Veterans who have eligibility for a VA Home Loan need to understand the “essence” of the credit requirements set out by the Veteran’s Department. The VA Doesn’t make these loans, they simply guarantee that if the lender meets the underwriting guidelines in approving a VA Home Loan, then the Veteran’s Administration will insure the Bank against potential future losses. And that’s where things get tricky, because the VA doesn’t require a “set” credit score. VA Home Loan minimum credit score requirements don’t really exist, and so it is up to the lender to look at the credit history and the pattern of paying bills on time.
The Bank sets out “overlays” or additional guidelines based upon credit scores, debt to income ratios, and residual income. Overall, a Veteran who shows continuous slow payments, judgments and delinquent accounts will not be a good candidate for a VA Home Loan. However, when thinking about VA Home Loan minimum credit score requirements remember that just because you had an “event” that caused a dip in your credit, doesn’t mean we can’t make you a loan. Each situation is unique.
VA Home Loan Minimum Credit Score Requirements
VA Home Loans can go up to $750,000 with most of our Investors. For Loans amounts less than $424,100 we generally want a 620 credit score. However, in some cases, we can go down to a 580 credit score. For mortgages between $424,100 and $650,000 we are looking for a score of at least 680. Over $650,000 VA Home Loans need a score of at least 700.
We can do manual underwritten loans for VA Home Loans, meaning you don’t have to be approved by the Automated Underwriting System (AUS). Loans without AUS approval require a minimum of 3 tradelines evaluated for at least 12 months. These can be your rent payment, your car insurance, your life insurance, a YouTube account that you pay for, Netflix… basically any kind of non-traditional credit that we can have 12 months of paid on time evidence from.
Authorized User Tradelines
Additionally, we must prove one of the following is we are using a tradeline that shows you as an Authorized User on the account. These accounts are not accepted at all on USDA Loans.
• 1. Another Borrower on the Mortgage owns the trade lines in question
• 2. The trade line is owned by the Borrower’s spouse
• 3.The Borrower has been making the payments on the account for the last 12 months OR credit must be analyzed to see if authorized user trades impact credit. This last statement is in there because sometimes Authorized User Accounts will artificially increase credit scores.
With Manual Underwritten Loans, we will require the Veteran to have at least 4 months of reserve payments (READ: If your monthly mortgage payment is $1000, we want you to have $4000 left over after closing). if the credit score is under 600, 2 months reserves required if the Veteran’s credit score is under 620.
Any Judgments must be paid off, however if you have collections we are generally not requiring those to be paid off. I hate making statements like that, because your on situation might be the one an Underwriter says… “well, I think we’re going to need to pay that one off. ” Again this is an example of what happens when the VA Home Loan minimum credit score requirements don’t really exist, and it is up to the lender to look at the credit history and the pattern of paying bills on time, to determine what is needed.
When a Veteran has already used basic entitlement for a primary home purchase, if they decide to purchase a new primary residence, they may have bonus entitlement available. It’s important to remember, bonus entitlement can only be used to purchase a home with a purchase price greater than $144,000.
Maximum Debt to Income ratio of 45% if the Veteran’s Credit Score is less than 620, maximum of 50% Debt to income (back ratio) for all other credit scores. When the debt ratio is over 43% then we will need to have 120% of the Residual Income requirements to qualify.
Serious Credit Issue Waiting Period for VA Home Loans
The Waiting period after a foreclosure on VA Home Loans is 2 years from the date of transfer. This could be more than two years from the date the court orders the Foreclosure. You might read somewhere that with extenuating circumstances this can be reduced to one year. In the more than 20 years we’ve been making mortgage loans, I’v never seen a circumstance that qualified for this with a foreclosure. IF your previous mortgage was a FHA Loan or a VA Home Loan, we will need to do a CAIVRS check to be sure there’s no outstanding claim. If there is, you may be required to do a Conventional Loan.
If you had a short sale, or did a Deed-In_Lieu, the waiting period is 2 years from discharge date (if loan was delinquent at short sale, less if loan was current). 1 year with extenuating circumstance. NOW, we did have a Veteran who bought a 3 story town house, then 2 weeks later,had a major stroke, and could no longer live in the house. We had records from the ambulance company that was having to come get her 2 and 3 times a week because she was falling in her home, letters from doctors, and a letter from BB&T who allowed her a short sale. She was never late on her payments. The short sale was $7,000 less than what she owed on the house, and she set up payments with BB&T, that we counted in her debt, as she bought a new home 12 months after the short sale.
Chapter 7 Bankruptcy has a 2 year waiting period after discharge, with a Chapter 13, the VA says you must have paid into the Chapter 13 for at least 12 months on time. They also require that you have a letter from the courts allowing you to enter into a mortgage. With a Chapter 13 if the applicant has finished making all payments satisfactorily, the lender may conclude that the applicant has re-established satisfactory credit.
Because all mortgage loans that are backed by the Government have the “best” interest rates right now, this is a GREAT program to use! In addition, there’s no monthly PMI! Even if you are purchasing a “Bigger” home, and you are going to make a down-payment, you might still want to use this program! During the month of November, we are offering Veterans free Appraisals and below market Mortgage Interest Rates. If you are considering a purchase, and want to know more about VA Home Loan minimum credit score requirements, please call Steve and Eleanor Thorne, Government Mortgage Loan Experts, 919-649-5058