Minimum Credit Scores
Many people obtaining their first mortgage, or even refinancing an existing mortgage, worry about the impact their credit score will carry on their ability to obtain a mortgage.
While these concerns are certainly merited: the VA does not dictate a minimum credit score to lenders. Thus, VA-backed loans don’t require a set credit score to obtain.
That said – the VA doesn’t prevent lenders from requiring minimum credit scores, and so many lenders may still require one. The truth is that when it comes to VA-backed loans most lenders have a degree of flexibility. Why? The nature of the VA-backed loan is that if the holder of the loan defaults, the VA will repay a portion of the loan back to the lender. What this means in practical terms is that if you obtain a VA-backed loan but end up unable to pay, the VA will step in and pay back part of your loan to the lender. Knowing the federal government is backing at least a portion of the loan, many lenders are able to use this backing to work around the normal credit restrictions that limit most loans.
In short: a VA-backed loan means that your credit score isn’t as limiting as it might otherwise be. Most lenders will, as you might expect, review your credit history and end up making a decision based on your credit and the VA’s backing – factoring in the bigger picture, so to speak. Additionally, the VA has Regional Loan Centers that can be contacted if you need counseling and guidance due to difficulties in obtaining a loan.
While the VA doesn’t require a minimum credit score, they do consider one factor to be very important: defaulting on federally backed debt. This can include a previous VA loan, certain federally backed student loans, and other forms of debt. Unlike general debt delinquency, this type of debt delinquency can pose enormous challenges and, potentially, prevent one from qualifying for a VA-backed loan.