nd, 2008 at 5:19 pm
Hello John: I just read your suggestions for improving one credit. I must say, I am retired E-6 US Navy. I train our soldiers in the Hampton Roads Virginia area the value and credit responsibilty. Your way is not the correct way to really take care of such important part of one life.
I give senimars on the subject. If you would like a ppt. presentation please send me an email. Anyone who want my presentation just send me an email.
January 2nd, 2008 at 11:24 pm
The foremost concern of a person having a bad credit status who wants to avail a loan is the interest rate. Bad credit loans in general carry very high interest rate. It is difficult to find a lender offering bad credit loans at low interest rate but it’s not impossible. Bad credit loans offered at competitive interest rate are known as cheap bad credit loans.
January 3rd, 2008 at 11:14 am
Hey guys,
I just wanted to take a second to respond to the comments that have been left so far!
Freedomlou: I do understand your opinion and I understand that taking responsibility for your credit is very important. This is an example of how to buy a house when you have these bad marks on your credit.
Kenward Claire:
With the VA loans you typically get a better interest rate then you can get with other companies. Again…this example was about the VA loan, not about commercial mortgages.
April 9th, 2008 at 10:01 pm
Va loans mostly require 12 months of clean credit, regardless of the bad prior.
Great article.
Jon
May 20th, 2008 at 1:38 pm
I think that the information on repairing your credit will be helpful to many, and work well but need to be utilized responsively. I am a mortgage loan officer in oklahoma and a veteran who currently has a VA Home loan and i deal with many people in mainly in Texas and Oklahoma and a few other states who are in need of credit guidance and repair. Most people have had problems that seem to come from their youth, medical issues and life mishaps but, not all. VA and FHA home loans are more forgiving than most and allow for a second chance at a good rate to those who are looking to reestablish their credit. We at Southwest Funding try to help people looking for that chance get a new start. If your needing help or just want to ask questions checkout our website at http://www.okhouseloans.com or give me a call 405-602-5878 and i’ll try to help you anyway i can. We specialize in VA loans Fha loans and with credit challenged customers.
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