VA Refinancing With Bad Credit
Veterans Affairs mortgages, or VA loans, have become lifesavers for homeowners struggling to refinance with conventional loans. Low mortgage rates and tighter underwriting standards have led to a huge demand for VA loans from refinancers. Also with interest rates near historic lows, it’s no wonder so many people are considering refinancing their homes mortgage and replacing their existing mortgage loans with a new, lower rate loans. This can save homeowners money over the life of the loan (they’re paying less in interest) and lower their monthly payments. But for homeowners with less than stellar credit, refinancing at a good interest rate can be difficult. VA Refinancing With Bad Credit
The VA does not have a minimum credit requirement. It simply requires that borrowers represent a satisfactory credit risk. But ultimately VA lenders issue the loans, and in the current economic climate these lenders are looking for solid credit scores. It’s up to them to determine whether or not your credit score meets the benchmark they set. If you find that your credit score falls short, there is still hope. There are a number of ways you can raise your credit score to meet a lender’s benchmark and receive the loan you deserve. VA Refinancing With Bad Credit
VA Refinancing With Bad Credit as long as you are current on your VA mortgage, you are not required to have good credit to get your refinancing (IRRRL) approved. There is no credit underwriting performed unless your payment will increase by 20 percent or more or you are more than 30 days behind on your current home loan. However, if your credit has been affected by an active Chapter 13 bankruptcy, your new refinance may have to be approved by the bankruptcy trustee or judge. If you happen to run into financial trouble once you have your VA loan, the Consumer Financial Protection Bureau (CFPB) has issued a host of new protections for military mortgage borrowers that took effect in January 2014. VA Refinancing With Bad Credit
For those veterans who have delays on their loan payments, lenders will require your credit score to determine how likely it is that you will pay them back in full and on time. Credit scores range from 300, which is very poor, to 850, which is perfect. Your score is calculated by looking at your past payment history (35 percent), amount owed (30 percent), length of time you’ve had credit (15 percent), new credit (10 percent) and type of credit (10 percent). As you can see, the bulk of your score is based on your past payment history and total debt, so people with too much debt or who haven’t paid their bills on time are going to seem “high risk” to lenders. VA Refinancing With Bad Credit
Thus, a mortgage lender will charge a person with poor credit a higher interest rate to refinance because the lender is taking more of a risk by lending that person money. So while someone with an 800 credit score might only pay 3.5 percent on their mortgage, someone with a 650 or below may pay a full percentage point or more higher, which will likely equate to paying the lender tens of thousands of dollars more in interest over the life of the loan.
VA Refinancing With Bad Credit: If you have poor credit and want to refinance, it’s important to calculate your monthly payments and to make sure a refinance is right for you. When you factor in closing costs and fees, the new loan, even if it is a slightly lower rate than your current loan, may not make financial sense. Beware: Sometimes, a refinance will lower your monthly payments (it’s lowering your interest rate) but will extend the term of your loan (i.e., it will make the new loan a 30-year loan even though you’d already paid down five years on your original loan and only had 25 more to go), which can end up costing you more in the long term. In this case, think long and hard about whether these lower monthly payments are worth the long-term cost. VA Refinancing With Bad Credit
How to Raise Your Credit Score?
Many times, a number of different factors collectively contribute to lower a credit score. Raising your score means fixing these issues. Some issues found in your credit report can be fixed quickly, while others may take some time. Either way, boosting your credit score requires sincere commitment and determination on your part. When you’re ready, your hard work and dedication will pay off.
The key to building good credit is to use credit wisely. Simple activities like open a savings and checking account to manage your money, get a good job and start saving money, open a small loan and do the payments on time, and apply for a credit card and use it occasionally for small, affordable purchases will improve enormously your credit score. And remember pay your balance in full and pay it on time. If you have to carry a balance, keep it at less than half of your credit limit as to not impact your credit score. Pay it down as quickly as you can. VA Refinancing With Bad Credit
Your credit score is calculated considering payment history (35%), available credit (30%), length of credit(15%), types of credit(10%), and credit inquiries (10%). So the category that affects your credit score the most belongs to the payment history of the borrower. So the fastest way to repair credit scores is to concentrate on the first two categories, which make up 65 percent of the total score. There’s nothing one can do to affect the Length of Credit portion except wait. Those with good credit over an extended period will have better scores than new borrowers. First, make sure all credit payments are made on the due date or at least not more than 30 days past the due date. Second, pay outstanding credit balances down to 30 percent of the available credit.
Having no credit is almost as bad as having bad credit. Some actions that you need to avoid when you want to build your credit history are:
- Don’t overcharge your checking account with expenses, this will increase your interest fees, and you could damage a good reference.
- Don’t apply for too much credit cards in a short period of time, this will negatively impact your credit score.
- Don’t let friends have access in any way to your bank account. You are the only responsible for the use of your accounts.
- Avoid compulsive shopping, or big expenses that you cannot afford. VA Refinancing With Bad Credit
How to Get a Lower Interest Rate?
If you’ve done everything you can to improve your credit score but still can’t refinance or get an interest rate that you want, you should take other measures to help ensure you get a lower interest rate.
First, if you can manage it, put a significant amount of money in the bank or have other liquid assets on hand, as this shows the lender that you have the means to repay the loan. VA Refinancing With Bad Credit
Second, consider having someone with a higher credit score than you co-sign the loan. This, too, gives the lender assurance that you will repay the loan in full and on time because now a person with good credit is also responsible for the loan. Just make sure that the co-signer understands that if you don’t repay the loan, the co-signer is on the hook for repaying it. VA Refinancing With Bad Credit