Veterans United
The $0 down payment benefit grabs all the headlines, but the more relaxed credit requirements for VA loans are one of the program’s most understated advantages.
Lenders ratcheted up their requirements after the subprime mortgage meltdown. Mortgage credit is starting to thaw, but it’s still tough for many veterans and military buyers to secure conventional financing.
Conventional lenders are often looking for a credit score of 720 or higher, not to mention enough cash to put down 5%.
It’s a much different story for financing from the Department of Veterans Affairs.
Credit and VA loans
Part of the reason is this historic benefit program was created to expand access to homeownership to those who’ve served our country.
The VA takes a more holistic look at a buyer’s financial picture. In fact, the VA doesn’t even mandate a credit score minimum to use the program. But it’s important to remember the VA doesn’t actually make home loans. The program basically insures a portion of them to lenders on behalf of eligible borrowers.
The lenders making these loans can and do institute credit score minimums—it’s just a much lower benchmark than veterans will encounter for conventional loans.
VA lenders are typically looking for a score around 620, a figure that falls in FICO’s “fair” range of scores. That fact should put to rest a lingering misconception that VA loans require perfect or near perfect credit.
Bankruptcy and foreclosure
In addition to lower credit score hurdles, VA loans tend to feature more forgiving requirements when it comes to things like a bankruptcy, foreclosure and short sale.
Prospective buyers who experience a Chapter 7 bankruptcy typically need to wait four years before pursuing a conventional mortgage. For VA borrowers, it’s a two-year wait.
A Chapter 13 bankruptcy usually means conventional buyers need to wait at least two years from discharge. VA buyers can be eligible just a year removed from filing for bankruptcy protection.
After a foreclosure, conventional buyers usually face a seven-year wait. Qualified veterans and service members can bounce back into a VA loan just two years after a foreclosure.
There’s often a four-year wait after a short sale before buyers can secure conventional financing. VA buyers may not need to wait at all depending on their specific situation and the lender.
Veterans and service members can face a host of financial challenges given all that’s asked of them. The VA loan program continues to help ensure they have access to a major part of the American dream they fought to protect.
Want to learn more? Check out our Veterans Guide to Homeownership and get started on your home-buying journey.
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This article was written by Chris Birk, director of education at Veterans United Home Loans and author of “The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits.”
NMLS 1907 (www.nmlsconsumeraccess.org) Veterans United Home Loans is not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency; does not reflect DOD endorsements. Equal Opportunity Lender. 1400 Veterans United Drive Columbia MO, 65203.
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