How to Buy a VA Home With Bad Credit

Typically, a person with bad credit will have difficulty securing a home loan. Lenders may consider him too much of a risk, even if he's paid all of his bills on time in recent months. The Department of Veterans Affairs (VA), however, offers a home loan program through which veterans and active-duty serviceman can buy real estate despite low credit scores.

Step 1

Determine whether you are eligible for a VA home loan before considering your credit. You may be eligible if you served in the military for at least 90 days during a war or 181 days during peace time. You may also qualify if your spouse died while serving in the military or because of a condition connected to his time in the Armed Forces.

Step 2

Keep your credit clean and pay your bills on time for 12 months prior to applying for a VA loan. Qualifying is not based on your credit score. Instead, it's based on whether or not you've kept up with your payments over the last year.

Step 3

Wait two years and re-establish a good payment history after having debts discharged in a chapter 7 bankruptcy. Though bankruptcy will lower your credit score, you can still secure a VA loan as long as your payment history has been unblemished in the two years following discharge.

Step 4

Make all of your payments to the court on time for a full year after court approval of your chapter 13 bankruptcy repayment plan. You'll also need approval from the court's trustee to obtain a VA loan with chapter 13 bankruptcy.

Step 5

Wait two years after foreclosure on a previously owned property. If the foreclosure involved a VA home loan, you may not be eligible for a new VA loan.

Step 6

Have your spouse cosign on the VA home loan if she has a good bill payment history. Her income will be considered as well, which may help you to qualify for a larger loan amount. The VA may guarantee the entire amount for which you are eligible--called your entitlement--if a veteran's or serviceman's spouse is the cosigner.

Step 7

Ask a non-spouse cosigner to help you to secure a VA home loan. However, the VA will not guarantee the non-veteran's portion of the loan. For this reason, it may be difficult to convince a lender to grant a VA loan with this type of cosigner.

Tips and Warnings

  • You may qualify for a VA loan even if you do not have a traditional credit history, which typically includes credit card and loan use. The VA home loan program may allow you to use rent and utility payments to show a history of paying on time.
  • The amount of loan you qualify for will depend on your income and current debts. For VA loans, your debt-to-income ratio has to be 41 percent or less. This means your current monthly debts and your proposed home loan payment cannot total more than 41 percent of your income.

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