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What are VA Loans?
The Veterans Administration makes mortgage loans available to U.S. veterans who meet the VA Loan guidelines.
The VA does not lend money but guarantees the loans, this makes it more desirable for lenders to lend to veterans.
Because VA requires no down payment and no minimum credit score, it offers many veterans with poor credit or limited resources the opportunity to become homeowners.
VA Loan Credit Requirements
There is no minimum credit score needed for the VA to insure mortgages. Lenders set their own credit score requirements, which will vary depending on the lender. Most lenders require a 580-620 score. However, plenty of VA lenders allow for poor credit scores even below 580 in some cases.
VA Credit Requirements
- 580-620 credit score
- Limited collection debt
- No more than one late payment in the last 12 months
- No mortgage late payments in the past 6 months
- 24 month waiting period after bankruptcy or foreclosure
Compensating Factors for Poor Credit
Bad credit doesn’t necessarily prevent you from qualifying for a VA loan. But lenders will want to see that the borrower is low-risk in other areas of their application.
- Have no or limited debt in collections.
- High income (low debt-to-income ratio)
- More than 5 years at current employer
- Down payment (lower loan-to-value)
- No late payments in the past 12 months
- No mortgage late payments in the past 36 months
Getting A VA Loan with Bad Credit
If your poor credit is due to an unusual set of circumstances and you have since resumed making timely bill payments.
You may be considered if you can give a reasonable explanation for your low credit score.
VA Loan Benefits
- No down payment
- No mortgage insurance premium (MIP)
- Low credit scores may be approved
- Flexible borrower requirements
- Low-interest rates
- Lower closing costs
- Up to 50% debt-to-income ratio
- VA negotiates with the lender if you are facing foreclosure
- No loan limits
- The seller can pay 6% of closing costs
- Lower monthly payment than other loan types
- No Prepayment Penalty
VA Loan Eligibility Guidelines
If you’ve served in the active military for 6 months or in the reserves or National Guard for six years, you will likely qualify.
You will need to obtain a VA certificate of eligibility before applying. This proves to lenders that you qualify for a VA loan. However, lenders can usually get your certificate of eligibility for you after being approved.
- Active-duty service member
- Current or former activated National Guard or Reserves
- Surviving spouse
- Discharged member of the National Guard or Reserves and never activated
- Discharged member of the National Guard and were never activated
VA Loan Requirements
- 580-620 minimum credit score
- 50% maximum debt-to-income ratio
- Past 2 years of tax returns and W2s
- 24 month waiting period after a bankruptcy or foreclosure
- For primary residence only
Dishonorably discharged veterans are ineligible for a VA mortgage.
These minimum terms of service requirements may be waived for veterans in certain circumstances.
If they were discharged due to government convenience, hardship, reduction in force, certain medical conditions, or a service-connected disability.
Who else is eligible for VA home loans:
- Active-duty Service
- Service persons on active duty who have served for 90 consecutive days of active service are eligible.
- Reservists and members of the National Guard
- Cadets of the U.S. Military, Air Force, or Coast Guard Academy
- World War II Merchant Seamen
- Midshipmen at the U.S. Naval Academy
- U.S. Public Health Service officers
- National Oceanic & Atmospheric Administration officers
What is the VA funding fee?
Because the VA loan program does not require mortgage insurance, they need to make money somewhere to fund the program. Hence the VA funding fee. This fee helps keep the program self-sufficient.
The VA funding fee is 2.15% of the loan amount and is usually rolled into the loan, so you don’t have to pay it up-front out of pocket.
VA Funding Fee Chart
Regular military members pay slightly lower fees than Reservists and National Guard members.
The VA funding fee is determined by the military personnel, down payment, and how many VA loans have been used. Please consult the chart below.
Regular Military Funding Fee Chart
|Down payment||Fee (first-time homebuyers)||Fee (each additional use)|
|0%||2.15 percent||3.3 percent|
|5-10%||1.5 percent||1.5 percent|
|10%+||1.25 percent||1.25 percent|
Reserves and National Guard Chart
|Reserve & National Guard Personnel|
|Down payment||Fee (first-time homebuyers)||Fee (each additional use)|
|0%||2.4 percent||3.3 percent|
|5-10%||1.75 percent||1.75 percent|
|10%+||1.5 percent||1.5 percent|
Chart for IRRL (VA cash-out refinance)
The VA funding fee for IRRLs (VA cash-out refinance) is the same for all military personnel.
|All Military Personnel, National Guard, and Reserves|
|Loan type||Fee for first-time homebuyers||Fee (each additional use)|
|IRRL’s||0.50 percent||0.50 percent|
|Manufactured Home Loans||1.00 percent||1.00 percent|
|Loan Assumptions||0.50 percent||0.50 percent|
VA Debt-to-Income Ratios
The VA-guaranteed loan requirements do not state a maximum debt-to-income ratio or DTI. However, lenders set their own maximum debt-to-income requirements for these mortgages.
Typically, lenders’ set their maximum DTI ratio for VA loans at 43% – 50%. However, there are exceptions in some cases.
To qualify for a VA mortgage with a DTI of 43% – 50% you should have strong compensating factors, such as:
- Ability to make a downpayment
- High net worth
- A large amount of reserves
- Minimal increase in current housing payment
- Increased earning potential
- High credit score
Income Allowed for VA Loans
Qualifying VA Income
- Salary/W-2 Income
- Bonus or Overtime earnings
- Seasonal jobs
- Self-employed earnings
- LES stipulated military income
- Part-time earning
- Second Job
- Alimony or Child support
Non-Qualifying VA Income
- lottery income
- Unemployment income
- One time bonus
- One time income payments from job
- Income from non-occupying co-borrower
- inconsistent income history
- Unverified income
- Rental Income
VA Loan Refinance
If you currently have a VA loan, you may be eligible to refinance your mortgage loan and get a lower interest rate.
A VA streamline refinance, and a cash-out refinance loan is available to Veterans who have had their mortgage for at least 210 days. There is no credit check or income verification to qualify. You will be able to get a lower rate and lower monthly payment by using a VA refinance.
Finding the Right VA Lender
If you have never bought a home before or never bought using a VA loan, finding the right lender on your own can seem next to impossible.
You need a reputable lender who knows how to overcome bad credit and work with the Veterans Administration to secure your home loan.
A lender who is attentive to the needs of veterans wants to extend credit to as many veterans as possible, acknowledging that the lack of a specific credit score VA loan requires was chosen to help veterans who have different challenges than others buying homes.