VA Loan Credit Requirements and Low Credit Scores: A Reader Question
A reader asks, “I would like to know if i can apply for a VA loan as a spouse jointly with my husband. He is in the reserve but he does not have the credit score required for VA loan and I do.”
VA loan rules have a lot to say about these situations. To begin, VA loan rules allow the military member/veteran and spouse to apply for a VA loan together. This is not considered a “joint loan” situation where two borrowers qualify for their portion of the VA loan responsibility, but rather a single application with information from both spouses considered as part of the borrower’s total income and debt-to-income ratio, etc.
Both parties to be obligated on the VA home loan must qualify in terms of credit. The VA Lender’s Handbook, Chapter Seven, states clearly:
“The applicant’s past repayment practices on obligations are the best indicator of his or her willingness to repay future obligations. Emphasis should be on the applicant’s overall payment patterns rather than isolated occurrences of unsatisfactory repayment. Determine whether the applicant (and spouse, if applicable) is a satisfactory credit risk based on a careful analysis of the credit report and other credit data.”
While a spouse may be obligated on a VA home loan along with the veteran, the spouse can’t make up for deficiencies in the veteran’s credit. That’s not to say the lender won’t consider what are known in the lending industry as “compensating factors” including a year’s worth of satisfactory payments and other factors, but the financial institution’s credit standards do play a large role in loan approval.
VA loans are issued by participating lenders. The VA cannot force a bank to issue credit to an applicant that doesn’t meet the bank’s minimum standards even if technically speaking, the borrower meets VA loan program minimums. This is an important factor to remember–the bank’s requirements can and often do go above VA minimums. (It should be pointed out the the VA itself does not give a minimum credit score in its VA loan rules.)
Borrowers who want a loan but have past credit issues should contact the Department of Veterans Affairs and ask what options might be available for credit counseling, mortgage counseling and related issues. Don’t waste time and money paying a third party company that offers to “repair your credit” on your behalf–borrowers can work on their credit issues for free without paying a third party. But the issues must be dealt with in cases where low credit scores jeopardize a VA loan application.
Do you have questions about VA home loans? Ask us in the comments section.
About Bruce Reichstein
Bruce Reichstein is an Expert on (VA) Military/Veteran Home Loan Guidelines for over 26 years — www.VALoans.com. He is an experienced VA Loan Mortgage Banker who is passionate about assisting US Military Veterans utilize their Veteran Eligibility to purchase a home.