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VA Loan Reader Questions: Credit Requirements and FICO Scores

November 12, 2014

VA Loan Reader Questions: Credit Requirements and FICO Scores

079-logoA reader asks, “I am applying for a VA loan with another veteran and we are unmarried. His credit score is less than stellar. What do think our chances are?”

This is a common question which has answers that aren’t likely to satisfy many because the reply is usually “it depends.”

That’s not to be willfully mysterious–the answer depends greatly on both the borrower’s FICO scores and the lender’s standards. VA loan rules do not specify a minimum FICO score, that’s left up to the lender’s standards.

But FICO score issues can and sometimes are offset by what the VA and the lender know as “compensating factors.” A borrower with marginal FICO scores may offer to make a large down payment which could make loan approval possible. It may also be possible to approve a VA loan if the borrower has substantial cash reserves or other assets that make the loan less of a risk.

The bottom line in the case of this particular reader’s question is that all borrowers to be obligated on the VA home loan must qualify based on the lender’s credit requirements. The credit shortcomings of one borrower cannot be offset by the credit strengths of the other borrower.

And in cases where a non-veteran borrower applies with the veteran, the veteran must not handle a larger-sized portion of the financial responsibility for the VA loan than the non-veteran.

In cases like those represented by the reader’s question above, it’s best to discuss the situation with the lender to see what may be possible based on that financial institution’s requirements.

Do you have questions about VA home loans? Ask us in the comments section–all comments and questions are held for moderation.

 

6 Comments
  1. Randall Costner

    I am 100& service connected disabled. I have a COE but filed Chapter 7 a year ago. Are there any underwriters who will look at my Service connected disabilities (which were the cause of me not being able to work)and the reason for Chapter 7, in order to circumvent the two year waiting period for a loan after Chapter 7?

    • Joe Wallace

      VA loan rules specify a waiting period that begins once the bankruptcy has been discharged. The filing date would not determine the waiting period. Once the bankruptcy has been discharged the lender may review the facts of your situation to determine what might be appropriate. VA loan rules state: "The fact that a bankruptcy exists in an applicant’s (or spouse’s) credit history does not in itself disqualify the loan. Develop complete information on the facts and circumstances of the bankruptcy. Consider the reasons for the bankruptcy and the type of bankruptcy filing. Bankruptcy Filed Under the Straight Liquidation and Discharge Provisions of the Bankruptcy Law You may disregard a bankruptcy discharged more than 2 years ago. If the bankruptcy was discharged within the last 1 to 2 years, it is probably not possible to determine that the applicant or spouse is a satisfactory credit risk unless both of the following requirements are met: • the applicant or spouse has obtained consumer items on credit subsequent to the bankruptcy and has satisfactorily made the payments over a continued period, and • the bankruptcy was caused by circumstances beyond the control of the applicant or spouse such as unemployment, prolonged strikes, medical bills not covered by insurance, and so on, and the circumstances are verified. Divorce is not generally viewed as beyond the control of the borrower and/ or spouse."

  2. Anthony Wiltsey

    I would like to know if there is anything that the VA can do to help people with bad credit score around 560 range. Thanks

    • Joe Wallace

      Contact the FHA/HUD at 1-800 CALL FHA and request a referral to a HUD-approved housing counselor in your area who may be able to provide pre-purchase counseling advice in the areas of creditworthiness and related topics.

  3. Jerry G. Edwards

    Have never used any of my entitlements and am unsure of how to proceed to purchase a family home.

    • Joe Wallace

      You'll need to start by applying for a VA Certificate of Eligibility which you can do via the VA (call them at 1-800 827-1000) or with the help of a lender.

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