VA loans are the greatest benefit this Country’s Veterans are given.
But what credit score do you need to qualify for a VA home loan?
While the VA doesn’t have a minimum credit score requirement, each lender sets their own guidelines on credit scores.
We will explain what scores you need and how you can improve your score so you can qualify for a VA mortgage.
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What are VA Loans?
The Veterans Administration makes mortgage loans available to U.S. veterans who meet the VA Loan guidelines.
They do not act as a lender, but does guarantee the loans, making it more desirable for lenders to make loans to veterans.
The two biggest benefits of VA loans is no down payment and PMI is not required.
Because VA requires no down payment and no minimum credit score, it offers many veterans with poor credit or limited resources the opportunity to become homeowners.
VA Loan Requirements for Credit Scores
Officially there is no minimum credit score for a VA loan.
The VA will insure a mortgage for qualifying individuals regardless of the credit rating.
Mortgage lenders will have their own minimum credit requirements for VA loans. And many lenders require a minimum 620 score.
However, there are plenty of VA lenders that allow for poor credit scores even below 580 in some cases.
The key to successfully purchasing a home with a lower credit score is to find the right lender who will work with you to help you accomplish your goal of owning your own home.
Compensating Factors for Poor Credit
Bad credit doesn’t necessarily prevent you from qualifying for a VA loan. But lenders will want to see that the borrower is low-risk in other areas of their application.
- Have no, or limited debt in collections.
- High income (low debt-to-income ratio)
- More than 5 years at current employer
- Down payment (lower loan-to-value)
- No late payments in the past 12 months
- No mortgage late payments in past 36 months
If your poor credit is due to an unusual set of circumstances and you have since resumed making timely bill payments.
You may be considered if you can give a reasonable explanation for your low credit score.
It’s up to the lender’s discretion to decide whether to extend the loan or not.
VA Mortgage Benefits
- 100% loan-to-value ratio can be financed
- No mortgage insurance
- Lower interest rates
- DTI ratio can be higher than other mortgages
- Low closing costs
- Easier to qualify for
VA Loan Eligibility Guidelines
If you’ve served in the active military for 6 months or in the reserves or National Guard for six years, you will likely qualify.
You will need to obtain a VA certificate of eligibility before applying. This proves to lenders that you qualify for a VA loan. However, lenders can usually get your certificate of eligibility for you after being approved.
Eligibility Criteria and Requirements for VA-backed Loans
Basic VA Service Requirements:
- 90 consecutive days of active duty service
- 181 days of active duty service during peacetime
- 6+ years in the Reserves or National Guard
- Active-duty Service
- National Guard and Reserves
Dishonorably discharged veterans are ineligible for a VA mortgage.
These minimum terms of service requirement may be waived for veterans in certain circumstances.
If they were discharged due to government convenience, hardship, reduction in force, certain medical conditions or a service-connected disability.
Who else is eligible for VA home loans:
- Active duty Service
- Service persons on active duty who have served for 90 consecutive days of active service are eligible
- Reservists and Members of the National Guard
- Cadets of the U.S. Military, Air Force, or Coast Guard Academy
- World War II Merchant Seamen
- Midshipmen at the U.S. Naval Academy
- U.S. Public Health Service officers
- National Oceanic & Atmospheric Administration officers
What is the VA funding fee?
Because the VA loan program does not require mortgage insurance they need to make money somewhere to be able to fund the program. Hence the VA funding fee. This fee helps keep the program self-sufficient.
The VA funding fee is 2.15% of the loan amount and is usually rolled into the loan so you don’t have to pay it up-front out of pocket.
VA Funding Fee Chart 2017
The following chart has been updated for 2017 and is current as of June 11th, 2017. Regular military members pay slightly lower fees than Reservists and National Guard members.
The amount of the VA funding fee is determined by the type of military personal, down payment, and how many VA loans have been used. Please consult the chart below.
