VA Home loans, credit scores and how it affects you

Many times when taking an application for a VA home loan I am often asked about credit requirements for a VA Loan. Many veterans aren't really sure if the will qualify for a home loan when I speak with them for the first time. Sometimes they will tell me about a bankruptcy, foreclosure, judgements or chargeoffs on their credit report. That is when I tell them that VA loans don't really depend on your credit score.

 Before I go any further I need to say that a VA loan isn't a cure for a poor history of repayment. Then again, a low credit score shouldn't keep you from applying because the underwriter is looking for more than that. If you have had a good payment history without any derogatory items for the last year or two there is hope for many veterans.

With most home loans, the lender and underwriter are looking for these primary items:

• Ability to repay - do you have sufficient income to pay for your new home? Most loan programs look at DTI (debt to income), veteran loans take this into account as well but the also take residual income into account as well. There are minimum amounts of residual income required and this depends on the area of the country that you live in.

• Credit - VA underwriters look at your overall credit picture and not your credit score. If you have had some credit issues in the past and haven't had any derogatory credit for the last two years then credit scores usually aren't looked at if you have sufficient positive credit to offset it. In most cases, you shouldn't need to repay the derogatory items unless they will affect title.

• Stability - Typically we are looking for two years of employment history, not necessarily at the same employer or the same field. However, if you have recently become self-employed or have a lengthy job gap then you may need a letter of explaination when you apply for your VA loan.

• Reserves - These are funds that you have available in checking, savings, 401k or any other funds that you have available in case of an emergency to pay for your house payment. Reserves are usually not required for a VA loan but they can help your loan get approved easier.

VA home loans don't require excellent credit scores. If you have any questions, please feel free to contact me, I would be glad to answer them.

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Comments (2)

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written by John P, April 02, 2009

Well, it actually may help if you have a down payment and funds in the bank, however it won't help offset recent rough credit. VA Loans are not credit score dependent but they do take into consideration your recent credit performance.

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written by Jeremy, March 28, 2009

I would really like to purchase a home either later this summer or early fall with a va home loan.. My military credentials are more than enough, my only problem is going to be my credit score...its been damaged. the nice thing is, is that i have a fantastic job now making 150k working over seas, so all of my debt is paid off...now im just waiting on my score to slowly rise. ill have like 30 to 50k to put down on a piece of property depending on the date of purchase, even though i know it says "zero" down. would it help to put money down though if my credit is a little rougher??? not sure how that works. also im looking at buying a piece of undeveloped land and putting up a small house on it..How would that work for me??? thanks again.

jeremy

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