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VA Loans and Credit Scores


Posted on: May 9, 2018

There are a lot of things to keep track of before applying for a VA loan. Aside from providing your current financial information and checking your VA eligibility, you’re going to need to prove that you have a decent enough credit score.

During the application process, your lender is going to pull your score. Depending on a number of factors, this score could be the breaking point for your mortgage – or it could save you thousands over the life of the loan.

Here’s everything you need to know about credit scores and VA loans.

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How do credit scores affect VA loans?

One of the biggest impacts your credit score will have is helping to determine what mortgage rate you get.

Mortgage rates aren’t the same for everyone. Depending on factors like the size of the downpayment, debt-to-income ratio and, of course, your credit score, different rates will be available. Lenders will combine this information and look at what’s called a rate sheet. The rate sheet is essentially a chart that shows the specific rate offered to home buyers with a specific set of information.

So, the higher the credit score you have, the better chance you have of getting a lower rate.

Some home buyers hear this and are concerned that not making a downpayment will force their mortgage rate higher. It’s true that lower downpayments can lead to higher rates. But because VA loan rates are consistently much lower than rates for other mortgages, a loan with no downpayment could carry a lower rate than a comparable mortgage type.

To avoid making a large downpayment (or making one altogether), keeping your credit score healthy is the best way to get lower mortgage rates.

What is the minimum credit score for VA loans?

Another large impact of credit scores on VA loans is that having a low score can immediately disqualify you from being eligible.

While it’s true that the VA doesn’t require a minimum credit score, many lenders will only accept a mortgage if the borrower has a score of 620 or higher. Of course, there are always exceptions to the rule, but home buyers will want to play it safe and keep their credit score as high as possible.

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Getting a VA loan with lower credit

Any VA home buyer with a credit score below 620 should work with a lender to find out how to be eligible. Usually, this means bumping your credit score higher.

The good news is that getting your credit score above 620 can be an incredibly quick process. Credit scores are always changing, for better or for worse. That means that a few quick, smart decisions can help you get a higher score.

At the same time, a decision at the wrong time can cause a huge credit score drop. Too often, home buyers go out and buy a new car or open a new credit card during the application process. Both of these will result in a quick drop of credit, and that will be reflected in the application.

So, along with speaking with a lender on how to get approved, work to pay off any credit card debt or car payments while avoiding getting new loans. If you do this, you’ll have a higher credit score in no time.

Credit scores and VA refinances

The VA streamline refinance is among the easiest refinances to get approved for. However, a low credit score can hurt your chances of refinancing and saving money on your home.

Any VA homeowners who get disqualified from a refinance should ask their lender why. If the problem is a lower credit score, then working to increase the score is the best course of action.

It could also be that the credit score is too low with the current application. Credit scores, combined with home equity and the debt-to-income ratio, will determine your rate and eligibility. Sometimes, increasing your equity or improving your debt-to-income ratio can do the trick, and you won’t have to work hard on your credit at all.

Checking your eligibility

If you’re interested in getting a VA loan or refinance but aren’t sure if your credit score is high enough, the first thing to do is apply. You’ll never know what rates are available to you until you speak with a lender.

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