As with any mortgage or bank loan, there will be several requirements that the lender will need the borrower to satisfy before a loan is approved. Principle among these requirements is the ranking of the borrower’s credit score.
When it comes to getting a VA loan, there actually isn’t a definite minimum credit score that’s required, as different lenders will have their own criteria. That being said, a credit score of 580 is considered to be a good benchmark to have when applying for a VA loan. If your score is below that, you’ll likely need to do some work to improve it before continuing with your application.
Before we get further into the details surrounding VA loan credit requirements, let’s use the first half of this article to look at what a Veterans Affairs (VA) home loan is, touch on how a VA loan is different, and its benefits for the United States Military members and veterans.
What Is A VA Mortgage Loan?
A VA loan is a mortgage loan guaranteed by the United States Department Of Veterans Affairs. During World War II, The United States government became dedicated to ensuring that returning veterans had the best support system available to give them better odds of success after returning to civilian life.
In 1944, they established what is commonly known as the GI Bill. The bill contained many benefits for veterans and their families, such as college tuition reimbursement, healthcare benefits, job programs, and, most importantly, home loan programs.
VA loans are only available to current and former members of the United States Military and, in certain circumstances, their families as well. Some VA loans can be assumed by veterans’ spouses and civilians.
What Benefits Does A VA Loan Offer?
A VA loan has many benefits. Options include no or low down payments, lower closing costs and interest rates, and no mortgage insurance costs. There may also be more flexible VA loan credit score requirements.
No PMI (Private Mortgage Insurance)
Many lenders offering conventional and FHA (Federal Housing Administration) loans will require borrowers to pay fees related to mortgage insurance in case they default on their loan. You can avoid this fee and monthly payment entirely by choosing a VA loan. There are no requirements to pay mortgage insurance fees with a VA loan.
Low Or No Down Payment
Traditional mortgages need buyers to come up with significant down payments to qualify for loan approval. With the VA loan program, it is possible to be eligible for zero percent down—and still receive a mortgage!
Another fantastic benefit is significantly lower mortgage origination fees with the VA loan program, capped at one percent of the loan amount.
Additionally, there are many other fees that lenders are not allowed to charge when granting a VA loan so that veterans can have many of these up-front fees reduced or eliminated.
Lower Interest Rates
Lower interest rates are another great benefit of a VA loan. Typically a veteran applying for a VA loan can expect an interest rate about a half percentage point lower than the going rate. That may not sound like much, but over the life of a thirty-year loan, it can add up to substantial savings!
Credit, Income, And Other Requirements For A VA Loan
You Must Obtain A Certificate Of Eligibility (COE) From The U.S. Military
- It goes without saying that to qualify for a VA loan, you must have served in the military or are a surviving spouse of a veteran.
- Depending on your current or former status in the United States Military, the requirements for obtaining a COE may be different. We can assist you with this process and we’re happy to help obtain a COE on your behalf.
Acceptable Debt To Income Ratio
- While the VA itself has no specific requirements regarding your income ratios, lenders generally will have thresholds to meet to qualify for a mortgage.
- Generally speaking, your total housing cost, including mortgage payment, homeowners insurance, and property taxes, should total no more than approximately thirty-one percent of your gross income before taxes.
- Your housing costs plus any other payments such as monthly car or credit card payments, when added together, should not exceed approximately forty-one percent of your gross income before taxes.
- These ratios may vary depending on your circumstances
Minimum Credit Score
The credit score requirement for a VA loan can be higher or lower depending on the lender you chose, your down payment amount, income level, and other factors as decided by the lender. However a credit score of 580 is a solid benchmark to help determine if you’re within an acceptable range. If your current score is lower than 580, you may need to work on improving your credit score before moving forward with your application.
The Home Must Be Your Primary Residence
- You cannot obtain a VA loan for a rental property or a second home. It must be for your primary residence where you intend to live most of the time.
- You may not use VA loans for properties you intend to sell very quickly or only have as an investment.
VA Funding Fee Requirement For All VA Mortgages
- The amount is anywhere from 2% to 3.6% of the loan amount.
- Unlike other loan programs, in most cases, the VA loan program will allow you to roll this cost into the total loan amount of your mortgage. So, you aren’t required to come up with several thousand dollars just to obtain a home loan!
The VA loan program undoubtedly has many benefits. If the VA loan program sounds right for you, feel free to contact one of our loan officers at OVM Financial and let us help you get a loan for your dream home today!