Government-backed mortgage assistance is one of the most valuable benefits available to United States veterans. Since the program was established by Congress in 1944, more than 20 million VA home loans have been provided. In 2019, we can expect even more veterans to take advantage of this exclusive perk, but many wonder if a low credit score will ruin their chances of buying or renovating their dream home.
Credit history is one of the key factors lenders take into account when deciding whether or not a loan applicant is eligible. Fortunately, because VA home loans are backed by the government and therefore carry less of a risk for lenders, applicants with lower credit scores often have a better chance of getting approved than they would with conventional loans.
What exactly is a credit score and why is it important?
A credit score is simply a number between 300 and 850 that helps lenders calculate the risk involved with giving you a loan. It is based on your current credit report, which includes information about payments, how much you owe on existing accounts, the types of credit you have, and how far back your credit history goes.
A higher credit score means the borrower is more likely to meet their credit obligations and make all of their payments on time, while a lower credit score indicates a higher risk that the borrower may get behind on payments and possibly default on the loan.
Do VA home loans require a minimum credit score?
Veterans looking to buy a home will be happy to know that VA home loans have no minimum credit score requirement. Instead, they ask that applicants have “satisfactory credit” and instruct lenders to review the entire loan application before making a decision. If an individual entered the military at age 18, for example, and had little time to build up sufficient credit prior to serving in the military, a lower credit score may be overlooked if all other criteria are met.
In contrast, conventional loans typically require a credit score of 620 or higher, putting the dream of home ownership far out of reach for many potential buyers. FHA loans are also backed by the government and have a lower minimum credit score requirement (500), but applicants who wish to qualify for the 3.5% down payment will still need a score of 580 or higher.
In addition to not requiring a minimum credit score, VA home loans offer several other benefits. Those benefits include no down payment, no private mortgage insurance (PMI), competitive interest rates, a cap on closing costs, and more flexibility and leniency regarding past foreclosures or bankruptcies.
How do I apply for VA mortgage assistance?
Interested veterans, servicemembers and eligible spouses can determine whether or not they qualify for a VA home loan by visiting the U.S. Department of Veterans Affairs eligibility page. If you fit the criteria, the next step is getting a valid certificate of eligibility (or COE), which lets your lender know you qualify for the VA home loan benefit.
For veterans, obtaining a COE means you must first have a copy of your DD214 showing both the character of service and the narrative reason for separation—items 24 and 28 on the form. Once you have a copy of your COE, you can apply for your VA home loan online, through your lender or by mail.
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