To qualify for a VA home loan, you must meet several requirements, including obtaining a Certificate of Eligibility. However, the Department of Veterans Affairs does not set a minimum credit score. Each lender has its own standards for approving buyers and must review an applicant’s entire profile.
How your credit score impacts VA mortgage rates
VA loans are mortgages for qualifying military service members, veterans and their spouses that are backed by the U.S. Department of Veterans Affairs and made by private lenders. The benefits of VA loans include no down payment, low interest rates, no mortgage insurance and low closing costs.
A credit score is one factor a lender looks at when determining mortgage rates. The score allows them to project the risk they are taking by lending money to an individual. Credit scores generally range from 300 to 850.
Lenders for VA loans set their own credit score requirements. The threshold varies by lender, with many requiring a credit score of 640 — others require closer to 700. Some lenders do approve loans with a credit score under 640, but this isn’t as common.
How your credit score factors into your VA home loan
Your lender uses your credit score as one factor in determining an interest rate for your mortgage. In most cases, the lower your credit score is, the higher your interest rate will be. For example, a borrower with a 780 credit score might qualify for an interest rate half a percentage point lower than someone with a 650 credit score. An interest rate increase adds to the monthly payment and the overall amount you'll pay over the life of the loan.
Your credit score also helps the lender determine other loan terms, like the length of the mortgage and whether you qualify for a fixed or adjustable rate.
Tips to raise your credit score to qualify for a VA loan
Your credit score can determine whether you will be approved for a VA home loan. In addition, it can impact the mortgage rate and how much your monthly payment will be. If you have concerns about being approved or want to get better loan terms, there are steps you can take to improve your credit score.
What affects your credit score
There are two main credit scoring companies, FICO and VantageScore. They use data from three credit reporting agencies — Equifax, TransUnion and Experian — to determine credit scores. Two main factors they consider are your payment history and credit utilization.
The VA does not set minimum credit score requirements for VA home loans.
- Payment history: Whether you pay your debts on time heavily affects your credit score. If you have delinquent accounts, your score will go down. If you consistently pay your bills on time, you can positively impact your score. Payment history is the most influential component in determining your FICO score.
- Credit utilization: The amount of credit you use in relation to your credit limit is another important factor. If you're using 100% of your credit, this will lower your score. Maintaining a level closer to 30% utilization will have the most positive impact. For example, if you have a credit limit of $1,000, your credit score will be higher if you only keep a $300 balance as opposed to a $900 balance. Total credit usage, balance and available credit are the most significant factors for VantageScore credit scores.
Other variables that impact your credit score are how long you've had established credit, your mix of different types of credit and how many accounts you've opened within a certain amount of time.
How can you raise your credit score to qualify for a VA loan?
Credit scores update every 30 to 45 days, and it’s possible to make changes that can help you raise your credit score over time. Some ways to impact your credit score positively include:
- Looking at reports from the three credit reporting agencies and disputing any errors
- Paying down balances on accounts, especially if you're using lots of the available credit
- Paying your bills on time
- Keeping credit cards open, even if they're paid off
So don't think it's the end of the world if your credit score is preventing you from getting a VA home loan — there are ways to improve it.
How to find the best VA mortgage lender
If you decide to apply for a VA loan, there are many lenders to choose from. VA loans are funded by private lenders, and comparing what each offers can help you decide which lender best fits your mortgage needs.
What to look for in a mortgage lender
Every mortgage lender has different benefits, but knowing what to look for can help you choose the lender that is best for your financial needs. Things to look for in a mortgage lender include:
- How long it's been in business
- Mortgage rates, credit score requirements and loan limits
- Variety of loan options
- Positive reviews from customers
- Customer service
How to find a VA-approved mortgage lender
Different types of lenders —private banks, mortgage companies and credit unions — offer VA home loans. Reach out to multiple lenders to learn about their products, process and customer service. Read reviews from customers, and look specifically for people who mention VA purchase loans, VA cash-out refinance loans and VA interest rate reduction refinance loans.
Our VA loan lender guide can help you find and compare lenders.
How do you get preapproved for a VA loan?
A VA loan lender should be able to give you a preapproval letter that shows you how much you can spend on a home. Getting preapproval not only tells you how much home you can afford; it also shows a seller you're serious about buying and that you already have a connection with a lender.
To get preapproval for a VA loan, you'll need to provide the following:
- A Certificate of Eligibility to show you're eligible for a VA loan
- Social Security number
- Recent pay stubs
- Proof of assets
- Employment verification
Once a lender has your information, it will calculate the amount you can borrow with a VA home loan.
- Article sources
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