Regular Military Funding Fee Chart 2017
|Down payment||Fee (first-time home buyer)||Fee (each additional use)|
|0%||2.15 percent||3.3 percent|
|5-10%||1.5 percent||1.5 percent|
|10%+||1.25 percent||1.25 percent|
Reserves and National Guard Chart
|Reserve & National Guard Personnel|
|Down payment||Fee (first-time home buyer)||Fee (each additional use)|
|0%||2.4 percent||3.3 percent|
|5-10%||1.75 percent||1.75 percent|
|10%+||1.5 percent||1.5 percent|
Chart for IRRL (VA cash-out refinance)
The VA funding fee for IRRL’s (VA cash-out refinance) is the same for all military personal weather Reserves, National Guards, or Regular Military.
|All Military Personal, National Guard, and Reserves|
|Loan type||Fee for first-time home buyer||Fee (each additional use)|
|IRRL’s||0.50 percent||0.50 percent|
|Manufactured Home Loans||1.00 percent||1.00 percent|
|Loan Assumptions||0.50 percent||0.50 percent|
VA Loan Limits
In most parts of the country, veterans who qualify for military VA Loans can purchase a home worth up to $424,100 with no money down. However, with the 2017 VA Limits, high-cost counties such as Los Angeles and Denver have higher limits as high as $636,150. You can check VA loan limits in your county here.
VA Jumbo Loans
In areas where the VA loan amount exceeds the loan limit of $424,100 the borrower must get a VA jumbo loan.
The Veteran pays 25% down payment on jut the amount over the loan limit, the amount up to $424,100 is does not require a down payment.
And the funding fee is paid for in cash on the loan amount over the limit. View all county loan limits here.
VA Debt-to-Income Ratios
The VA-guaranteed loan requirements do not state a maximum debt-to-income ratio, or DTI. However, lenders set there own maximum debt-to-income requirements for these mortgages.
Typically, lenders max DTI ratio fir VA 41%. However, 41% isn’t a hard limits there are exceptions in some cases.
To qualify for a VA mortgage with a DTI over 41% you should have strong compensating factors, such as:
- Ability to make a downpayment
- High net worth
- Large amount of reserves
- Minimal increase in current housing payment
- Increased earning potential
- High credit score
There are many benefits to VA loans, relaxed credit score requirements are one of them.
The Veterans Administration does not have a minimum required credit score for a VA loan. However, lenders set their limits on credit scores.
Many lenders will require a 620 credit score for VA, but some are able to go down to 580.
VA home loans have NO down payment. You do not have to pay mortgage insurance with VA loans either.
Good credit history and no late mortgage payments within the last 12 months.
You also need a Certificate of Eligibility from the VA, which you can get through the U.S. Department of Veterans Affairs.
Qualifying VA Income
- Salary/W-2 Income
- Bonus or Overtime earnings
- Seasonal jobs
- Self-employed earnings
- LES stipulated military income
- Part-time earning
- Second Job
- Alimony or Child support
Non-Qualifying VA Income
- lottery income
- Unemployment income
- One time bonus
- One time income payments from job
- Income from non-occupying co-borrower
- inconsistent income history
- Unverified income
- Rental Income
VA Refinance Loans
If you currently have a VA loan, you may be eligible to refinance your mortgage loan and get a lower interest rate.
A VA streamline refinance and a cash-out refinance loan are available to Veterans who have had their mortgage for at least 210 days. A streamline refinance is quick and easy.
There is no credit check or income verification to qualify. You will be able to get a lower rate and lower monthly payment by using a VA refinance.
Finding the Right VA Lender
If you have never bought a home before or never bought using a VA loan, finding the right lender on your own can seem next to impossible.
You need a reputable lender who knows how to overcome bad credit and work with the Veterans Administration to secure your home loan.
A lender who is attentive to the needs of veterans wants to extend credit to as many veterans as possible, acknowledging that the lack of a specific credit score VA loan requires was chosen for to help veterans who have different challenges than others buying homes.
Randall has over 15 years of experience in the mortgage and credit industries. He spends a chunk of time helping consumers understand their credit, advise them on how to increase their credit, and lending his mortgage expertise to help them find the right type of loan. Randall lives in Dallas, Texas with his two sons.