If there’s one good thing about the VA loan, it’s that you don’t need a perfect credit history. The goal behind the mortgage program is to help as many military veterans as they can. They do this by providing flexible underwriting guidelines, which includes relaxed credit score requirements.
The Minimum Credit Score Requirement
First, you should understand that the VA doesn’t underwrite or fund loans. Instead, they provide a guaranty for lenders. Should you default on your loan, the VA will pay the lender back a portion of the amount they lost. The amount of that guaranty is 25% of the loan amount.
That being said, the VA doesn’t have a minimum credit score requirement that they require. They don’t even have one written in their guidelines for VA approved lenders. But, that doesn’t mean that the funding lenders don’t have minimum requirements. Generally, VA lenders set their own minimum credit score to prevent the risk of default, despite the VA guaranty.
You may find that each VA lender has a different credit score benchmark. If we were to average what lenders require, though, you’d find that a 620 credit score is often required.
What’s Your Credit History?
The VA does specify that lenders should make sure that you are a decent credit risk. In other words, they want to know that there isn’t anything alarming on your credit report that might make you a high risk of default.
Lenders want to see that you have a timely mortgage payment history. This means that over the last 12 months, that you made a majority of your payments on time. The lender may pay close attention to your mortgage payment history too, since this is of utmost concern to them.
Following are how lenders view the different payments on your credit report:
- Mortgage payments – Generally, lenders want to see that you paid your mortgage payments on time for the last 12 months. If you have one 30-day late payment in that time, they may let it slide. More than one late payment, though, may render you ineligible for the program.
- Chapter 7 Bankruptcy – If you filed for Chapter 7 BK, you have to wait at least 2 years from the discharge date before you can get a VA loan. You will also need to prove that you reestablished yourself financially and have brought your credit history back around to a positive status.
- Chapter 13 Bankruptcy – If you filed for Chapter 13 BK, you may only have to wait 12 months after you filed. You must be able to show that you have a timely payment history on the restructured payments for the last 12 months. You will also need approval from the trustee overseeing your account. He/she must verify that the payment works in your new payment structure and that you can afford to stay current on all of your payments.
- Foreclosure – If you lost a home to foreclosure, you will have to wait 2 years after the date you lost the home. If the home had a
- Federal debt – If you have any outstanding federal debt reporting on your credit report, you’ll need a payment arrangement in order to get a VA loan. If the debt just sits unpaid with no effort to get it paid down, the VA will not allow you to take out a VA loan.
- Other debts – If you have non-federal collections on your credit report, your lender may work with you to come to a resolution. Sometimes, you have to pay the debts in full. Other times, you may be able to work out a payment plan to get the account in good standing.
The bottom line is that you don’t need perfect credit to get a VA loan. You can have a low score and blemishes on your credit report. The VA requires lenders to look at the overall picture. They want to know what type of default risk you are to them. If you had issues in the past, but you’ve overcome them, the VA is willing to give you a second chance. If your current credit shows that you are behind and have not made an effort to catch up, though, you may find that you have to wait to get that VA loan.