Utilizing Your VA Home Loan with a Credit Score Below 620
Loan Goal: Utilizing Your VA Home Loan with a Credit Score Below 620
Many lenders claim you need a 620 credit score to apply for a VA home loan. This is incorrect and is known as a Lender Overlay. The VA does not require a minimum credit score, but you will have more success with a score of at least 500.
If your credit score is below 620, you will generally need to meet the VA Manual Underwriting Guidelines, which is why many lenders have their 620 minimum score overlay.
Keys to Utilizing Your VA Loan with a Credit Score Below 620
Your VA loan will be underwritten through Fannie Mae (DU) and Freddie Mac (LP) AUS (automated underwriting system). Depending on the findings from DU or LP, you will either receive an Automated Approval or be referred to the VA Manual Underwriting Guidelines.
Basics for a VA Manually Underwritten Loan with credit scores as low as 500
Rent/Housing History
- 24 months rent/Housing history is required, with supporting documentation such as:
- Cancelled checks
- Third-party management company records
- Rent-free living with family
- Copy of lease
Credit History
- No late payments in the past 12 months (isolated late payments may be acceptable with supporting documentation)
- Any charged-off or collections accounts in the past 24 months require a Letter of Explanation (LOE)
- LOE detailing the reason for delinquent credit and how to prevent it in the future
Compensating Factors
- Compensating factors can affect the loan decision, especially for marginal loans regarding residual income or debt-to-income ratio:
- Conservative use of consumer credit
- Minimal consumer debt
- Long-term employment
- Significant liquid assets
- Sizable down payment
- Equity in refinancing loans
- Little or no increase in shelter expenses
- Military benefits
- High residual income
- Low debt-to-income ratio
The VA does not require a 620 credit score to utilize your VA Home Loan. We can close your VA loan with credit scores as low as 500, as long as you meet the VA Loan Manual Underwriting guidelines.
Please let us know how we can assist with your VA Loan Goal.
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