Minimum credit score for va home loan
At Freedom Mortgage, we have these minimum credit scores for VA loans:
- When you want to buy a home with an VA loan, we can often accept a minimum credit score as low as 600.
- When you want to refinance a home with an VA loan, we can often offer an easy credit score qualification.
Freedom Mortgage is committed to helping veterans become homeowners and we offer loans to veterans when they meet our minimum credit score requirements and other financial and income standards. We also offer VA IRRRL refinancing, which lets you get a lower rate on your VA loan with less paperwork and a faster closing.
WHAT’S THE MINIMUM CREDIT SCORE FOR A VA HOME LOAN APPROVAL?
Technically, VA does not set a minimum credit score for VA loans. However, VA does not make the loans—they just guarantee them. It is lenders in the private sector who originate, underwrite and fund the loans.
With that said, most lenders that I am familiar with set a minimum of 620 for VA loans. This is the same as for conventional loans.
This makes a certain amount of sense; a consumer will have a lower credit score because they have demonstrated that they are not dealing with their personal financial affairs as well as they could be doing. Someone with a 620 score will have some combination (any or all) of the following:
- High and over-limit credit card balances
- Accounts that are currently past due
- Recent history of delinquent accounts
- Open collection accounts
- Public record items (foreclosures, bankruptcy, etc.)
VA loans would appear to present the highest amount of risk to lenders: they require no down payment, carry no mortgage insurance, and have the least stringent underwriting criteria of any fully underwritten loans. The lender’s only protection from loss is the VA guarantee—and even that has its limitations, just as mortgage insurance does. It’s worth noting, however, that the performance record of VA loans, even through the 2008 crisis, has been better than most loans.
For any veteran hoping to buy a home, but whose score is below the required minimum, there is hope. Raising a low credit score is not as daunting a task as it may seem. To accomplish it as quickly as possible, take the following steps, in this order:
- Bring any past-due accounts current as quickly as possible
- Contact creditors for any collection accounts that are two years old or newer. Arrange a settlement with them, either for a reduced cash payment if you can manage it, or a monthly payment amount that you can live with and stick to. Be aware that if you get a reduced balance for payment in full, you’ll pay tax on the amount they lowered the amount. Also, don’t agree to a “check by phone” with a collection creditor without having an agreement in writing from them by fax or email.
- Pay any credit card balances to 30% of the credit limit or lower. Paying them off is best, because the interest rates are often north of 30%. That makes getting clear of them very difficult.
Most independent loan officers (as compared with those who work for large commercial banks or credit unions) can help you get your credit up to where you need them to be. Even if you are a year away from being able to buy, now is not too soon to begin the process.
Good luck—and from this Vietnam-era veteran, thanks for stepping up and serving!
HOW GOOD DOES YOUR CREDIT HAVE TO BE TO GET A VA HOME LOAN?
The minimum credit score you need to qualify for a mortgage right now depends on the type of mortgage you’re trying to obtain. Scores differ whether you’re applying for a loan insured by the Federal Housing Administration, better known as an FHA loan; one insured by the U.S. Department of Veterans Affairs, known as a VA loan; or a conventional mortgage loan from a private lender, although no minimum score. However, most lenders, including Quicken Loans, will require that your score be at least 620
CAN A VETERAN BUY A HOME USING VA LOAN WITH BAD CREDIT?
Securing a VA loan with bad credit isn’t impossible, but it is common for many lenders to have a more stringent credit requirement. Let’s take a closer look.
Contrary to popular belief, VA loans for those with bad credit are actually easy to qualify for if 1) you have no outstanding collections, 2) no outstanding judgements, 3) stable income, 4) a median credit score of 620 or higher. This is because VA loans were designed to be a benefit to the borrower.
The VA Home Loan Program was created in 1944 as a thank you for service personnel returning from World War II. This home loan guarantee is designed to make buying a home easy, affordable, and safe.
The “easy” part of the design is to make the loan accessible to borrowers with less than perfect credit.
