The home buying period is a critical time for all borrowers, even those who have received a VA loan pre-approval. Once a purchase contract has been signed and the mortgage application has been submitted, it is not unusual for borrowers to start shopping for items they will need for their new home. However, borrowers must avoid using credit when making a VA home purchase, both before and after submitting an application.
Since credit purchases, inquiries and debt payments are not reported nor do they appear instantly on a credit report, a borrower is approved based on what shows on the credit report at the time of application. Lenders will make a soft inquiry usually within a week of closing. When this is done, the report may reveal any new debt, credit applications, increased balances, or even a late payment all of which may have an affect on the outcome of the final approval.
How to Avoid Credit Issues Prior to Closing?
Borrowers should follow these rules in order to avoid credit issues prior to closing:
– Do not make large credit card purchases when you are preparing to purchase a home. This is the time to reduce debt as much as possible.
– Do not make credit purchases prior to or during the VA home purchase process.
– Do not apply for new credit cards.
– Do not apply for other loans, such as auto loans, personal loans, or other installment loans.
– Do make debt payments on time each month; any late payments made may have a direct impact on the credit scores.
Consequences of Using Credit During the VA Home Purchase Process
Things do happen and sometimes a borrower will use credit, purchase a car or make late payments during the VA loan process. Unfortunately, any of these can cause a hit on the credit scores and the VA loan application. In some cases, it can turn an approved VA loan into a rejected loan. In other cases, lower credit scores will result in the borrower receiving higher mortgage rates which will result in a higher monthly mortgage payment. Any changes to the debt to income ratios can have a negative impact on the potential mortgage.
Obtaining a VA loan for a home purchase can be easy, however, it can also become difficult if not planned properly. From the moment you decide that a home purchase is in your future, it is time to seriously consider using as little credit as possible. No one wants surprises at the end of the loan process and immediately before closing the loan. Avoid using credit in order to eliminate any issues that may cause your mortgage to be more expensive or to be completed turned down.
Have questions about your credit and ability to obtain a VA loan? Feel free at any time to contact me for more information about a VA loan and how you can achieve a 100% VA home purchase.
My loan process was very easy and quick. Not to mention a great loan rate. I couldn't be happier!
Capt Sam T. - US Army
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