VA loans might be mysterious to some, maybe perhaps that a certain segment of our society qualifies for them, but getting a VA loan is the very best option for those who qualify for a mortgage to buy a primary residence and want a program with no down payment and reduced closing costs. But they’re relatively easy to qualify for and the only time it’s not easy occurs when a lender processes a VA loan but has very little experience with the program. All too often a VA loan application is turned down by an inexperienced VA lender which a VA-approved lender would otherwise grant an approval.
It might also be that the notion of VA loans being hard to qualify for is due to their very low delinquency rate. Of all the loan programs in the marketplace today, including those underwritten to Fannie Mae and Freddie Mac standards, the VA loan program stands alone in regards to performance. The delinquency rates for VA loans are the lowest of any mortgage program. However, VA borrowers by nature pay attention to their credit and only get into trouble when things happen that are out of the borrower’s control such as a loss of job or an extended illness.
Credit guidelines for VA loans are some of the most relaxed when comparing other low down payment options. While the VA itself doesn’t establish a minimum credit score in order to obtain a VA loan approval, most VA lenders do and the most common minimum score is 620, which by many is considered to be “marginal.” FICO, the company that developed the original algorithm used today to calculate credit scores labels 620 as “poor.” Credit scores range from 300 to 850 and the higher the number the better the credit. So as in terms of whether or not VA loans have tough credit requirements the answer is simply “no” as it relates to a credit score.
VA lenders are required to determine if the borrowers have demonstrated a responsible credit history in the past, most importantly within the previous two years. Late payments five or six years ago will have little impact on a credit score as long as timely payments have been made since then. Even for a foreclosure or a bankruptcy a VA loan can be approved with as little as a two year waiting period and reestablished credit. VA loans do ask that there be a timely rental payment or mortgage history over the previous two years.
Regarding payment history it’s important to note there are payment requirements for a mortgage when the borrower is applying for an Interest Rate Reduction Refinance Loan, or IRRRL. This is a special VA loan program that requires very little paperwork, no credit score, no employment verification and no appraisal. This VA program does require there be no more than one payment made within the last 12 months marked as more than 30 days past the due date and the mortgage must be current the time of application.
When considering the full range of qualification requirements for VA loans, they’re relatively simply to qualify for and lenders like to make them due to their inherent government-guarantee. Should the loan ever go into default, the VA will compensate the lender up to 25% of the loss. If you’re VA eligible and think you might not qualify, you should pick up the phone can talk to an experienced loan officer. You probably qualify right now and not even know it.