One of the main purposes of the program was to cut the common hassles of obtaining a home loan such as good credit, down-payment, closing costs, etc.
Many veterans who have spent time overseas lack positive credit. Others lacked the funds for a down-payment. To change this, the government found that one of the best way to assist veterans after their completed service was to help them get a farm or a home.
A few changes have occurred over the years, including an increase in the amount veterans may borrow and the ability for active duty to apply to get a VA home loan.
The maximum $0 down loan limit currently varies between $417,000 to over $625,000 depending on what county you plan to buy in.
The VA Loan Program gives lenders the assurance that the loan will be paid for and gives veterans the support needed to obtain a house.
The credit needed to obtain VA loans is determined by a few key factors. The most important of those are satisfactory payment history, and present and/or anticipated income. This means that your income needs to be stable and enough to cover all current bills, give you enough disposable income to meet the VA standards for cost of living plus the additional VA loan mortgage payment.
How VA Loans Work
There is a common misconception that the Department of Veteran Affairs issues the home loans. In fact, they do not lend money they simply guarantee the mortgage. Working more like an insurance policy on the loan itself. If a borrower defaults on a VA loan the Department of Veterans Affairs will pay the lender the remaining loan balance. VA home loans are the cheapest type of mortgage available today. They offer 100% financing and require no mortgage insurance, savings Vets thousands of dollars a year on PMI alone. Closing costs are lower than typical loans and so are the mortgage rates. There’s no doubt that if you’re a Veteran that a VA loan is the best type of mortgage for you.
Bad Credit VA Home Loans
The Dept. of VA does not have a minimum credit score required for them to guarantee a mortgage. As long as the lender is willing to fund the loan the VA will back it. The minimum credit score for VA loans will depend on the mortgage company. In general the majority of lenders will require a 620 score. While other lenders may be willing to offer bad credit VA loans. If one lender turns you down, you should keep trying with other VA lenders.
VA Loan Requirements
- No late payments in past 12 months
- Maximum DTI ratio 43% (50% DTI in some cases)
- 2 years provable income W2’s and tax returns
- 2-3 months of bank statements
- 2 months of mortgage payments in reserves
Credit Benchmarks for VA Loans
The first issue is tackling nebulous phrases like “bad” or “less than perfect.” We use that kind of language because it can be so tough to discern what constitutes “good” credit, or at least a credit score that can get prospective buyers closer to the dream of homeownership.
The reality is there isn’t one credit score. Lenders will look at a range of scores — weighted a bit differently for the mortgage industry — from the different credit reporting agencies and generally focus on the middle ground. You can read more about what goes into different types of credit here.
For now, we’ll just focus on the bottom line: What kind of credit score do you need right now to move forward with the loan approval process?
Current VA Lending Environment
The VA doesn’t have a credit score requirement. Instead, the agency simply requires prospective borrowers to be considered a “satisfactory credit risk.” It defines the phrase a bit, but it’s still rather wide open.
But it’s also not the VA lending you money. The agency basically insures a portion of the mortgage. It’s VA-approved lenders who are on the hook for the bulk in the event of default. They want to insulate themselves from risk as much as possible, and one way they do so is by requiring borrowers to hit a specific credit benchmark.
In today’s lending climate, most VA lenders require a score of at least 620. If your spouse will be obligated on the loan, he or she will need to hit the same benchmark.
The average FICO score for VA borrowers is 709, compared to 750 to 770 scores for conventional loans backed by Fannie Mae and Freddie Mac, respectively, according to syndicated columnist Ken Harney.
Less Than Perfect?
It really depends on how you define “shaky” or “less than perfect” credit. You can certainly have blemishes on your credit report and maintain at least a 620 score. You can even have a history of bankruptcy or foreclosure and still obtain a VA loan.
But right now, in most cases, you’re going to need a credit score of at least 620 in order to secure financing. If you need help boosting your score, check out our Lighthouse Program, a unique arm of Veterans United that works with service members to overcome financial challenges and get on the path to loan prequalification.
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