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How Credit Scores Impact VA Loans


Credit scores and VA loan eligibility

Posted on: March 23, 2018

When applying for a mortgage, one of the first pieces of information your lender is going to ask for is your credit score.

Credit scores can be tricky. They can take years to build up, but one missed payment or bad move can send a score lower. This is particularly frustrating if you’re planning on buying a home.

Lower credit scores can mean ineligibility for some loan programs, and it can make affording a home much more difficult. But what impact does your credit score have on getting a VA loan?

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Getting approved

The most important role your credit score is going to play in buying a home is your eligibility. Loan programs often require a specific minimum amount to be approved for a home. For example, conventional and FHA loans will likely require home buyers to have scores of 580-620.

VA loans, technically speaking, don’t have a minimum credit score requirement. However, the VA doesn’t give you the loan – the process is done through a lender. Each lender will have their own set of standards, even with credit scores.

To be safe, VA eligible home buyers will want to have a credit score of at least 620. However, some lenders will approve VA mortgages that have lower scores. It can vary depending on each buyer’s personal situation.

But to be clear, even without a minimum credit requirement, VA home buyers should plan on having a credit score of at least 620 before applying. If the score is lower, it could be difficult to find a lender willing to accept the loan.

VA members with higher credit scores, particularly 680 and above, should find that there is no issue in getting approved for a mortgage – at least, their credit score won’t work against them during the application process.

Getting a better rate

When your credit score is high enough to get approved, there’s only one other thing to worry about: mortgage rates.

Mortgage rates aren’t set in stone. Not only do they change every day, but the rates that lenders give change from borrower to borrower. Two people can apply for a mortgage at the same time and get two very different rates.

In fact, lenders have a specific chart that categorizes what mortgage rate a buyer will get depending on what their credit score is. This also takes into account the loan to value (LTV), or how much money is being borrowed.

So, to get the lowest mortgage rates available, VA buyers need to have higher credit scores, a higher downpayment or both.

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What not to worry about

While credit scores impact your eligibility and mortgage rates, there are some parts of a VA loan that have nothing to do with your credit.

No matter what your credit score is, you won’t be required to make any type of downpayment on a VA loan. While a higher downpayment can help lead to lower mortgage rates, you can also get lower rates by boosting your credit score.

VA buyers also don’t need to worry about paying any type of insurance. Mortgage insurance may be required for some buyers on specific loan programs, but all VA buyers are exempt from having to pay insurance. This is because the loan is guaranteed by the VA.

Preparing your credit

When you apply for a home, your lender is always going to ask you to not make any big purchases – especially if you’re using a loan or lease to get it.

New lines of credit are good for long-term credit growth, but they have an immediate negative impact on credit. When applying for a home, this can quickly drop your score, leading to lower rates, a slower closing and possibly even ineligibility.

Spend time preparing your credit before going to buy a home. Avoid opening new lines of credit and make sure you get all your payments in on time to keep your score from dropping.

You don’t need to have perfect credit, or even credit in the 700s, to get a decent mortgage rate. However, quick drops in your credit can ruin your VA loan rate or eligibility. Avoid those, and you should have no problem getting a good rate on your VA loan.

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