VA Home Loan Credit Requirements
Private lenders set credit requirements and issue mortgages under the VA’s home loan program. The VA guarantees the program’s home loans, reducing private lenders’ risk. Thus, while lenders still look at veterans’ credit histories and financial pictures during the loan approval process, they are more likely to approve loans. Even if your credit is poor or you have no credit history, you may still be able to secure a VA home loan. Veterans Guide gives you an overview of the credit requirements for VA home loans and the steps you can take to improve your credit.
The Department of Veterans Affairs has several initiatives to help service members and their families secure homes. The organization supports those eligible by backing VA home loans. Thus, getting a mortgage is easier. Even if you have poor or no credit, you might still qualify for a VA home loan.
Veterans Guide can help you and your family learn more about VA home loans and walk you through the credit requirements to qualify for a loan.
What are VA Home Loans?
The VA home loan program is designed to help service members and veterans buy, repair, or keep homes. The program is available not only for people who’ve been in service but also for surviving spouses of those who lost their lives during active duty or due to service-related disabilities.
The VA does not make the loans directly. Instead, it guarantees loans issued by private lenders, reducing the lenders’ risk. Because of this guarantee, many lenders are more likely to approve the home loan. The VA doesn’t require a down payment, but some lenders might.
There’s no minimum credit score for a VA home loan, and veterans with bad credit are welcome to apply. Although there’s no minimum from the VA, lenders might impose their own minimums.
The VA home loan program and the disabled veteran housing allowance are two VA housing programs available for those who served in the military.
VA Home Loan Credit Requirements
To get the VA home loan guarantee, you must get a certificate of eligibility, or COE, from the military. The VA examines your service requirements and whether you’ve previously used the VA home loans program.
Even with the VA certificate of eligibility, the lender has a great deal of flexibility about whether or not to approve your loan. The lender might establish their own VA home loan credit requirements. Among the factors the lender might consider are the following:
- Your employment history
- Your credit report
- Your proof of income
- Your outstanding debts
Typically, the most important of these factors is your ability to pay debts on time within the past two years.
Rental and Mortgage History
You don’t have to have a prior mortgage on your record to qualify for a VA home loan, but if you do, the lender wants to see a history of on-time payments. The same applies to rent payments. Try to have a track record of on-time rent or mortgage payments for the previous 24 months.
Previous 90 Days of Credit Activity
Your lender will also examine your credit history, specifically your payment history and what you owe creditors. The previous 90 days are particularly critical. Payments that lenders will review include the following:
- Credit cards
- Personal bank loans
- Student loans
- Car loans
As with your rent or mortgage, on-time payments help with your VA home loan application.
Employment and Residency History
To get a VA home loan, you must provide information about your service. However, lenders also ask for proof of income. Your Leave and Earning Statements for military employment and income stubs from private-sector employment form part of your application. Tax returns, bank statements, and income statements from other money coming in from investments are also important.
Federal Debt
Your lender will review your previous loans with the federal government or agencies. Examples include student loans, federal debts, and prior VA home loans. To verify your federal loan history, the lender will run your information through the Department of Housing and Urban Development’s Credit Alert Verification Reporting System.
Debt-to-Income Ratio
Your debt-to-income ratio, or DTI, is the percentage of your gross monthly income used to pay your monthly debt. If your DTI is more than 41 percent, a lender must justify why it is approving your VA home loan application, but it can still be approved. The VA looks at back-end DTI when considering this figure.
So, what’s the difference between front-end DTI and back-end DTI? The front-end DTI refers to housing expenses compared to your gross monthly income. The back-end DTI refers to other financial obligations, such as credit cards and car loans, compared to gross monthly income.
What is the Minimum Credit Score to Qualify for a VA Home Loan?
There is no minimum credit score for a VA home loan. However, individual lenders might have their own minimum for a VA home loan and will review your credit score as part of your VA home loan credit requirements.
According to the VA Buyers Guide, most lenders want a credit score of at least 620. Otherwise, they may still approve the loan but want a large down payment. When leaders approve a loan with a lower credit score, the interest rate might be higher.
Here are the credit score ranges according to FICO:
- Poor: 580 and below
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Exceptional: 800 and above
Credit scores are a way to compare your credit to that of the average U.S. consumer.
Can You Get a VA Home Loan with No Credit History?
If you have no credit history, you can still get a certificate of eligibility from the VA. You can also apply for a VA home loan from private lenders. Since you don’t have a credit history, your regular bills and ability to pay them become more important. You can demonstrate your payment responsibility with the following bills:
- Rent
- Utilities
- Cell phone service
Indeed, any regular payment you make can help support your VA home loan application.
How Can Veterans Improve Their Credit?
You can take some steps to help improve your credit. In the short term, you can pay down large credit card or loan balances with additional payments.
You can also check any debts you have had for a while. Federal law limits interest on debts you had before active service to 6 percent while deployed. Make sure you’re not paying more than you have to.
You can set up an active duty alert while deployed to keep your accounts safe.
In the long term, you can use these strategies to raise your score over time:
- Get a secured credit card if you have no credit history.
- Keep old credit accounts open, but don’t use them.
- Make payments on time for credit cards, car payments, and utility bills.
- Get a free credit report and check for any errors.
You can also work with a personal financial manager or consumer debt advisor for advice on managing your credit.
Get Help With VA Home Loans
Regardless of your credit, a VA home loan might be a sensible option. You can get help with the process by getting in touch with the team at Veterans Guide. We’re dedicated to helping people who have served.
