Last Updated on January 16, 2023 by Bob Filipczak
The minimum VA loan credit score doesn’t exist. That doesn’t mean they don’t matter, but the fact is that the VA loan system doesn’t have any minimum requirements around a borrower’s credit score. You may be getting mixed messages about that, because a lot of search results talk about minimum credit scores when, technically, there aren’t any. Here’s the real scoop.
The VA loan system is designed to make home buying and home owning easier for eligible veterans, military personnel and active-duty service members. The big three benefits of obtaining a VA loan are: no down payments, lower interest rates and no private mortgage insurance (PMI). The VA home loan benefit has a raft of advantages over conventional loans.
The VA loan program isn’t really one thing. It was created by the U.S. Department of Veterans Affairs, and it has a lot of moving pieces. The best way to understand it is to take a two-pronged strategy when pursuing a VA loan for your new house (or to refinance). Because the VA loan is actually just a loan guarantee. You need to find a VA-approved private lender to actually give you the mortgage loan. They will have their own credit score standards. The VA’s role is to stand behind your loan, guarantee your loan and insure your loan. The VA-approved lenders or mortgage brokers are there to crunch the numbers to see if you qualify for loan approval based on your financial history.
Consequently, the private banks or mortgage lenders are going to care a lot about your score, even if the VA doesn’t have a minimum credit score requirement.
Credit Score for VA Loan: What It Should Be
You will see a lot of credit score numbers out there associated with VA loans, but those all come from traditional private lenders. The VA says “the VA requires a lender to review the entire loan profile.” That means the VA is interested in the big picture of the eligibility requirements of your mortgage, not just one number.
Mostly you will see the credit score of 620 as the minimum for a mortgage loan, though in some places you will see the range of 580 to 620 for an appropriate minimum credit score. Sometimes people get mixed up because FHA loans require a 620 credit score, and they think that the whole federal government uses that same standard.
Long story short: if you have a credit score above 620, you are on track for a mortgage via a private lender, and that will help clear the way with the VA and the benefits that come with a VA guaranteed loan.
If, however, you have a low credit score — less than 580 — you should read on.
How to Improve Your Credit Score
Your credit score is a moving target and not set in stone. That means you can improve it. First it’s good to know how they calculate your credit score. All the major credit agencies calculate your credit score, or FICO score, based on these factors (each weighted accordingly).
- Payment History 35%
- Available Credit 30%
- Length of Credit 15%
- Types of Credit 10%
- Credit Inquiries 10%
Because credit scores and reporting are dynamic, it’s good to know the latest trends. For example, there was good news this year because people with lower credit scores are now allowed to include their on-time rent payments to the credit agencies to improve their credit scores. That means if you paid your rent diligently, it may help raise your credit score.
How much can that help? TransUnion did a study back in 2017 that showed that the average increase in credit score was 16 points when rent was included. That’s the average, but the increase was a lot more for people with credit scores below 620.
If you need to improve your credit score, here are some tips for repairing or improving a poor credit score.
- Remove any errors or inaccuracies from your credit history report. The three credit reporting companies have online dispute forms:
- Pay all of your bills on time (early is better).
- Keep your credit card balance under 30 percent of your available credit limit.
- Only open a new line of credit if you intend to use it over the long-term.
- Don’t close existing lines of credit, even if you don’t use them.
Some of these strategies will pay off right away, but some may take time. Increasing your credit score takes hard work and discipline. And it’s a marathon, not a sprint.
Other VA Loan Credit Requirements: DTI
Another number you may see as you are looking at mortgages through the VA loan system is DTI, which stands for Debt-To-Income ratio, and it’s expressed as a percentage. It’s basically a number that represents what you owe each month in debts compared to your income. While the VA doesn’t enforce credit scores, it does have financial requirements around your DTI percentage. The number you will see most often is 41%. This is a requirement the VA has for private VA lenders, but it affects you because the private lender needs to enforce it.
Debts included in your DTI number can be:
- Rent, mortgage or home loan payments
- Car loans
- Credit card monthly payments
- Student loans
Usually at the end of this list, you will see “other debts,” which is very vague. Just going to a website DTI calculator will give you a number, but this is another case where discussing your number with a professional loan officer might be a better idea.
Generally, you want a higher credit score than 620, and a DTI ratio under 41%.
We Help Save You Money on a New Home or Mortgage
At Home for Heroes we understand the importance of developing a great working relationship with your mortgage broker or private lender. They are an instrumental part of getting everything together for your VA Loan guarantee.
If you don’t know what to look for in a mortgage company, we can help. When you sign up with Home for Heroes, we connect you with our local mortgage specialist to put together a game plan for finding the right mortgage loan. And, if you’re looking to buy a home, we will also connect you with our local real estate specialist who knows the market where you want to live. If you choose to work with both of our specialists to purchase a home, the average savings is $3,000.
When you’ve completed the process and closed on your house, we will award you a Hero Rewards check that you can use however you please – renovations, appliances, furniture, vacation, etc. The Hero Rewards savings is our way to show our appreciation for your service to our country.