Applying for a VA loan is not a difficult process; however, qualifying for one is different from qualifying for a conventional home loan. One important difference is that the VA does not require a minimum credit score quality, but there's always a catch. Here are the basics of applying and qualifying for a VA loan to help simplify and streamline the process.
VA Home Loan Requirements
Before you can approach lenders to apply for a VA home loan you'll need to obtain your certificate of eligibility. As long as you meet the military service requirements all you need to do is complete the VA Form 26-1880. Your certificate is issued by the Verteran's Administration and once you've obtained it you're ready to begin applying for a VA home loan.
VA Mortgage Underwriting Requirements
Once you've found a VA lender and completed your application your lender will request supporting documentation to begin the underwriting process for loan approval. They'll also provide you with a Good Faith Estimate that you can use for comparison shopping with other lenders. Submitting an application is not the same as locking an interest rate and does not obligate you to take out a loan with that lender.
During the application process your lender may request pay stubs and bank statements and run your credit score even though the VA doesn't require a minimum credit score.
You might be frustrated to find that while the VA has no requirements for minimum credit score or debt-to-income ratio, your lender sets their own requirements for approving your VA home loan. The main underwriting requirements for VA loan approval include your income, assets, debts, and credit history.
Individual mortgage lenders are free to set their own credit requirements for loan approval beyond the minimum required by the VA. In addition to requiring a minimum credit score, which is 620 for most leaders, you will need to have an acceptable Debt-to-Income (DTI) based on your documentable income and the debts found on your credit report. The acceptable Debt-to-Income ratio for a VA home loan for most lenders is 41%.
How to Improve Your DTI and Credit Score
If your Debt-to-Income ratio is higher than 41% there are several ways to improve it. The easiest way is to pay down the balances on your credit cards or other accounts like car loans. Earning a higher income is another way to improve your DTI. If paying down your debts or improving your income is not an option, a cosigner may be able to help you get past this requirement.
As for credit requirements if you're struggling to meet the minimum 620 required by most lenders it could be due to outdated or inaccurate information in your credit reports. Credit reporting agencies are required by law to provide free access to your credit reports once per year. You can review your credit reports at the website AnnualCreditReport.com. If you find outdated or inaccurate information that could be damaging your credit scores you'll need to file a dispute with each credit bureau and allow enough time for the correction to be reflected in your credit score.
In addition to removing mistakes from your credit reports the easiest way to improve your credit score is to pay down the balances on your credit cards as much as possible before applying for your VA home loan. Applying and qualifying for a VA home loan is not a difficult process and there is help available through VA benefit counselors or by enlisting the help of a licensed mortgage professional.