A bankruptcy filing delivers a devastating blow to your credit and FICO score, but it doesn’t mean you have to wait 10 years before you can qualify for a VA loan. Many consumers who have filed for bankruptcy have been able to obtain a mortgage.
While credit card companies may care about what happened before you filed for bankruptcy, many VA lenders are more interested in your recovery — what you’ve done since your filing. It won’t happen over night, but here are some tips and things to keep in mind when you inquire about a mortgage with a tarnished credit past:
Give detailed explanations. No VA underwriter is going to ignore the fact that you’ve filed bankruptcy and he or she will likely want to know the cause of the filing and means of correction. Your lender will be particularly interested in whether the same situation could happen again. Your chances of being qualified are much better if your bankruptcy was caused by a single event such as a loss of employment or a death in the family, than if it was the result of “just spending too much.”
Demonstrate good money habits now. Many people who file bankruptcy swear off credit altogether, however, it is important to re-establish your credit rating. Get a secured credit card or take on some sort of loan — furniture, a car or a major appliance — to demonstrate that you are able to make timely payments. Make sure you are making other payments (utility bills, cell phone, etc.) on time as well. You won't turn things around in a year but your credit score will improve over time.
Dispute any credit report errors. There’s no need to add to your troubled credit history with errors on your credit report. Get a copy of your credit report from each of the three major credit reporting agencies: Equifax, http://www.equifax.com; Experian, http://www.experian.com; and TransUnion, http://www.tuc.com. If you encounter any errors, inform the CRA in writing what information you believe to be inaccurate and request deletion or correction.
Save your money. Although a Veteran can obtain a VA loan without any savings in their bank account, VA Lenders may be more willing to loan you money following a bankruptcy if you’ve saved up a considerable amount of money, should an unfortuate circumstance present itself.
Live within your means. Think small when the time comes to look for a home. Smaller homes often mean smaller mortgages.