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Damaged Credit
VA Loan

All About the Damaged Credit VA Loan

Sometimes life can be incredibly difficult, and you may find yourself in a situation where your credit has been damaged. While this may feel as if there are no home buying options, we may have the perfect solution. At MHS Lending we offer the Damaged Credit VA Loan to those who need it. This loan helps us fulfill our goal of finding solutions to make every veteran or military member a homeowner. Buying a home is an incredible feeling and we want to help make that a reality for you.

How does a Damaged Credit VA Loan work?

Damaged credit VA Loans are available to help those who qualify for the VA Loan but have credit or debt-to-income ratio issues. This may seem too good to be true, but it’s actually pretty simple how we’re able to offer these loans. Have you ever heard the term lender overlay before? Lender overlays are rules that banks and lenders add in order to protect themselves from the risk of lending money to potential home buyers. These overlays are what get in the way for some borrowers with bad credit.

At MHS Lending we don’t have any lender overlays, which is how we are able to help clients who normally have a difficult time getting a VA Loan. Because there are no lender overlays to worry about, we have been able to help clients with sub 500 credit scores buy a home. This makes the Damaged Credit VA Loan a powerful option for buyers who need it.

What factors determine my credit score?

It’s important before you start the process of buying a home that you understand your credit score. Whether you’re simply looking to know more or are actively trying to raise your score, understanding how credit scores work will help you make confident decisions. According to Investopedia, credit scores are numbers that depict your creditworthiness and typically range between 300-850.

The higher the number you have the more of an attractive borrower you are to a potential lender. If your credit score drops it can feel impossible to raise it high enough to get a loan. Before trying to improve your credit, you must first understand what factors go into determining that score. Your credit history evaluates very specific historical data before it lands on the final number. Keep in mind this number fluctuates so making smart financial decisions can help you improve this over time. Key factors include:

  • Payment history: this is the highest determining factor in your score. Your payment history shows how reliable you are at paying bills on time. Missing a credit card or mortgage payment can greatly impact your score.
  • Types of credit: this shows everything from your student loans to your credit cards.
  • Total amount of money you owe: is another big factor and looks at the amount of money you owe versus the amount of credit available to you. For example, if you owe $20,000 on an auto loan and have a $8,000 limit on your credit card, your score will factor both of these numbers in.
  • Length of credit history: shows that you have been building this over time. It also helps prove your financial stability.
  • New credit: shows how many new accounts you have. This is affected every time you open a new credit card or bank account. Almost every time you open an account there is a credit inquiry and this combined with the amount of new accounts can negatively impact your score.

What is a good credit score?

Because credit scores can be anywhere between 300 and 850, the average FICO range is often used to determine how “good” a credit score is. These ranges are:

800-850: Excellent
740-799: Very Good
670-739: Good
580-669: Fair
300-579: Poor

If you find that your score is lower than you expected, you’re not alone. In fact, FICO states that 67% of Americans have a Good FICO Score or better, which leaves over 30% in the fair and poor ranges. Many lenders tend to offer loans to potential borrowers with a score of 640 or above. If you fall beneath that number, the damaged credit loan may be the perfect solution for you. While it’s important to continue making efforts to improve your score over time, we are here to help you buy your dream home sooner.

What are the benefits of a Damaged Credit VA Loan?

In addition to offering loan options for military members and veterans who don’t have high credit, there are a few other key benefits to the damaged credit loan. Because this is a VA Loan product, you also qualify to take advantage of having no private mortgage insurance (PMI). The damaged credit loan also has no lender overlays, so you can have a streamlined process to homeownership.

Arguably the most attractive benefit to VA Loans is the fact that there is a $0 down payment requirement. You defended the American dream and the VA Loan options offer you the chance to live it.

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Are there any hidden fees?

As with almost all VA Home Loans, the Damaged Credit VA Loan is subject to a funding fee. These fees go to the Department of Veterans Affairs and are collected in order to offset the potential losses if you were to default on your mortgage. Funding fees are the same for damaged credit loans as they are for traditional loans. They are set at 2.3% for first time users and 3.6% for subsequent use. There are a few exceptions where you may not have to pay a funding fee. If you are a veteran with 10% or greater disability or have been awarded the purple heart your funding fee may be waived.

At MHS Lending, we offer an extensive product portfolio in order to offer solutions for every military member and veteran. Through the Damaged Credit Loan we provide a solution for military members and veterans who may have otherwise had a hard time getting a loan. If you’re eligible for a VA Home Loan and are ready to start your home buying journey, contact our team today at 619-728-7620.