Home Ownership for Veterans with Bad Credit & Low Income

A couple of veterans find themselves dealing with bad credit or living on low incomes which leads them to rule out home ownership. It is indeed true that lenders look at creditworthiness, debt, income and home value as they decide whether to give out loans or not. Fortunately, veterans enjoy benefits that can help them become home owners even with bad credit and low income.

Below 580 credit scores:
One of the ways that veterans can become homeowners is through the help of the Department of Veteran Affairs (VA) which gives flexible loans for home purchases, repairs and improvements. VA loans were designed to benefit borrowers if:

  1. They have no outstanding collections
  2. They have no outstanding judgments 
  3. Stable income

However, there are cases where borrowers are unable to meet up to the expected credit score. Late payments can be one of the causes of these low credit scores. Furthermore, veterans have a hard time in beefing up their credit scores. Building credits and assets is a difficulty they have to face.

Fortunately, the VA has not set a minimum credit score to entice more veterans to utilize the program. The VA only requires veterans to be “satisfactory credit risk”. VA loans are flexible because they allow lower credit scores than other financing options.

The DTI:
The debt-to-income ratio (DTI) is a ratio which compares a borrower’s monthly debt payments to gross monthly income. It is used to determine if a veteran meets VA loan requirements. Despite the fact that VA lenders look for a DTI of 60+%, they look at the whole situation differently than other major lending avenues. VA lenders only focus on one ratio unlike other loan options which calculate two separate DTI ratios.

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What does the DTI mean?
A higher ratio is an indication that monthly expenses will more than likely outstrip monthly income. On the other hand, a low DTI indicates a healthier financial status. 
When giving out mortgages or loans, VA lenders use the DTI, residual income and other factors. Fortunately, veterans with a high DTI have a chance at getting VA loans but may have to settle for a lesser amount.

No mortgage insurance:
One of the benefits of the VA loan is that no monthly mortgage is required. This is unlike the conventional and FHA loans. For example, the FHA can add up to $170 per month as mortgage insurance for a $250000 mortgage. There is great difference for veterans who secure a VA loanbecause then they can save up to $40 billion in private mortgage insurance costs over the life of their loans.  The private mortgage insurance is a charge for conventional borrowers who can’t put down 20%.

Generally, the VA looks beyond just credit scores to determine whether an individual deserves a loan. Minimum scores vary from lender to lender but a person with a 580 credit score and no late payments is viewed much differently than a person with a 620 score and multiple recent late pays.

Veterans can become homeowners with bad credit and low incomes under special circumstances and consideration from the VA lender.

If you would like more information about what is discussed in this article or you would like to speak to a Real Estate Professional please visit www.a2z123realestate.com

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