VA Guidelines On Credit Scores Down To 500 FICO
- Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at other lenders due to their overlays
- They get conflicting reports when it comes to the minimum credit score requirements on VA loans
- They are often told by the lender that the minimum credit score is 620 FICO
- Others are told their minimum credit score requirements are 640 FICO
- The great news is that the Department of Veterans Affairs (VA) has no minimum credit score requirement
- This holds true as long as the borrower has an approve/eligible per automated underwriting system findings
- Then why are lenders requiring higher credit scores?
- This is due to lender overlays which we will discuss in the following paragraphs of this article
VA Guidelines On Credit Scores Down To 500 FICO Versus Down Payment
FHA’s minimum credit score requirement is 500 FICO.
- However, to qualify for an FHA loan with under 580 credit scores and down to 500 FICO, the borrower needs a 10% down payment
- Borrowers with at least a 580 credit score or higher can qualify for a 3.5% down payment FHA loan
- However, with VA loans, there is no down payment requirement
- This holds true no matter how low the credit scores are
- However, the borrower needs to get an approve/eligible per automated underwriting system
- Borrowers who cannot get an approve/eligible per AUS may qualify for VA loans with a manual underwrite
- Manual underwriting guidelines apply
- Lenders offer VA loans with 100% financing due to the VA loan guarantee by the federal government
- VA loans are hands down the best home mortgage program in the United States
- Mortgage rates are lower than conventional loans
There is no private mortgage insurance required. The VA funding fee can be rolled into the loan balance.
VA Guidelines On Credit Scores Down To 500 FICO Versus Lender Overlays
Remember to realize that not all lenders have the same VA lending guidelines on VA mortgages.
- All lenders need to meet the minimum VA agency mortgage guidelines
- However, mortgage companies can have their own lending requirements that surpass the minimum VA agency guidelines
- For example, the VA does not require a minimum credit score
- However, most lenders will require a 620 to 640 credit score requirement on VA loans as part of their lender overlays
- This holds true even though the borrower may meet all other VA agency guidelines and gets an automated approval from the AUS
Michael Gracz of Gustan Cho Associates is a VA lending expert. Mike has countless of borrowers who closed on their VA loans with credit scores down to 500 FICO. Here is what Mike Gracz said about VA mortgages:
A VA home loan is either for a veteran or a soldier currently enlisted. These loans allow for no down payment & no monthly mortgage insurance. These are fantastic loans if you are a veteran. A lot of veterans qualify for a VA loan and do not realize it. Most mortgage companies state you must have at least a 620-660 credit score and high income to qualify for a VA loan. These companies again are using overlays. You can get a VA loan with a 500 credit score. If you happen to have enough residual income there is a good chance you can qualify up to and maybe above a 60% D/I ratio. In layman’s terms, you can have lower income and still qualify for a VA loan. When your credit score is below a 620 usually you have to do a manual underwrite, which 99% of the mortgage companies do not do, therefore you are turned down. We do both manual & automated underwriting on VA loans.
The key to getting an approve/eligible per automated underwriting system is to have timely payments in the past 12 months. There is no maximum debt to income ratio caps on VA loans. Gustan Cho Associates have closed many loans for borrowers with credit scores in the 500’s and over 60% debt to income ratios. Residual income is very important when it comes to borrowers with higher debt to income ratios and/or lower credit scores. To qualify for a VA Loan with a lender with no lender overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at firstname.lastname@example.org.