Steps Of The VA Mortgage Process With Bad Credit

This ARTICLE On The Steps Of The VA Mortgage Process With Bad Credit Was PUBLISHED On February 17th, 2020

Steps Of The VA Mortgage Process
Gustan Cho Associates

Steps Of The VA Mortgage Process With Bad Credit For Mortgage Borrowers of VA Loans:

  • At Gustan Cho Associates we understand that life happens and sometimes your credit will be less than perfect
  • We are experts when it comes to VA mortgage lending
  • The U.S. Department of Housing and Urban Development (HUD) oversees VA mortgage guidelines and they do not have a minimum credit score requirement
  • If you are a veteran, we are not worried about your credit score for qualification purposes
  • We are interested in your credit history
  • Of course, the higher your credit score is, the lower your interest rate will be, but sometimes it is best to start building equity and stop renting
  • In this blog, we will detail some important steps to prepare for a VA home loan if your credit is not ideal
  • Using your benefits from the U.S. DEPARTMENT OF VETERANS AFFAIRS can be a life-changing tool to buy a home

In this article, we will discuss and cover Steps Of The VA Mortgage Process With Bad Credit.

Steps Of The VA Mortgage Process With Preparing Credit Scores

Step 1: Preparing your credit profile for a VA loan:

  • Your credit report is a major factor when qualifying for a mortgage, including a VA loan
  • We did mention there is no minimum credit score requirement however there are payment history requirements
  • The easiest way to prepare for a VA mortgage is to have a clean 12 months of payment history on your credit report
  • Meaning no late payments or NON-MEDICAL collections in the most recent 12-month period
  • An underwriter will go through your payment history with a fine-tooth comb
  • They want you to demonstrate on-time payments for at least the past year to show financial responsibility
  • If you do have late payments in the past 12 months, it will not necessarily disqualify you, but it will be harder to obtain a mortgage
  • When there are late payments in the past 12 months, they will require a very strong letter of explanation with supporting documentation
  • For instance, if you missed a vehicle payment because you were in the hospital, and we can prove the dates you were in the hospital, and underwriter usually will allow the late payment
  • If you missed a payment and there is no valid explanation, this may hinder your qualifications

If there is an apparent pattern of missing payments, it will be very hard to qualify. You will want to start from scratch and start making all payments on time for at least a year.

Steps Of The VA Mortgage Process: On-Time Housing Payments

Step 2: On-time housing payments:

  • Depending on your mortgage qualifications, you may need to complete a verification of housing payments
  • If you have a mortgage, this payment history will be done on your credit report
  • If you are currently renting, this will be completed with a VERIFICATION OF RENT
  • With a VA mortgage, the underwriter can look as far back as 24 months on housing payments
  • Any missed housing payments at this time may disqualify you from VA mortgage financing

If you live with a family member and do not pay rent, they will complete a rent-free letter on your behalf.

Importance Of Assets

Step 3: Assets:

  • Having assets such as money in your checking or savings account, retirement account, or stocks and bonds are important when qualifying for a VA mortgage
  • You do not need a down payment, but there are closing costs associated with the transaction
  • As a veteran, you can ask for up to 4% of the sales price as seller credits to pay these costs
  • The seller is not obligated to pay your closing costs, your realtor will need to negotiate this into your sales contract when you submit your offer
  • Even if the seller agrees to pay your closing costs, you may still need to meet your reserve requirement
  • Typically for VA financing, you will need one month of reserves in your account after closing
  • One month of reserves equals one month of mortgage payment including principal, interest, taxes, insurance, and any homeowner’s association dues
  • The more reserves you have, the higher chances you have for approval

Now that you have built up your credit and are ready to move forward with the VA mortgage, below are the steps to continue the process.

The Ability To Repay

What does the repayment option look like?

Step 4: The next step to take when purchasing your home with a VA mortgage is to figure out what you can afford.

