One of the benefits of having served, or currently serving, in the United States armed forces is eligibility for a home loan backed by the U.S. Department of Veterans Affairs. The VA administers the loan program but doesn’t directly authorize lending. The approval process is run through private lenders tied into the VA program. VA loans are easier to qualify for than conventional loans, with lending institutions setting lower credit score minimums for veterans. If you fall below the minimum, other strategies can be used to get a VA loan.
Benefits of a VA Loan and Minimum Score
Armed services personnel are rewarded for their commitment to their country by being eligible for home loans with no down payment and no mortgage insurance. As mortgage insurance payments on a $200,000 mortgage issued by an FHA-backed lender costs about $200 per month, this is a considerable savings. Interest rates are negotiable, and the VA funding fee that lenders charge can be wrapped into the mortgage. You can also negotiate the funding fee. The VA does not set a minimum credit score, but individual lenders often use 620 as the minimum score needed to open a loan file.
Other Determinants for a VA Loan
Lenders scrutinize your monthly earnings, looking for borrowers who have monthly debts that hover below the 40 percent mark. For example, if your monthly gross income is $7,000, you should show debts of under $2,800 per month. A lower debt-to-income ratio offsets a low credit score, as does a history of on-time payments. Some lenders dip below the 620 credit score minimum but increase the interest rate for veterans who show a positive debt-to-income ratio, a history of on-time payments, and money in the bank. Lenders also ask for a down payment if both a credit score and debt-to-income ratio are at the minimum. Loans to veterans who have suffered bankruptcy or foreclosure are considered after a two-year waiting period.
Improving Your Credit Score
If you fall below the 620 credit score mark, put off buying a home until your score improves. Live below your means. One option is to put yourself on auto-pay for all your recurring bills, avoiding late payments and marks deducted from your score. Paying down credit cards to 30 percent or less of the available credit will give a boost to your score. Put money in the bank regularly in case you are required to put money down for your VA loan.
Monitoring Your Credit Report
Check your credit reports regularly for errors and correct them immediately. Free credit reports are offered yearly. Order a report from one agency, make the corrections, and wait three months before ordering another from a second reporting agency. Do the same until the reports are accurate. Do not pay for a credit score immediately; just use the information on the report to improve your credit position.
- Zillow.com: VA Loans: What Are They? What Are the Advantages?
- U.S. Department of Veterans Affairs: Home Loan Guaranty: What is a VA-Guaranteed Loan?
- Veterans United Realty: VA Loans and Credit Score Minimums: What All Buyers Need to Know
- Military.com: Your Credit Score and Your VA Loan
- Military.com: VA Loans Can Deliver Big Rewards
- Bankrate.com: 5 Things to Know About Getting a VA Loan
- Thinkstock Images/Comstock/Getty Images