VA loans are available to veterans, service members, and other eligible borrowers through a program established by the U.S. Department of Veterans Affairs (VA). The VA sets the standards for qualifying, lays out the terms for the loans offered by the program, and guarantees a portion of every VA loan. However, it doesn’t actually make the loans. It leaves that to private lenders. How does that work? As Investopedia explains, the aspiring borrower shares a Certificate of Eligibility from the VA with the lender as part of their loan application. Then, the borrower must also meet the underwriting requirements set by the lender. Even with the double dose of requirements, VA loans tend to be easier to qualify for and incredibly favorable for borrowers. However, that mix can make it a bit tough to pinpoint exactly what VA home loan credit requirements are.
VA Home Loan Credit Requirements
Discussions of VA home loan credit requirements are often a bit fuzzy. In many cases, the VA does not set firm limits for a particular area. However, they allow lenders to set their own standards, and a lender might have a specific number that they require. What makes it challenging is that different lenders can set different standards. A score that one lender might reject may be perfectly acceptable to another. What can borrowers do? Having a rough idea of the range that lenders want to see is a start. Being willing to shop around at different lenders so that you can compare offers is also a good strategy.
While some organizations set minimum credit scores for their loan programs, the VA doesn’t. Many of the private lenders who provide the loans do require certain credit scores. According to NerdWallet, these generally range from 580 to 660. That means a borrower with a credit score of 600 may be able to secure a loan without issue from some lenders. Meanwhile, the same borrower would find themselves turned away at other places. One thing all borrowers should remember is that a higher credit score often means better interest rates and loan terms. If your credit score isn’t as high as you like, and you have some time before you plan to apply for a mortgage, it might be a good idea to put some effort into improving your credit score.
The VA only says that borrowers need income suitable for the home loan that they’re seeking. As The Mortgage Reports indicates, the lender is sure to have a more specific idea of what is really required. They’ll review your employment record to check that you have a steady, stable source of income. They’ll also request documentation of all the income that you plan to use to repay the loan. This generally involves W-2s or tax returns, pay stubs, bank statements, or other forms of documentation.
A debt-to-income ratio is a measure of how much you owe each month to how much you earn. While the VA doesn’t specify a maximum debt-to-income ratio, it should come as no surprise that many lenders have a number in mind. According to Credible, most prefer to see nothing higher than 41 percent.
The Impact of a Bankruptcy or Foreclosure
Does a bankruptcy or foreclosure automatically doom your chance of getting approved for a VA loan? You shouldn’t give up hope, according to Military.com. While these financial disasters can stain your credit report for seven years, you won’t necessarily have to wait that long to use your VA home loan benefit if you’ve worked hard to re-establish your credit and repair the damage to your credit score. If you’ve had a bankruptcy, you may be able to qualify for a VA loan if at least two years have passed and your credit has been thoroughly rebuilt. Be prepared to undergo a careful examination of your recent credit history. Even one missed payment may be enough to throw a wrench in the works. If you’ve had a foreclosure, you may qualify if it’s been two years. If your VA entitlement was involved in the foreclosure, the amount of the entitlement involved must be redeemed. Although experiencing bankruptcy or foreclosure may bring greater scrutiny, it isn’t a dealbreaker.
PrimeLending: Manhattan, Kansas, takes pride in serving those who have served. When you’re ready to get the maximum benefit out of your VA housing benefits, turn to our team of loan experts. Contact us today to get started.