This BLOG On How To Improve Credit To Qualify For VA Loans Was UPDATED On January 30th, 2019
VA Loans are the best mortgage loan program available in the U.S. However, not every home buyer is eligible for VA Loans.
- Only Veteran Borrowers with an honorable discharge and valid Certificate of Eligibility (COE) are eligible for VA Home Loans
- VA Loans also offer the lowest mortgage rates out of any government and/or conventional loan program
- There is a one-time funding fee with VA Loans
- The greatest benefit is 100% financing
- There is no annual mortgage insurance with VA Loans
In this article, we will cover and discuss improving credit to qualify for VA home loans.
Applying For VA Home Loans & How To Improve Credit To Qualify For VA Loans
Credit repair is the process of either deleting inaccurate information or derogatory items from credit report.
- Inaccurate information is posted on consumer’s credit report all the time and if you have proof documenting the error, you can easily get it deleted it off the credit report
- Many consumers also try to use loopholes in the Fair Credit Reporting Act, also known as FCRA, to try to delete derogatory items
- There are thousands of credit repair companies that can help you with credit repair
- However, whatever a credit repair company can do, you can also do it yourself
- Deleting derogatory items will not necessarily improve credit scores
Older aged derogatory items have very little to no impact on credit scores.
Derogatory Credit On Report Report & How To Improve Credit To Qualify For VA Loans
For example, collection accounts, charge off accounts, late payments, bankruptcies, foreclosures, deed in lieu of foreclosures, short sales that are reported on the credit reports that are over two years old will have little or no impact on credit scores.
Veteran Borrowers can still have many older negative items including the following:
- open collections
- charge offs
- late payments
Qualifying For VA Loans With Re-Established Credit
Even with the above, veteran borrowers can qualify for VA Loans with re-established credit.
I have seen many times over people with credit scores of over 700 plus after two years of the following:
- bankruptcy
- foreclosure
- deed in lieu of foreclosure
- open collections
- charge offs
- late payments
Establishing Credit To Qualify For Mortgage At Best Rates
The key is having re-established credit.
- Veteran Borrowers can always re-establish credit by the use of secured credit cards
- Secured credit cards are powerful tools to re-establish credit and start a good payment history and boost credit scores
For those who want to clean up their credit report and delete older derogatory credit items, there are techniques they can use.
Dispute Negative Items To Credit Bureau
The FCRA, Fair Credit Reporting Act, is the federal law that regulated the information that can or cannot be reported on the credit report and the time a derogatory credit item can be posted.
- The Fair Credit Reporting Act also requires that the credit bureaus need to investigate any errors or disputes from public consumers
- Needs to investigate errors and inaccuracies and need to remove those within a certain specified time period from the initial dispute
- Credit disputes can be made either online or by U.S. Mail
- However, I strongly recommend dispute errors via mail
Veteran Borrowers can qualify for VA Home Loans with outstanding collections and charged-off accounts without having to pay them off. Often times, credit repair is not necessary to qualify for VA Loans with bad credit.
Credit Disputes During Mortgage Process
Credit Repair can be very dangerous for homebuyers who need to purchase homes sooner than later.
- Credit Disputes is prohibited during the mortgage process on VA Loans and government loans and/or conventional loans
- The reason being is that credit bureaus automatically take out the negative factor on disputed credit tradelines
- For example, if consumers dispute a late payment, that late payment doesn’t exist in the credit scoring formula
- So what happens is that the consumer credit scores will go up on any disputed items
- Medical disputes are exempt and can be disputed
- Non-medical tradelines with zero outstanding balances are exempt
- Non-medical disputes with under $1,000 (total aggregate by consumers) are exempt
When consumers retract disputes, credit scores can often drop significantly.
Obtaining Credit Report To Prepare On How To Improve Credit To Qualify For VA Loans
To initiate a credit derogatory or error, consumers need first need to obtain a credit report.
- List the items in dispute
- Write each of the three credit bureaus that are reporting derogatory a letter with the creditor’s name, amount, date, and the reason for the dispute
- Examples of dispute letters are that the information is not yours, the amount has been paid off, or state that you were never late
- Include any documentation or proof
- Provide that with the dispute letter
Send the letter via certified or registered mail and make copies of all correspondence.
Disputing It With The Creditors Itself
Consumers can also dispute the derogatory item with the creditor that is reporting itself.
- If the creditor realizes that there is an error or cannot substantiate the derogatory item, they need to notify the three credit reporting agencies of the errors and the credit bureaus will update credit report
How To Improve Credit To Qualify For VA Loans And Deletions Off Credit Report
In the event, if the derogatory item is yours and you want it removed from the credit report, you can do so by requesting pay for delete offer.
- This technique is when you offer to settle for a derogatory debt only if the creditor is willing to remove the negative item completely off the credit report
- This is the only way you should pay a collection account or delinquent account
- If you have an older delinquent or collection account and you make the payment on it, it will re-activate older-aged derogatory item and make it current and this will literally plummet credit scores
- I have seen this happen many times over were in some cases, credit scores plummeted over 80 points by paying an older collection account
You need to realize that older collection accounts have no impact on credit scores and you can still get a mortgage loan with outstanding collection accounts and prior bad credit as long as you have re-established credit.
Current Late Payment: Plead With The Creditor For Mercy
A current late payment on the credit report will devastate credit scores and might ruin chances for a mortgage loan approval.
- Consumers with current late payment with a prior perfect payment history with the subject creditor can contact the creditor who reported them late and beg to please give them a goodwill one-time late payment deletion
- Most creditors will offer a one-time goodwill pass in removing a recent late payment if the consumer had a good payment history with them
- This often works and if the representative will not cooperate with, request to speak with a supervisor
- Those who had a great long term payment history with the creditor, the creditor will give a one time pass
- I recommend this technique all the time to my borrowers who just had a recent late payment
Removing the late payment will skyrocket the credit scores.
Disputing Derogatory With Open Credit Balance During Mortgage Application Process
Veteran home buyers are planning in buying a home and will be applying for a residential mortgage loan in the very near future, NEVER dispute a derogatory item with a balance on it. Credit Disputes During Mortgage Process can become a deal killer on VA Home Loans.
- Fannie Mae, Freddie Mac, VA, FHA, USDA, prohibits a credit dispute with an open credit balance on it
- The dispute needs to be retracted in order for your mortgage application process to move forward
- However, retracting a credit dispute WILL DROP credit scores
- A recent case where a mortgage loan borrower retracted a credit dispute cost her over 80 POINTS so she needed to be off the loan application
- The only way I could have done the loan was just using her husband
Had a Hell of time due to debt to income ratios but eventually, we got the loan closed.
Best Way On How To Improve Credit To Qualify For VA Loans
Veteran Home Buyers who have less than perfect credit and need a direct VA Lender with no mortgage overlays can contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com. Gustan Cho Associates has ZERO OVERLAYS on VA Home Loans. We are available 7 days a week, evenings, weekends, and holidays.
This BLOG On How To Improve Credit To Qualify For VA Loans Was UPDATED On January 30th, 2019
Gustan Cho
www.gustancho.com
