By Debbie Gregory.
In years past, when a veteran wanted to use the VA home loan benefit, the VA would issue the approval, order the appraisal and set the VA interest rate for the loan.
This time-consuming process was one of the reasons many sellers would refuse an offer on a home if the buyer was using a VA loan for the purchase.
Nowadays, the VA doesn’t approve the loan, but does issue the requirements that lenders must follow if the lender expects to receive the VA loan guarantee. The approval process is completely performed by approved VA lenders.
So exactly what are the credit requirements for a VA loan?
Of course, having good credit is a great start. The Fair Isaac Company (FICO) is the largest and best known of several companies that provide software for calculating a person’s credit score. The company devised a complex analysis of payment patterns to produce a three digit number reflecting a borrower’s credit past as a way to predict the future. This number ranges from 300 to 850 and the higher the number, the better the credit.
Experian, Equifax and Transunion all use the FICO model and report their scores to a VA lender when asked. Although the numbers are rarely the same, they are usually similar to one another.
Most VA lenders require a minimum 640 credit score but others have a 620 rule. That means if your scores are low and the VA lender declines your loan because your score is 635, another VA lender might be able to approve your VA loan.
Bankruptcy & Foreclosure Don’t Necessarily Disqualify You:
While a bankruptcy or foreclosure can stay on your credit report for seven years, you don’t have to wait that long to use your VA home loan benefit. If you have a previous foreclosure, you may qualify if more than two years have passed since the foreclosure date. If you used your VA entitlement and it was involved in the foreclosure, the amount of the entitlement in the foreclosure must be redeemed.
In the case of a bankruptcy, you should begin to repair your credit as soon as possible. If two years have passed since the discharge date and your credit has improved, you can’t afford to have any late payments in those two years. Stay current with your rent, utilities and mobile phone bill. Some VA lenders will use these payments as evidence of “alternative” credit.