Credit Score Benchmarks
Credit score requirements are a fact of life in the mortgage industry. Regardless of the type of loan you’re seeking, you’ll typically need to meet a lender’s minimum credit score in order to secure home financing. These cutoffs can vary depending on the lender, the loan type and your specific financial situation.
The good news is VA loans feature more flexible and forgiving credit guidelines than other loan types. In fact, the VA doesn’t enforce a credit score minimum in order for veterans to utilize the program. Instead, it requires borrowers to be a “satisfactory credit risk.”
But the VA doesn’t actually make home loans. Instead, the VA loan program basically insures a portion of each loan issued by a mortgage lender. The lender takes on the bulk of the risk with each loan. Because of that, lenders are allowed to tack on requirements and standards that go beyond what the VA wants to see.
You’ll often hear these additional requirements called “overlays.” A credit score requirement is among the most common.
Different lenders can have different credit score cutoffs. But a 620 FICO score is a pretty good barometer for many VA lenders. For a conventional loan, it’s often at least that, although to get the best rates and terms you may need at least a 740 FICO.
It’s important to know, too, that everyone on the loan will need to meet the lender’s credit score requirement. We’ll talk more about co-borrowers and who can be on a VA mortgage with you in a later course.