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VA Loan with Low Credit Score
I’m an active-duty U.S. Navy First Class Petty Officer currently stationed in Japan and preparing to return to Mississippi.
I’m looking to purchase my family’s first home using my VA home loan benefit. My wife, son, and I are looking in the $240,000–$250,000 price range.
I’ve been watching your videos about VA loans for borrowers with lower credit scores and manual underwriting. I used your DTI calculator, and my debt-to-income ratio is approximately 41.8%.
Over the past few months, I’ve been working hard to strengthen my mortgage file. I recently resolved two collection accounts, I’m continuing to save for the home-buying process, and we currently have approximately $12,500 in savings.
I do have some previously reported late payments on my credit history, but all of my accounts are current today, and I’ve submitted goodwill requests to two of my creditors because those late payments resulted from autopay issues that I corrected as soon as I became aware of them.
Before I spend money on applications, I’d like to know if my file is something your team would realistically consider for a VA loan, and if so, what documents you would need from me to begin the pre-approval process.
Thank you for your time, and I look forward to hearing from you.
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1 Reply
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You came to the right place. Gustan Cho Associates are experts in originating and funding VA loans, VA loans with bad credit, VA loans with low credit scores, and VA loans with high debt-to-income ratios. Thank you for your service, Petty Officer. With the information you’ve shared, we are able to start a preliminary review of your VA loan application.
A debt-to-income ratio of 41.8% does not make you ineligible for a VA loan. VA does not have a maximum debt-to-income cap. VA underwriting looks at more than just DTI. It also considers your income, future residual income after housing costs, monthly debts, credit history, savings, and any explanations for past credit issues. Unlike other loans, VA loans do not have a set minimum credit score, though most lenders do require one.
Your credit report shows your accounts are in good standing, two collection accounts have been resolved, and you have about $12,500 in savings. The late payments on your report will need to be explained. A short note stating that the late payments were due to a temporary issue with your automatic payments, that you fixed the problem quickly, and that there have been no further late payments since can help the underwriter understand your situation. A goodwill letter is a good idea, but the credit report will be the main factor in evaluating your loan. VA has one of the most lenient mortgage guidelines out of any loan program. However, VA are extremely strict with late payments in the past 12 months.
Because you are on active duty in Japan, we need to see your expected return to Mississippi or your PCS orders. VA purchase loans are for homes you will live in as your main residence, so your move, the closing date, and when you plan to move in are all important.
To start the application process, you’ll need to provide your most recent LES, W-2s from the past two years, two months of bank statements, a photo ID, and your VA Certificate of Eligibility and Loan Approval letter. We also need proof that the collections have been paid or settled, a short letter explaining the late payments, and your Mississippi return, PCS orders, reassignment documents, or a service letter. If you are qualifying with your wife’s income, we will also need her income and employment statements.
As an active duty service member, we will also need to confirm your Expiration Term of Service (ETS). The VA usually requires you to have at least 12 months left on active duty after the loan closes, unless you have proof of guaranteed immediate reenlistment.
With a purchase price between $240,000 and $250,000, the next step is to calculate your actual monthly payment. This will include Mississippi property taxes, expected interest, homeowner’s insurance, HOA dues, and your verified monthly debts. Your calculator estimate is a good start, but the final DTI and residual income numbers will come from your verified documents.
Please wait to pay for appraisals or sign any purchase contracts until VA lenders have fully reviewed your file and given you a clear idea of your options. Your application should not be judged only on past late payments or a lower credit score. The best next step is a full review by a VA lender, which may include manual underwriting if needed.
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