What Credit Score Do I Need For a VA Mortgage?
What credit score do you need to qualify for a VA mortgage? Many potential borrowers want to know the answer to this question, and some worry that the no-money-down option might raise the FICO score requirements needed to be approved for a zero-down mortgage.
FICO Score Ranges
There are credit score ranges. Lenders use these ranges to establish degrees of creditworthiness. The higher your scores, the less of a risk you are considered to be. What do credit reporting agencies say about the FICO score ranges? Let’s see what Experian says about what constitutes good and bad credit score ranges:
- Poor: 300-579
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Excellent: 800-850
How Many FICO Scores Do You Have?
There are a few things to know before we answer that basic question posed in our headline. The first is that typically, borrowers have more than one FICO score. When you have two or three FICO scores the lender may use the middle score or median score to approve your mortgage.
So if you have more than one FICO score, make sure you know which one the lender will use. It’s true that you may not see too much variation between those numbers, but in cases where you do, the middle score is one to pay attention to.
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What Is The FICO Score I Need To Qualify For An FHA Mortgage?
You should know that the VA Lender’s Handbook, VA Pamphlet 26-7, does not instruct the lender as to the “acceptable to VA” credit score range needed to qualify for the loan. Instead, the VA leaves it up to the lender to establish minimum credit qualifying standards where FICO scores are concerned.
That means you may need to shop around for a lender who is willing to work with your circumstances, especially if your FICO scores are below 640. Lower scores potentially mean higher interest rates and you’ll want to know whether or not making a downpayment on the VA mortgage might help you avoid a higher rate in cases where your FICO scores aren’t quite in line with lender standards for approving the mortgage.
Putting money down on a zero-down loan is, in this context, a potential “compensating factor” that can offset a lower credit score range if your lender agrees.
FICO scores of 640 or better are typically used as minimum qualifying scores for many home loans. The fact that a VA mortgage is government-backed and therefore offers less risk for the lender offering the loan may make it possible to qualify for a VA mortgage with a FICO score lower than 640.
Comparing Qualifying FICO Scores
As a comparison, another government-backed mortgage loan program, the FHA Single-Family Home Loan program, offers the lowest downpayment (3.5%) for those with FICO scores at 580 or above.
Note that this is the FHA loan program’s minimum standard, not the lender’s. Lender standards may exceed this and often do. The bottom line? You’ll want to consider the FICO score issue carefully when shopping around for a lender. Don’t assume that all banks offer the same credit qualifying requirements, this is not necessarily true. If you worry that your scores are low, ask about making a down payment as a compensating factor.
Improving FICO Scores Before You Apply
There are ways to bring up your credit scores over time to improve your ability to be approved for a VA mortgage. The important caveat here is that you must give yourself enough time for credit improvement strategies to begin working.
They will not show results overnight, and may not show results for a few weeks or even months. But eventually, they WILL show up, and we are specifically talking about credit repair efforts you can do yourself without paying a third party to do for you.
There are three important steps you can take for free that will, over the course of a year, show results as long as you consistently apply these principles on time, every time.
These steps include paying ALL financial obligations on time with no late or missed payments for a full 12 months before you apply for your VA mortgage or VA refinance loan. You should also be working to reduce the amount of your overall debt and lower your credit card balances to well below 50% of your credit limit.
Those three things will help. But while you are doing this, you will also want to actively monitor your credit and review your credit reports for errors and other potential problems. Don’t assume that once you have read your credit report that everything is fine going forward and you never have to look again. You will want to know if your credit and personal identity have been compromised by reviewing your reports for any unauthorized activity.
Having a dispute on your credit at the time you apply for a VA mortgage, especially one that involves damage to your FICO scores, may complicate or slow down the loan process significantly. You’ll need to make sure you have no issues to deal with before your lender reviews your credit reports to approve your mortgage.
Finding such issues in your credit report takes time to deal with, and if you are facing a major mortgage deadline AND trying to dispute unauthorized use of your credit accounts, you may find that time is not on your side. It’s best to resolve all such issues as early as possible.
Should You Pay Others To “Repair” Your Credit?
Some are tempted to pay a third party to do credit repair for them. This is a choice left up to the borrower. But know this. You can repair your own credit as mentioned above over time, yourself, without paying someone else to do it for you.
That’s enough for some people to quit looking into credit repair agencies–they assume fixing credit requires some specialized knowledge to do properly. But really, all you have to know is that paying on time, lowering your balances, and avoiding too much use of credit really do contribute toward potentially higher FICO scores.
If you do choose to pay a third party to help, remember NEVER to trust someone who promises you they can remove accurate negative credit information from your report. Unless that information is outdated or expired, it will remain on your report no matter how many times it is contested. It will fall off your credit report in a matter of years, but don’t believe the hype about being able to erase accurate bad credit information.
And even if you do find a third party worth using to help you fix your credit, this process will take just as much time to resolve as if you were doing it yourself. In cases where there is inaccurate information that needs to go, there is a dispute and resolution process that cannot be hurried. If you put off working on your credit assuming a third party can help you do it faster, you may be setting yourself up for disappointment.
Once Your Home Loan Gets Started
If you get approved for a VA mortgage or a VA Cash-Out Refinance Loan, be prepared to have your credit run at least a second time by the lender during the course of the loan process. If your FICO scores change between loan approval and loan closing, your lender may be required to re-qualify you if the scores decline too much. That is one reason why borrowers are urged to completely avoid applying for other lines of credit during the home loan approval process and all the way up to closing day.
Your lender can and likely will run your credit more than once. Don’t let a bad assumption (that you only have one credit check) derail your mortgage loan; stay away from all new credit applications until after closing day. You’ll be glad you did.
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- Getting Started With VA Loan Benefits
- VA Loans, Investment Properties, and Deployments
- VA Loan Occupancy Rules: What You Need to Know
- The VA Loan Certificate of Eligibility