  • It is time to go through the pre-approval process
  • It is important to understand that just because you may qualify for a certain payment, that may be outside of your budget
  • A VA mortgage allows a high debt to income threshold compared to conventional mortgage lending
  • Just because you may qualify for a high payment does not mean it is the right decision for you and your family
  • You will want to come up with a financial budget
  • Here is an example BUDGET to keep you in a safe payment
  • You want to make sure your housing payment correlates with your lifestyle and your budget
  • Stretching your housing payment can put you in a bad financial situation when the unexpected happens
  • Owning a home comes with a lot of responsibility
  • For example, if your furnace goes out and costs $800 to fix, you will not rely on homeowner’s insurance to fix, this will be an out-of-pocket expense

Most homeowner’s insurance deductibles are $1,000 or more, so paying $800 to fix furnace is your responsibility.

Steps Of The VA Mortgage Process With Bad Credit By Choosing An Experienced Lender

Step 5: Contacting a lender

  • It is important to research VA mortgage lenders and find a lender you are comfortable with
  • We encourage you to check out our reviews on popular real estate sites such as ZILLOW.COM

We have numerous success stories from fellow Veterans.

Hiring A Real Estate Agent

Step 6: Once we have you pre-approved, you will now need to find a licensed real estate agent.

  • The real estate agents will give you access to the MLS database and show you homes available for sale in your area
  • You will want to find a realtor who is familiar with VA mortgage lending
  • If you are relying on the seller to pay your closing costs, you will want to find a realtor who knows this process

You will also want to find a realtor who will guide you through the paperwork and be able to help with any issues that may come up.

Submitting A Real Estate Purchase Offer

Step 7: Once you narrow down a specific address, you will now submit an offer.

  • Once your offer is accepted, the fun begins. It is important to remember this is a long-term investment

You will want to complete a HOME INSPECTION to make sure you’re buying a structurally sound property.

Mortgage Documents Required To Process VA Mortgage Loan

What mortgage documents required to process a VA mortgage

Step 8: Complete the required mortgage documentation.

  • Once you have selected a property, your mortgage team will send you electronic disclosures to start the mortgage process
  • Your loan officer will go through these papers with you and answer any questions you may have
  • Once these papers are returned to the lender, the mortgage process will begin

Your mortgage processor will now go ahead and order your VA appraisal and require verification.

VA Mortgage Process

Step 9: Underwriting process.

  • This part has many borrowers nervous. Underwriting will go through all your documentation and make sure you qualify for a VA loan
  • You may need to send additional items such as an updated bank statement or pay stub to receive your clear to close
  • Please see our blog on TIPS FOR UNDERWRITING for more information

Once you have sent in all the required documentation, your underwriter will issue you your official clear to close.

Clear To Close And Mortgage Closing

Step 10:  It is now time to sign the final paperwork.

  • You will go to a title company and sign the mortgage documents
  • Once all the paperwork is signed, your lender will fund your mortgage loan
  • Once the funding slash wire transfer hits the title company, you are officially a homeowner

Congratulations, this is an incredibly exciting day.

Gustan Cho Associates have helped hundreds of veterans achieve mortgage financing when they did not think it was possible. We do not have LENDER OVERLAYS to cloud the process. We even offer a TBD underwriting process to save you from many headaches down the road. We are the VA mortgage experts and encourage you to reach out to us today. For questions surrounding your VA qualifications, please call Mike Gracz on 630-659-7644. We pride ourselves on customer service and are available seven days a week. Many veterans call in with a question and our homeowners before they know it. We look forward to hearing from you.

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  • I am looking for a non-qm or traditional loan. We are business owners, we take K1 and report 1040. In applying for a conventional loan we learned we did not qualify because we could not show enough income. It has taken two mortgage companies and our bank. We have a closing on 11-3. We will lose the house and deposits. We are not ready to throw in the towel – can you help in this situation? I can provide 24 mo of bank statements (business and personal) which will show over $3M++ in deposits while carrying a balance in our operating account of no less than $500K.

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