When it comes to qualifying credit scores, the VA doesn’t set those guidelines. In fact, that VA doesn’t say there are credit requirements. The requirements you hear about are set at the bank level to help mitigate risk.
In the recent years, eligible veterans and military personnel have enjoyed a simpler mortgage process than was available to many home buyers obtaining conventional loans. Occasionally, a veteran could receive a loan through the VA with a poor credit score and without a down payment.
Changing economic conditions and increased losses due to loan defaults have motivated lenders to limit the availability of such mortgage deals. Since early 2010, most lenders in the U.S. have tightened their lending and credit score requirements, making these loans harder to come by.
As a result, getting a loan without a down payment is more difficult, though one of the few remaining options for 100% financing is a VA loan. Major lending groups have generally resolved to set the minimum credit score requirement at 620.
These conditions similarly impact the Streamline Refinance program. Previously, the program let borrowers with a standing VA loan refinance to another VA loan without an appraisal. Although this is no longer the case, it still allows veterans to navigate the process with much less paperwork by streamlining the process.
Most lenders now require borrowers to pay up to $375 or more for their own appraisal, which varies in price depending on the location and value of the home. If the appraisal shows the home value to be less than the VA loan amount, the lenders are likely to decline the application.
There is some good news for those eligible for a VA loan, and the VA lenders who offer them: VA borrowers default significantly less (2.6%) than prime borrowers in general (3.4%).
However, the credit scores of VA insured borrowers are generally lower than other prime borrowers, according to the Federal Housing Finance Agency.
All things considered, VA loans remain a great opportunity. Veterans and active duty military personnel who qualify can often secure a low mortgage rate and meet the VA loan requirements even if their credit score is less than perfect. In addition, about 25% of applicants to the VA loans, such as disabled or retired veterans, qualify for exemption from the one-time insurance fee that amounts to about 0.5% – 3.3% of the loan amount, depending on the scenario.