Updated: Dec 19, 2022
Your home is one of the most significant investments you will ever make. For Veterans and active-duty personnel, VA loans can often be the best mortgage program available. Whether you're refinancing or purchasing, VA Loans provide several advantages.
The VA loan program provides some remarkable benefits and flexible options. Dream houses, fixer-uppers, and first-time homeowners are all represented. When it comes to qualifying for home loan options, your credit score is a deciding factor. Fortunately, the Department of Veterans Affairs (VA) guarantees VA mortgages, reducing the risk for lenders, which allows for more flexible credit requirements, more favorable terms, and lower interest rates than other programs.
Top Benefits of VA Home Loans
• There are no down payment restrictions—no down payment is required.
• There are no requirements for private mortgage insurance (PMI).
• Interest rates could be lower than those of FHA loans and Conventional mortgages.
• Reduced closing fees.
• The origination charge is limited to 1%.
VA Loan Eligibility
• Active-duty military and Veterans who have completed the required minimum service time.
• Some surviving spouses of Veterans and active-duty military.
• Members of the National Guard and Reserves who are eligible.
VA Loan Entitlements
Most people who apply for a VA loan will have full entitlement. As of 2020, if you have full entitlement, you will not have a borrowing limit. The VA guarantees a quarter of the loan amount. In any of the four circumstances below, you have complete entitlement:
• You've never taken advantage of your VA loan benefits.
• You previously used your entitlement to purchase or refinance a home, but you've subsequently sold it and paid off your VA loan.
• You previously had a VA loan that wasn't entirely paid off due to a foreclosure or short sale, but you've subsequently paid it off.
• You paid off a VA debt without having to sell your home.
How do VA Loans Work?
The VA guarantees loans from recognized lenders to help eligible Veterans and service members purchase or refinance a home. A VA financing charge (usually 2.3% of the loan amount, depending on down payment and other factors) is assessed. With no down payment or mortgage insurance requirements, this is often the most cost-effective option. The VA guarantees VA loans, but that doesn’t mean your loan is guaranteed; it means your payment is guaranteed to the private lender. In essence, the VA will pay the debt to the lender in the event of default.
Who decides what credit score is required?
Even though the VA originated and supported the VA Home Loan program, the VA does not provide the loan and cannot impose credit score restrictions for VA loans. The mortgage company, bank, or lender will determine your credit score. This is one of many criteria to be used to determine your loan qualifications. Each lender is distinct and has its own criteria. So, if you don't meet one institution's financial requirements, you may choose a different VA lender that is more flexible and willing to work with you.
Is there a minimum VA credit score requirement?
There are no minimum credit score criteria set by the VA. Instead, lenders consider the borrower’s entire loan profile. In addition to military experience, they will consider job history, current income, down payment amount, debt, assets, and other factors. A credit score of at least 580 can yield a higher approval rate.
I have a low credit score, but can I still receive a VA loan?
The simple answer is yes, you may be able to acquire a VA loan even if you have low credit. Borrowers typically need a credit score of at least 580, although some lenders may be prepared to go below that threshold at their discretion. For example, some lenders may be willing to relax credit score requirements if there are other strong aspects of your financial profile, like your Debt-to-Income Ratio (DTI). If your credit score is simply too low for any lender to accept, you can take steps to improve it. Just because you don't qualify today doesn't mean you won't be able to qualify in the future if you work hard.
Popular VA Loans
• Purchase: VA loans allow borrowers to purchase or construct a house without requiring a down payment. Before closing, the home's construction must be finished.
• Cash-Out Refinance: Refinance an existing VA loan or Conventional loan with the possibility of cashing out a portion of your home's equity. You can refinance into a VA loan from another form of loan (for example, Conventional or FHA). VA loans are the only major investor-backed loans that allow you to convert 100% of your equity into cash.
• Streamline Refinance: A VA Streamline lowers your interest rate and lengthens the term of your existing VA loan. The main advantage is that you may refinance to lower your interest rate and monthly payment even if your house is worth less than you owe on it. There's also a lower finance cost, and an appraisal isn't normally required. These are also known as refinancing loans with lower interest rates (IRRRLs).
• Renovation Loans: Finance the cost of repairs and home upgrades with a new VA Loan.
Interest Rates on VA Loans
Rates for VA home loans vary depending on the type of loan (see above), the terms of the loan (length of time for payments), and other considerations.
VA Loan Summary
VA Loans are one of the best mortgage options for service personnel. Qualifying for a VA home loan can be a straightforward process, but criteria must be met to prove eligibility. Contact Branch Manager Tracie Schmidt NMLS #269424—your Certified Veteran Loan Specialist (CVLS) to learn more and get started!
Call 858-336-5200 with any questions you may have about this blog or our loan programs.