VA loans are one of the most obtainable home loans for many Veterans. Part of the program's draw is the VA's relaxed credit requirements.
After confirming you meet the VA's service requirements, the lender's next step is examining your creditworthiness.
This step generally includes pulling your credit report from the three major credit-reporting agencies: Equifax, Experian and TransUnion. Your lender will take the middle, or median, score as your credit score for VA loan qualification purposes.
Keep in mind there is a difference in the credit scores pulled by a mortgage company and those provided by free credit monitoring services. It's not uncommon to see a 50 point difference in your mortgage credit scores and those provided by monitoring services.
The Department of Veterans Affairs does not set a minimum credit score requirement for VA loans. However, most lenders who fund VA loans will want to see a credit score around 580 to 620.
You may be wondering what the average credit score is for a VA loan. According to a recent report from Ice Mortgage Technology, the average credit score for VA purchase loans in 2022 is currently 723.
In addition to credit score, your lender will consider past credit patterns to determine willingness to repay. A borrower who has made timely payments for at least the last 12 months demonstrates their willingness to repay future credit obligations. Conversely, a borrower with late payments, judgments and delinquent accounts may not be a good candidate for loan approval.
Below is a list of items that can have an impact on a borrower's credit profile and ability to obtain a VA loan:
As mentioned above, late mortgage payments play a role in a lender's decision to extend funding. In circumstances that don't involve bankruptcy, re-establishing creditworthiness typically takes 12 months of consecutive payments after the date of the last missed payment.
Some lenders may allow VA buyers to have one or more 30-day late payments. Policies vary by lender.
Account balances reduced to judgment by a court must either be paid in full or subject to a repayment plan with a history of timely payments. Polices on judgments can also vary by lender.
Lacking an established credit history is an issue for lenders. Some might be OK if you have only one credit score, but it would need to meet their in-house benchmark.
Borrowers who don't have a credit score will often need to spend time building a credit profile before securing a VA loan. Some lenders may consider non-traditional credit tradelines for borrowers with a minimal credit history, but these guidelines will vary by lender.
The VA guidelines state that a minimum of two years must elapse since the discharge date of the borrower and/or spouse's Chapter 7 bankruptcy, not the filing date. Expect your lender to require a full explanation of the bankruptcy.
Additionally, you must have re-established good credit, qualify financially and have a stable income.
The VA guidelines state that they will consider a borrower still paying on a Chapter 13 Bankruptcy if the payments to the court have been satisfactorily made and verified for one year.
In addition, the court trustee will need to give written approval to proceed. Expect your lender to require a full explanation of the bankruptcy. The borrower must also have re-established good credit, qualify financially and have good job stability.
Lenders may have a maximum allowable threshold for derogatory credit, which can include collection debt. Those caps can vary by lender and other factors.
Borrowers who have defaulted or are delinquent on any federal debt may need to be on a repayment plan with a history of on-time payments. In addition, lenders might not move forward with a VA loan until you're cleared from a federal debt database known as CAIVRS.
Talk with a loan specialist if you have defaulted or delinquent federal debt.
A borrower whose previous residence or other real property was foreclosed on or given a deed-in-lieu of foreclosure within the last two years since the disposition date is generally not eligible for a VA loan.If the foreclosure was on a VA loan, the applicant might not have full entitlement for the new loan. Default on an FHA loan can result in a three-year wait for a VA loan.