VA Loan Rates: Does Your Credit Score Matter?
If you’re getting ready to buy a home and you’re a veteran, active-duty military personnel, reservist, National Guard member or surviving military spouse, you may be eligible for a VA home loan.
VA home loans can make homebuying easier and more affordable for those who qualify. A down payment is not required and there are options to finance up to 100% of a home’s purchase price.
Plus, unlike most other options that allow homebuyers to finance 100% of a home purchase, VA loans do not require Private Mortgage Insurance (PMI).
Although this sounds like a dream come true, it’s important to realize that the Department of Veterans Affairs does not issue home loans itself. Instead, a VA home loan is backed by the department. The loan itself is still administered via a bank or other lender, and you’ll have to meet that lender’s credit score requirements in order to get approved for a VA loan.
Because these loans are approved by the Department of Veterans Affairs, lenders may be willing to work with borrowers who have subpar credit or a low down payment. They know that if a borrower defaults on the loan, the lender will not suffer a loss since the loan is guaranteed by the government.
This guarantee may allow people who would not qualify for a traditional mortgage loan to become homeowners if they are eligible service members. However, there are still credit requirements that borrowers must meet in order to qualify for a VA home loan.
VA credit requirements
VA home loans have no minimum credit score requirement or maximum debt-to-income ratio. However, borrowers must provide proof of income to ensure they have the ability to repay their loan while also covering their other living expenses and debt obligations.
Even though the VA doesn’t have these requirements, lenders do. Borrowers trying to qualify for a VA loan will have to meet minimum credit score requirements that can vary depending on which VA-approved lender they work with.
A VA loan requires lenders to look not only at the credit score of a borrower, but the entire loan profile to make a lending decision.
The Department of Veterans Affairs does not issue loans, however. They only guarantee them.
So, borrowers have to first find a lender that has been approved by the agency to offer VA loans.
The VA doesn’t have an official list of VA-approved lenders. However, you may be able to find one by contacting your Regional Loan Center.
Although the VA does not have a required minimum credit score for borrowers, most lenders do use credit score as one of the factors in making a lending decision for VA loans.
The minimum credit score required can vary from lender to lender, but in many cases, the minimum required is at least 620.
As with any other mortgage loan application, borrowers will also need to provide the following information in order to apply and qualify for a VA loan:
- Personal information, such as date of birth and Social Security number
- Two-year address history
- Two-year work history
- Gross monthly income
- Any other income
- Current tax, mortgage payment amounts and insurance information for currently owned real estate (if applicable)
For a VA home loan, you also need to obtain a certificate of eligibility to prove you’re eligible for this type of loan. You can get the certificate online, over the phone or by mail. To get the certificate, you’ll have to submit information about your active-duty status, discharge information or a marriage license or death certificate if you are a surviving military spouse.
You’ll also have to provide information about the residence you are buying, including the purchase amount, loan amount requested, estimated taxes, estimated homeowners association dues (if applicable), type of property (single-family, multi-family, etc.), sales contract and the source of down payment.
What to do if you do not meet credit requirements
Not meeting the credit requirements to qualify for a VA home loan can be disappointing. However, the good news is that there are steps you can take to improve your credit profile and other application factors.
Once you’ve improved your financial standing, you can always reapply.
If you want to improve your credit score, consider the following tips:
- Always pay bills on time
- Keep credit balances low
- Avoid opening new accounts if possible
- Pay off credit card balances but keep accounts open
In addition to improving your credit score with these actions, you can also review your credit report for errors. Errors on your credit report can result in a lower credit score in some cases. You can review your report, but not your score, for free at AnnualCreditReport.com.
By federal law, you are entitled to a free copy of your credit report every 12 months from each of the three credit reporting agencies: Equifax, Experian and TransUnion.
If you space these out, you can receive a copy of your credit report every four months to check and monitor for errors. If you find an error, you can dispute it.
Getting a VA loan you’ve met the eligibility requirements
Once you meet the credit and income requirements to qualify for a VA home loan, you can get preapproval and begin looking at homes in your price range.
You’ll also receive an official preapproval letter. While this letter is not a guarantee that you’ll receive a VA loan, it does mean you are a qualified candidate.
Preapproval will show realtors and sellers that you are serious about the homebuying process.
After you find a home, you’ll need to make an offer and get under contract. Your real estate agent will help you put together a contract and guide you through this process. Working with a realtor who has experience with VA-backed loans can be helpful as they’ll know the specific benefits to include in the contract for a VA home purchase.
For example, some fees associated with VA loans can be paid by the sellers.
For help finding a realtor who has experience with VA loans, ask a VA-approved lender for recommendations, or contact your Regional Loan Center.
After preapproval, you’ll still have to complete and submit documents requested by your lender to get final approval for a VA loan. Plus, you’ll still have to have the home appraised, just like with any other home loan. Finally, after your loan is approved, all that’s left is to close on the property.
Closing on your home will mean signing legal documents to transfer ownership from the previous owner to you. Some closing costs may be due at this time, including a lender’s origination fee, a VA funding fee, the appraisal fee and more. There are other costs that may be applicable, so it’s a good idea to discuss closing costs with your lender and real estate professional early on so you have time to save up for them if necessary.
Although obtaining a VA loan may require more paperwork and information to be gathered, the benefits of a VA loan for those who qualify can be well worth it.