One of the most utilized benefits given to America's eligible active-duty and reserve service members, veterans and qualifying spouses is the VA loan. With attractive rates and the ability to buy a home or refinance all of your equity with no money down, it's easy to see why. Still, there are certain requirements put in place by lenders.
If you’re looking to buy or refinance a house, you might want to know the minimum credit score requirement for a VA loan. That way, you can better prepare yourself for the application and approval process ahead.
The minimum median credit score to qualify for a VA loan with Rocket Mortgage ® is 580. However, the credit score requirement may be higher or lower with other mortgage lenders.
It’s important to note that the Department of Veterans Affairs (VA) doesn’t establish a minimum credit score for VA home loans. That’s because the VA doesn’t make loans – it just partially guarantees loans that meet its standards. There are many guidelines the VA has for the loans it backs, but a minimum credit score isn't one of them.
This more flexible requirement is one of the things that can make a VA loan favorable, along with the fact that there’s usually no down payment required.
If your credit score isn't quite up to par to qualify, the first thing you should do is get a handle on what your score is and what's on your credit report. You can get a free credit report from any of the three credit bureaus once a week.
If you notice any errors or incorrect information on the report, you can file a dispute. If everything looks correct and your credit just needs some enhancement, you can follow these tips for improving your score:
Even if you do qualify for a VA loan, it’s never a bad idea to work on raising your credit score. This can help you qualify for a better interest rate on the loan.
Lenders set their own guidelines for loans based on their tolerance for risk. It’s the role of underwriting to make sure that a borrower meets a lender's guidelines. This includes ensuring qualification from a credit perspective. Let’s get into what that looks like here at Rocket Mortgage.
Most loans sent to the VA go through an automated government underwriting system. If you get approved by the algorithm without a human being involved, it’s termed “approve/eligible.” Rocket Mortgage requires clients to have at least a 580 median FICO ® Score.
If you qualify with a score between 580 and 619, you’ll have some strict requirements in terms of how high your house payment and overall debt load can be.
The first thing we look at is your housing expense ratio, which is your mortgage payment – including taxes, insurance and (if applicable) homeowners association (HOA) dues – divided by your gross monthly income expressed as a percentage.
Mortgage Payment ∕ Gross Monthly Income = Housing Expense Ratio
In no event can you spend more than 38% of your income before taxes on a house payment if you’re qualifying with a credit score below 620.
In addition, we also look at your debt-to-income ratio (DTI). This is a ratio comparing your monthly payments for installment debt, mortgage debt, and minimum payments on revolving debt like credit cards to your gross monthly income.
(Installment Debt + Revolving Debt + Mortgage Debt) ∕ Gross Monthly Income = DTI
If your credit score is below 640 with the down payment being less than 5%, we require an overall DTI, including your mortgage payment and all other debts, to be no higher than 45%.
If, for some reason, the VA’s algorithm doesn’t approve you, you may still be able to get a loan under the “refer/eligible” route. These loans undergo the human scrutiny of manual underwriting. An underwriter will go through your documentation and see if you qualify.
Borrowers that don’t qualify for automated approval are usually those with certain negative items in their credit history. This could include late mortgage payments, past bankruptcies or foreclosure.
To qualify based on manual underwriting at Rocket Mortgage, you need a minimum median FICO ® Score of 640 or higher. Your DTI can also be no higher than 45%. If you’re refinancing, you have to leave at least 10% equity in the home.
While the VA doesn’t set specific loan limits, lenders often have a certain point at which they consider the loan a higher risk. Most of the time, they set the limits for regular VA loans at whatever the conventional loan limit is in the area. If it’s outside a high-cost area, the current conventional loan limit is $766,550. Anything above that is a VA jumbo loan.
With full VA entitlement, if you have a qualifying credit score of 640 or higher, you can purchase with no down payment (or refinance up to the full amount of your home’s appraised value) for loan amounts of $1.5 million or less. You can get a loan of up to $2 million with a 10% down payment or equity amount and a 680 median credit score.
VA loans are government-backed mortgages. This means that those buying into a VA mortgage bond on the secondary market can be more comfortable because it comes with a government guarantee. In contrast, conforming loans made by federally backed mortgage institutions like Fannie Mae or Freddie Mac have their own strict standards for qualifications, but investors in those bonds aren’t guaranteed a return.
When you get a VA home loan, you’re applying through a private lender to buy or refinance a home. That loan is then guaranteed by the VA if it meets their requirements, including that it must be the home buyer’s primary residence and they meet certain DTI standards.
Since VA lenders are more protected when funding this type of loan, they are more willing to approve borrowers with low credit scores. That's why there’s no official credit requirement, though individual lenders may set one.
You’ll need to meet some additional requirements in order to borrow a VA loan. Let’s go over some common borrower standards among VA lenders:
VA loans come with several benefits. There’s generally no down payment or mortgage insurance required, and it’s the only mortgage offered through one of the major investors that allows you to convert 100% of your home equity into cash. Additionally, in most cases, there’s no loan limit associated with VA loans. They also have some of the most favorable interest rates out there.
The VA doesn’t actually fund loans itself, but it does pay lenders back up to 25% of the loan amount if you go into mortgage default. Because the VA is taking on some of the risks, lenders can offer better interest rates while providing more flexibility on credit scores and other qualifications.
The VA doesn't have a minimum credit score requirement. Instead, lenders can set their own requirements. At Rocket Mortgage, the minimum qualifying credit score is 580. Keep in mind, you can qualify for more favorable terms with a higher score. And one good thing about the VA guarantee is it gives lenders a chance to help more borrowers who may have less-than-perfect financial histories.
If you’re interested in buying a new home or refinancing your current home with a VA loan, start your application online today.