VA lenders can be lenient about lower credit scores

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Ask a Lender
May 22, 2017 | Updated September 22, 2017


Key Points

Obtaining a Veterans Affairs (VA) loan with credit blemishes

  • VA loans have comparable credit requirements to many other mortgage loan programs.
  • VA lenders usually want a credit score of at least 620, alongside other qualifying factors.
  • It’s advisable to find a VA-approved lender if you’re choosing a VA loan.
  • Realtors who specialize in VA loans usually can help military members who have to relocate quickly.

If you’re struggling to build or keep a good credit rating, it can be problematic to qualify for a mortgage loan. But that may be less of worry if you’re eligible for a Veterans Affairs (VA) loan.

VA home loans are available to active-duty military and veterans, as well as reservists and National Guard members who’ve served at least six years. Qualifying spouses of veterans, some U.S. citizens who served with American allies during World War II, and some service-academy members may also be eligible.

There are some minimum qualifications beyond that, however, so here’s what to look for when searching or applying for a VA loan.

What credit requirements do VA lenders have?

FICO, a leading credit-score provider, said the average score as of April 2017 was 700. Though some loan programs, such as the Federal Housing Administration (FHA), will accept scores of 580 or lower, other programs such as Fannie Mae and Freddie Mac have a minimum score of 620. Some lenders may have higher standards, though it varies by company.

VA loan guidelines are comparable: The minimum score for eligibility is usually 620. Lenders will dig deeper than your credit score, however, and may require employment verification and steady income, plus no recent bankruptcies or foreclosures, as well as an independent inspection and appraisal of any potential purchase properties. Remember, it’s not the VA who’s setting the credit-score rules or lending money. The VA simply guarantees loans to minimize risk to lenders.

Veterans United Home Loans, the nation’s largest VA purchase-loan lender, stresses that borrowers should be able to meet the 620 threshold, even with a few blemishes on their record. A spouse who is co-signing the loan will have to reach that number as well. Veterans United also has a credit-consulting branch, known as the Lighthouse Program, that will help service members reduce debt, establish good credit and form smart financial habits.

How should I select a VA lender?

Obtaining a home mortgage through a VA-approved lender is similar to the process for most mortgage-loan types. The Consumer Finance Protection Bureau recommends completing some initial steps prior to choosing a lender. That includes determining how much home you can afford, meeting with multiple lenders and comparing their offers.

Not every bank, credit union or online lender will offer VA loans or is approved to process them. But many national and regional lenders specialize in VA loans and have vast experience with customers who come from military backgrounds.

Choosing both a lender and a realtor who specialize in VA loans is recommended. VA-approved lenders should know how to help a borrower obtain their Certificate of Eligibility, calculate entitlements, apply for funding-fee waivers and thoroughly explain closing costs, among other steps. Realtors with VA experience often work near military bases, are familiar with the local housing market and have previously helped other active-duty personnel with relocating in a timely manner.

Although the VA allows lenders to charge a 1 percent origination fee to cover the cost of processing, some will waive it, a bonus to watch for when selecting a lender. The VA also notes that lenders set their own interest rates and discount points (prepaid interest), and advises consumers should do some comparison shopping.

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