This guide covers VA credit score mortgage guidelines on VA home loans. VA mortgages are the best home loan program in the Nation. The U.S. government created and implemented VA loans with approval by the U.S. Congress to reward our veterans. Only military veterans with a Certificate of Eligibility (COE) are eligible for VA loans.
There are no down payment requirements on VA loans. Borrowers can purchase a home with 100% financing and no closing costs with VA home loans. Closing costs can be covered with seller concessions by the home seller or lender credit. Mortgage companies offer lender credits to cover part or most of the closing costs in place of a higher mortgage rate.
VA loans have lenient mortgage agency guidelines. More so than any other government or conforming loan programs. VA loans have no minimum credit score requirements per VA credit score mortgage guidelines. There is no maximum debt-to-income ratio on VA loans either. However, most lenders will have minimum credit score requirements as part of their lender overlays. Not all lenders have the same guidelines on VA loans.
What Are Lender Overlays?
There are two VA lending guidelines: VA agency guidelines and lender overlays by mortgage companies. All lenders need to abide by the VA agency guidelines. However, lenders can have their additional guidelines called lender overlays. No two mortgage lenders have the same lending requirements on VA loans. One lender may deny you a VA loan due to their lender overlays, while another lender approves you.
Just because one lender says no does not mean a different lender will do the same. Gustan Cho Associates are one of the very few national lenders with no lender overlays on VA loans. This article will discuss VA credit score mortgage guidelines on VA home loans.
This is why a borrower who meets all VA guidelines may not qualify with one lender but may qualify with a lender with no overlays. Gustan Cho Associates Mortgage Group is one of the very few national lenders with no lender overlays on VA loans. The team at Gustan Cho Associates has closed countless VA loans with credit scores down to 500 with 60% plus debt-to-income ratios.
VA Credit Score Mortgage Guidelines Versus Lender Overlays
As mentioned earlier, all lenders must meet the minimum VA agency guidelines on VA mortgages. However, lenders are allowed to have overlays on VA loans. Lenders can have overlays on just about anything and everything. VA loans do not have minimum credit score requirements by the Veterans Administration. However, many lenders will set their minimum credit score requirements on VA loans.
Per VA credit score mortgage guidelines, The Veterans Affairs Administration does not have a minimum credit score requirement on VA loans. However, borrowers need to either get an approve/eligible per the automated underwriting system or meet the VA manual underwriting guidelines. However, most lenders require a minimum credit score of 620 FICO due to the lender’s own overlays on VA loans.
Many lenders may even have a 640 credit score requirement when there is no minimum credit score requirement per VA credit score mortgage guidelines. Over 80% of our borrowers at Gustan Cho Associates have been turned down for a VA loan due to lender overlays. Gustan Cho Associates Mortgage Group has no lender overlays on VA home loans. We go by the automated underwriting system findings.
The Automated Underwriting System
The Automated Underwriting System is also referred to as the AUS. The AUS works as follows: The loan officer inputs the borrower’s mortgage applications and credit report. Within seconds, the AUS will render an approval or refer/eligible findings. The automated underwriting system is a sophisticated computerized system programed with the VA credit score mortgage guidelines and can render a decision within seconds.
With an approve/eligible, the borrower is set to go with lenders with no overlays, such as Gustan Cho Associates Mortgage Group.
If the findings render a refer/eligible per AUS findings, the borrower may be eligible for manual underwriting. Manual underwriting guidelines apply. VA and FHA loans are the only two programs allowing manual underwriting.
Credit Scores Versus Credit Payment History
Timely payments in the past 12 months are key to obtaining a VA loan approval. Borrowers with a high credit score but late payments in the past 12 months may not get an automated underwriting system approval. However, a lower credit score borrower with timely payments in the past 12 months may get an approve/eligible per AUS.
Lenders understand borrowers having a tough time when their credit suffers. However, lenders want to see that the borrower has re-established their credit and has been timely for the past 12 months. On manual underwriting, timely payments in the past 24 months are required.
One or two late payments in the past 12 to 24 months are not always a deal killer with a good letter of explanation. VA lending guidelines are the most lenient out of all loan programs. The VA realizes that active-duty or retired members of our Armed Services may have less than perfect credit than their civilian counterparts due to being in the military or deployed.
