You might think you’ve used up your benefits after securing your first VA loan. They continue, though. You also have the option to refinance with the VA IRRRL program. This program allows you to refinance without verifying the typical things. Income, assets, credit, or house value don’t require verification. What does the VA need then? Do they have a minimum credit score? We discuss what they look for below.
The Minimum Credit Score Required
Would you believe the VA doesn’t have a minimum credit score for the IRRRL program? It’s true. That doesn’t mean there isn’t a threshold lenders follow. The VA doesn’t fund the loans; therefore, they don’t set the minimum score. They don’t put a lot of emphasis on scores as it is. Instead, they focus on credit history, amongst other things. Here we will focus on the history and what that means for you.
Credit History is Different than Credit Score
Your credit score may tell lenders a lot. For example, a score of 500 probably means you really don’t have good financial sense. It’s pretty hard to have a score that low if you pay your bills relatively on time. However, if you have a credit score of say 650, it’s kind of a middle of the road score. You could have good history and you could have some bad. That’s why the VA focuses more on your most recent payment history.
Lenders look at your payment history by going over each account over the last 12 months. They look for timely payments, overextended credit, and collections. They may ask you questions about specific accounts. If you have more than one 30-day late payment in the last 12 months, you may not qualify for the IRRRL program. There are exceptions to the rule, though. We discuss them below.
Compensating Factors May Help
The IRRRL program doesn’t require very much. Because some lenders don’t even look at your score, you may not have to worry yourself about it. But, what if you have more than one late payment in the last 12 months? Ideally, lenders are supposed to look at your mortgage history. If those payments are on time for the last 12 months, you are usually eligible for the VA IRRRL. Some lenders look at all credit, though. If there is more than one late payment, you can make up for it with other factors, such as:
- Large amount of disposable income – Every region of the United States has specific requirements for disposable income. This is the amount of money you have left over after you pay your bills. The VA bases the amount on your family size as well as where you live. If you have amounts above the required disposable income, it may make up for your multiple late payments.
- Large benefit for refinancing – Having a benefit for the program is a big requirement for the VA IRRRL. You need a lower payment. There is nothing stating how low it must go. But, if you can show that you will save a significant amount of money with the refinance, it may overcome your negative credit history.
- Stable employment – Many lenders verify your employment with the VA IRRRL. If you changed jobs recently, it could make you riskier. Having stable employment for the last few years may help lenders push your loan through the process.
House Value Requirements
Outside of your credit history and employment, many lenders still want to know the value of your home. They may not order a full appraisal. But, there are ways for them to find out the value. If a new lender provides you new money, they need to know for themselves that there is enough collateral. They can order an automatic valuation or even a drive-by appraisal. This may add to the cost of your Interest Rate Reduction Refinance Loan, but it shows your worthiness for the loan.
Stay on Top of Your Bills
The best way to get approved for a VA IRRRL is to stay on top of your bills. Even though there isn’t a minimum credit score required, you need a good history. These two go hand-in-hand. Paying your bills on time will help you secure the loan. You get a higher credit score and a positive credit history. As a reward, you may secure a lower interest rate. Lenders don’t have to charge you a specific rate just because you want to refinance. They quote you the rate you qualify for. If that means a slightly higher rate because you have late payments, then you may not benefit from refinancing. Always paying your bills on time can help prevent this from occurring.
The bottom line is you don’t have to obsess about your credit score, but you should care. Your credit history is of utmost importance. Because the two go together, you benefit from a good credit score when you take care of your bills. Of course, there are other factors in your credit score. Things like how much of your credit line you use, how many open credit lines you have, and the age of your accounts matter too. Focusing on making your credit as good as possible will help you with the VA Interest Rate Reduction Refinance Loan. Even without a minimum credit score, lenders look at your credit and form an opinion. Do what you can to make it a good opinion!