VA loans are low interest, little-to-no down payment required home loans for qualified current and former members of the U.S. Armed Services. The Department of Veterans Affairs (VA) doesn’t set a minimum credit score for these mortgages, but the private lenders that issue them have their own metrics for evaluating borrowers.
The different thresholds set by lenders can make it difficult to understand the minimum credit score needed for a VA loan. If you or a loved one is an eligible current or former service member applying for a VA loan, be prepared for your lender to conduct a thorough examination of your credit and financial well-being. If you aren’t satisfied with your rates or you're denied, shop around for different lenders or try putting more money down upfront.
Lenders set their own credit score requirement for VA loans, so minimums may vary from lender to lender. Generally, VA lenders want to work with borrowers who have a credit score of at least 620. However, there is no hard minimum credit score for VA loans, and lenders may be willing to work with borrowers who have a credit score under that threshold.
Borrowers with lower credit scores may be subject to stricter limits on how much they can borrow.
Credit requirements are set by the lender. Although the name might suggest that the Department of Veterans Affairs issues VA loans, they are issued by individual lenders.
One of the biggest benefits of VA loans is their flexibility. The Department of Veterans Affairs guarantees these loans, which means they assume financial responsibility for the loan if the borrower stops making payments. In the event of a borrower defaulting, the VA will pay back the lender up to 25% of the loan amount.
This guarantee reduces the risk of financial loss for the lender, who passes on the benefit to borrowers, by lowering their thresholds for measuring the risk of issuing the loan. But it’s not a 100% guarantee, so lenders (not the government) still have to keep some metrics in place for risk aversion. One of these measures is a credit score requirement.
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Bad credit can be a barrier to homeownership. However, it may still be possible to qualify for a VA loan, even if your credit score is less than perfect. Here are some of the additional advantages of VA loan credit requirements:
It can be hard to qualify for a mortgage after filing bankruptcy. However, the VA loan waiting periods after bankruptcy are shorter than conventional loans. People who have filed chapter 7 bankruptcy need only wait two years to apply for a VA loan, as compared to 4 years for a conventional loan.
Homeowners who have gone through foreclosure will have to work years to restore their credit in order to apply for another mortgage, but VA loans make that process easier. VA loan borrowers need only wait two years after going through a home foreclosure to apply for a loan, as compared to seven years for a conventional loan.
The VA lenders typically make considerations for veterans returning from deployment who lack a credit history. In these instances, they may consider what is known as alternative credit — monthly payments that aren’t reported on a credit score. Payments for things like rent, utilities, and insurance made for a year or more can establish adequate payment history. If you don’t have a credit history, ask your VA lender if they accept alternative credit.
You may qualify for a VA loan if you have received a Certificate of Eligibility (COE) and meet the other requirements of your lender. You can qualify for a COE if you meet one of the following conditions:
VA loans were designed with the needs of active duty service members and veterans in mind. If you’re eligible for a VA loan, applying for this program could be an important step towards buying your dream home.
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