Even if you’ve never had a mortgage, there’s a good chance that you’ve heard a friend or family member discussing the stringent credit and income requirements associated with obtaining such a loan. Fortunately, if you are an active military service member or veteran who can meet the requirements for a VA home loan, you can bypass many of the traditional credit requirements and move into the home of your dreams.
It is important to remember that when you take out a VA home loan, the US Department of Veterans Affairs does not actually lend you the money to buy your home; it simply backs a portion of the loan, which reduces the lenders’ risk. As such, while the VA does not set forth any credit requirements, which means you can be eligible with even a poor credit score, the individual lenders who provide the loan will likely have their own requirements that you will need to meet. This is because the VA does not back the entire loan, so if you were to default, the lender still stands to lose money.
Most lenders providing VA home loans will ask that you have a credit score of at least 620 in order to be considered. This is considered a “fair” score; traditionally, lenders would want to see a score of 720 or more in order to qualify you for a traditional mortgage. To put it simply, if you have a credit score of 620 or above, and if you can meet all the other requirements, there is a very good possibility that you will be able to obtain a VA home loan with low interest and manageable payments.
With the information above in mind, remember that all lenders are different. One lender may ask you to have a credit score of at least 650 rather than 620 and another may approve you with a score as low as 600. Due to the nature of the loan, lenders will consider other factors fairly heavily, too. They will look at your income, your spouse’s income, your work and military history, and your credit history, which is far more detailed than just your score. If you have exceptional relationships with other creditors – credit card companies, auto financiers, etc. – then you may be able to qualify with a lower-than-average credit score.
Unlike traditional mortgages, your credit score will not affect your need to provide a down payment or agree to pay private mortgage insurance (PMI) as a part of your monthly mortgage payment. Often, individuals with lower credit scores and less-than-perfect histories are required to provide at least a 20% down payment, pay for PMI, and perhaps even deal with a rather high interest rate – things that don’t occur with VA home loans.
When you are ready to buy your first home with your VA benefits, it’s important that you really take the time to shop around and find the best possible option for you and your family. This may involve talking to several mortgage professionals, but at the end of the day, finding the right lender is the only thing standing between you and your dream home.