The Department of Veterans Affairs works tirelessly to aid veterans, active service members and their families. One of the many things they’ve done for this community is to create the VA loan program, which makes home buying more accessible to military members. If you’re a veteran, active duty soldier or the family to one, you can be eligible for a VA loan. These types of loans come with more flexibility in terms of requirements. A VA loan credit score can typically be lower than the qualifications for other types of loans. If you want to know what credit score is needed for a VA loan, you’ve come to the right place.
What is an eligible VA loan credit score?
If you’re worried about your credit, you will be happy to know that the VA sets no minimum credit score for a VA loan. Unfortunately, it’s not that simple. While a portion of the funds for VA loans are guaranteed by the VA’s office through user fees, the majority of the risk is taken on by private lenders. For this reason, the VA allows lenders to set their own requirements that may go beyond what the VA requires in their program. These extra requirements, including credit scores, are called overlays.
Since lenders set their own overlays in addition to the terms set by the VA, there’s a lot of variation between lenders. On average, the lowest credit score for a VA loan is a 620 FICO score. Guaranteed Rate, however, will accept scores as low as 580 if the loan amount is under $647,200. They will accept a score of 600 for loan amounts under $970,800, and anything above that, a 620 as the lowest score.
What is FICO?
There are three credit score agencies that lenders can draw your credit report from — Experian, Equifax and TransUnion. The two main types of scores are FICO and VantageScore. The FICO score was created by the Fair Isaac Corporation and has 49 variations of scores available to inquirers such as lenders. This includes your FICO mortgage score. Each score differs in how it’s calculated. In general, the factors that influence your FICO score include:
- Length of credit history
- Payment history
- Debts owed/Credit utilized
- New credit
- Different types of credit
The grading is from 300-850, scored as poor credit to exceptional credit. Scores can differ depending on the agency. The lender will often base their decision on the middle score for an individual or on the lower middle score for a couple jointly applying for a loan.
VA loan requirements for 2022
Current VA loan requirements
Most requirements will be determined by your lender. However, there are some set-in-stone guidelines if you want to get a VA loan. You must meet one or more of the following guidelines:
- Be an active duty member who has served 90 consecutive days
- Have served 181 days of active service during peacetime
- Have 6 years of service in the National Guard or Reserves
- Additional requirements may apply. Contact Guaranteed Rate for a full list of eligibility requirements.
Unfortunately, there’s no easy way of knowing what credit requirements you need to meet. You need to speak to various lenders to choose the best course of action for you and see who will offer you the best interest rate. If you aren’t eligible for a VA loan or are simply curious about other options, we’ll compare some other types of loans below.
What are some other types of loans and their credit requirements?
A VA loan isn’t the only option available to you, although it may offer you the most credit flexibility. Let’s talk about some of the other loans out there and how they compare.
These loans are insured by the government. This allows more leniency when it comes to credit scores. There are lower score requirements that adjust with the down payment amount that’s put down. So, if you can put down a 10% down payment, lenders can set credit requirements as low as 500. If you can only put down a smaller down payment, such as 3.5%, the credit score minimum can change to 580.
Lenders often do require higher scores though, and like the VA loan, a common minimum is 620. The best way to know the score requirement is to speak with your lender directly.
Like VA loans, this is another government-insured loan that allows you to buy a house with zero down. This loan is limited to rural and some suburban areas. While there is no set limit by the USDA, private lenders will typically require a score in the 600s.
Unlike the other loans listed, conventional loans are not insured by the government, which leaves lenders more susceptible to risk. For this reason, there are higher credit score requirements. While the number varies based on lender, aiming for 740 or above can help if you want to secure favorable financing terms. These loans can be more challenging to get due to the credit qualifications and often require larger down payments.
How to improve your credit score
Building up credit is hard and it’s perfectly normal if you just aren’t there yet when it comes to the average credit standards for mortgage loans. Luckily, credit is constantly changing and, with the right steps, yours can be steadily improving.
The length of your credit history can improve your score if you pair it with other credit-helpful actions. Simply waiting a couple years to buy a home can improve your credit, as long as you’re taking other proactive steps.* Some steps to take include:
- Maintaining a manageable amount of debt
- Making payments on time, regularly
- Opening new lines of credit (responsibly and within reason)
- Maintaining different types of credit
There are many nuances when it comes to credit, so getting expert help is the smartest path to success. If you don’t quite meet the credit requirements for a VA loan, speaking with a HUD certified housing counselor can help. They can guide you through the process of improving your credit in a way that is personalized to you. The Veterans Affairs office can most likely recommend credit counselors and consultants to you, but you can also visit HUD’s website directly for help.
If you do think you meet the minimum credit requirements, learn how to estimate your monthly VA payments here.
*GUARANTEED RATE IS NOT A CREDIT REPAIR COMPANY, CREDIT REPORTING AGENCY, BROKER OR ADVISOR. You acknowledge that Guaranteed Rate is not a credit repair company or similarly regulated organization under applicable laws, and does not provide credit repair services. Where available, recommendations, tips and education materials are provided to you at no additional charge, and for educational purposes only. The services are intended to provide you with general information and assist you with identifying your options. The information is provided only to enable you to make your own choices about your personal finance, and is not intended to provide, legal, tax or financial advice. We do not provide any services to repair or improve your credit profile or score, nor do we provide any representation that the information we provide will actually repair or improve your profile. Consult the services of a competent professional when you need any type of assistance. You acknowledge that Guaranteed Rate is not a “consumer reporting agency” as that term is defined in the Fair Credit Reporting Act as amended.
Guaranteed Rate, Inc. is a private corporation organized under the laws of the State of Delaware. It has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the US Department of Agriculture or any other government agency.
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