Those homebuyers, who are in search of a home loan with low credit scores, tend to have limited choices since a high credit scores is one of the major requirements of lenders. However, an exception to that is the VA loan that was enacted as an act of gratitude to returning veterans by the Congress in 1944. The VA loan, although insured by the US Department of Veteran Affairs, is not issued by them, rather approved VA lenders are ones who handle these loan applications and approve/disapprove the loan.
Since these loans are insured by the department, it allows the VA lenders to be more relaxed with their requirements. Apart from that, VA loans for low credit scores offer many benefits to veteran homebuyers and military members, which we are going to be discussing below.
- No Down Payment: One of the benefits that the VA loan offers to the applicants is that there is no down payment requirement. Typically, a home purchase requires a down payment of at least 20 percent, so not having to pay for a down payment can lead to significant cost savings for veterans.
- Refinancing: Those borrowers who purchase a home using VA loans for low credit scores also have an opportunity to refinance a loan at a lower interest rate.
- Leniency In Credit Requirement: One of the major benefits for a borrower applying for a VA loan is that the program does not approve or deny an application on the basis of a credit score only. Nor do they offer raised or lower interest rates based on credit scores, they instead, asses the borrower’s credit history for the past year.
- No Pre-Payment Penalties: With most loans, paying off the mortgage before the date of maturation, results in a penalty that has to be paid by the borrower. But with VA loans, there is no pre-payment penalty for the borrower and can be paid off at an earlier date.
- No PMI: An added benefit of the VA loan is that unlike conventional loans, you do not have to pay for a Private Mortgage Insurance (PMI) that protects the lenders against any losses unless the borrower pays for a 20 percent down payment. However, since the lenders are already insured by the federal government, there is no requirement for a PMI.
The flexibility provided by the VA home loans, along with the many opportunities that they have to offer, have become an incredible resource for veterans and their families, having assisted over 18 million veterans till date.
Joan Gallardo with his 18+ years of experience as Senior Loan Officer is a wealth of knowledge dealing with VA loans for low credit scores. Through his articles, learn about the different properties that can be mortgaged with a VA loan and the benefits it provides to homeowners, especially those with relatively low credit scores.