Through the VA home loan program, millions of veterans and service members have become homeowners. VA loans are favored for the following reasons: lower mortgage rates, no PMI required, no down payment necessary, and, to an extent, no minimum credit score requirements.
While the Department of Veteran Affairs does not set a minimum credit score, lenders will have their minimum standard. Read on to understand what this means and how flexible credit score requirements with a VA loan works.
Credit Score Requirements
With VA loans, buyers can expect more flexibility and lenient credit guidelines.
Whatever type of loan you are applying for, you need to meet the lender's minimum requirement to secure home financing. Credit scores show a buyer's creditworthiness or how likely a borrower can repay a loan. And as with other types of loans, lenders will offer the best rates to applicants with higher credit scores.
So while the VA doesn't require a specific credit score, the lender --who actually funds the loan --will still have a standard they want their borrowers to meet.
It's worth mentioning that a government-back VA loan comes with much security for the lender, which is why their requirements are considerably laxer. This is notable because low credit scores are a frequent reason for getting turned down when applying for a loan.
So although the VA doesn't enforce a minimum credit score, a minimum score between 580 to 660 is a guideline most often seen with VA loan approval.
PMI is insurance that protects lenders if a borrower defaults on a loan.
Most mortgages have a private mortgage insurance requirement if you put down less than 20%. PMI can be a burden considering that the cost comes to 0.15% to 2% of the loan amount. Not paying PMI is an advantage that VA loan applicants enjoy even when putting down less than 20%!
No Down Payment
Buyers can spend years saving for a down payment. But with a VA loan, a home can be financed with no down payment. Conversely, FHA loans have 3.5% minimum down payment requirements, while most conventional loans require 3-5% down. This cost savings is a significant benefit for the military borrower!
Lower Loan Rates
VA loan programs have the lowest average fixed rates in the market, with interest rates averaging 0.5 to 1% lower than conventional interest rates.
VA Loan Eligibility Requirements
VA loans were designed to help veterans buy their first properties at affordable prices. Here are the main requirements for a VA loan:
- The home must be your primary residence. No investment or rental properties are allowed.
- You must meet all underwriting requirements, especially those for credit and income.
- You must have a Certificate of Eligibility which proves that you qualify based on the service member's duty status and service history. Alternatively, one can be the surviving spouse of a service member that meets those requirements.
VA Income Requirements
The VA encourages underwriters to follow their income guidelines to determine if a borrower has a stable income and can make payments without any problems.
The guidelines suggest that a borrower's DTI ratio should not be higher than 41%. If the borrower has a higher DTI ratio, other credit factors may be used to determine final approval.
You'll be glad to know that plenty of VA lenders will accept multiple forms of income, including disability pay, basic allowance for housing, retirement income, hazard pay, overseas pay, imminent danger pay, and clothing allowances.
There are other nuances to getting approved for a VA loan beyond a minimum credit score. But there's no need to feel overwhelmed. Our team is well-versed in the intricacies of government-backed loans. Using our experience and digital speed, we'll guide you through the process quickly and effortlessly. Get started today using our secure online application.