You Do Not Need Perfect Credit To Get A VA Or Even A FHA Loan

Dated: July 12 2019

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VA  & FHA Loans and Credit Score Minimums: What All Buyers Need to Know


Credit score criteria for VA loan

A good credit score is an excellent starting point for anyone considering a VA or FHA loan. But what exactly is a good credit score? Does the VA or HUD (Department of Housing and Urban Development) have a credit score minimum? How do VA and FHA credit requirements stack up against other mortgage options? One of the best benefits of the VA and FHA loan program is its relaxed credit requirements.

Potential borrowers don't have to possess blemish-free credit reports and elite credit scores to secure VA and FHA financing. The VA loan program seeks to accommodate as many military buyers as possible with a simple and accessible mortgage, while the sole purpose of FHA is to simulate the house market and get as many home buyers in to homes. 

If your credit isn't too hot, don't worry. We have many programs that are designed to help you improve your credit score — no strings attached.


How to Apply for a VA Loan Certificate of Eligibility (COE)

While you don't need your VA Certificate of Eligibility in hand to start the loan process with Veterans United, this certificate is a very important part of your loan application. Your COE verifies that your length and character of service make you eligible to use the VA home loan benefit.

You can apply for a VA Loan Certificate of Eligibility three different ways:

  1. Apply through a VA approved lender

  2. Apply online through the VA’s eBenefits portal

  3. Apply by mail with VA Form 26-1880

You can ask your qualified Loan Team to obtain your COE on your behalf.  The process takes minutes to complete with proof of your military service and ensures your home financing moves forward without delays.

If you prefer to do the work yourself, VA Loan applicants can contact the Veterans Administration directly and fill out a Certificate of Eligibility (VA Form 26-1880).

VA Loan Income Requirements

Home buyers interested in the VA Loan aren't required to reach any kind of income threshold to use their home loan benefits; however, borrowers are expected to have stable, reliable income that will cover monthly expenses – including their new mortgage payment.

Additionally, the VA requires that borrowers maintain a certain amount of income left over each month after all major expenses are paid. The excess is meant to cover typical family needs, such as food, transportation and so forth and is referred to as residual income. Residual income is a large reason why the VA Loan maintains one of the lowest foreclosure rates of all major lending options.

By enforcing residual income requirements, the VA increases the chances of its borrowers earning sufficient income to meet all financial obligations, and also ensures borrowers have a cushion in the event of an emergency.

Additional Eligibility Requirements

Although the VA determines the guidelines for those who are eligible for the VA Loan benefit, private lenders who finance the home purchases have an additional set of criteria a potential borrower must satisfy, including debt, income and credit requirements

When you apply for a VA Loan, your Mortgage Specialist from Veterans United will pull your credit score from the three leading credit agencies, as well as examine your debt-to-income ratio.

Finally, a veteran applying for a VA Loan must not have been discharged under dishonorable conditions.

How to Apply for a VA Loan

The VA loan process typically takes 30 to 45 days once you’re under contract on a home, although every buyer’s situation is different. Applying for a VA loan doesn’t obligate you in any way to a particular lender or to moving forward with the homebuying process.

Here’s a look at the four basic steps to applying for a VA Home Loan:

  1. Familiarize yourself with the broad VA Loan eligibility requirements above

  2. Start your VA Loan application today with one of vetted VA Lenders

  3. Obtain your Certificate of Eligibility through your lender or on your own

  4. Finalize your loan application and provide all necessary paperwork to your lender, including W-2s, tax returns and recent bank statements


Applying for an FHA loan

When you apply for an FHA loan, your lender has to follow certain regulations. The loan approval process will vary based on your credit scores and down-payment amount. However, every potential borrower needs to fill out an application and provide financial information.

Not all FHA lenders have the same requirements — some are more strict than others about who they’ll approve. There can also be variation in interest rates and loan terms. You should shop around among different lenders to see which will loan you money with the most-favorable terms.

Who can qualify?

To qualify for an FHA loan, you must meet the following:

  • Have a minimum credit score of at least 550-580 (Depending on the lender) to obtain a loan with a 3.5% down payment or a minimum credit score of 500 to get one with a 10% down payment.

  • Be buying, refinancing or renovating residential housing with between one and four units, and be planning to use the housing as your primary home.

  • Provide proof of employment to verify stability of income.

The total monthly payment on your debts, including your mortgage costs, can’t be more than 43% of your gross income. The percentage of your monthly income that goes toward your debt is called your debt-to-income ratio.

Since lenders do have differing requirements, if one lender doesn’t approve you for a loan, you can try to apply with a different FHA lender.


How does an FHA loan differ from a conventional mortgage?

An FHA loan is different from a conventional mortgage in important ways. A conventional mortgage is not insured by the FHA, so it’s harder for you to qualify if you’re not the type of ideal buyer lenders look for.

Some of the key differences between an FHA loan and a conventional mortgage include the following:

  • FHA loans have different down payment requirements. You can get an FHA loan with a down payment as low as 3.5%. Most conventional lenders require you to put at least 5% down, although a few lenders will let you get a mortgage with just 3% down.

  • You can get more down payment help with an FHA loan. The FHA permits financial gifts or down-payment assistance from an approved source to provide up to 100% of the down payment, while some conventional lenders restrict the amount of your down payment that can come from a gift.

  • You can qualify for an FHA loan with a lower credit scores. Many lenders require credit scores of 640 or higher to obtain a loan, while the FHA allows loans with credit scores as low as 500.

  • FHA loans typically have lower interest rates. When interest rates are lower, your loan can cost less over time.

  • FHA loans have different insurance requirements. Borrowers who get an FHA loan must pay an upfront mortgage insurance premium and annual mortgage insurance premiums. With a conventional loan, private mortgage insurance is typically required if a borrower puts less than 20% down — but there’s just one premium paid on a monthly basis. There are also different rules for when you can stop paying insurance, and you usually have to pay insurance for longer with an FHA loan.

  • Sellers can help with closing costs for an FHA loan. The FHA allows home sellers to pay up to 6% of the closing costs for a loan. Many conventional lenders cap a seller’s contribution at 3% of closing costs, although some allow sellers to pay up to 6%.


How to Apply for a FHA Loan

The FHA loan process typically takes 30 to 45 days once you’re under contract on a home, although every buyer’s situation is different. Applying for a FHA loan doesn’t obligate you in any way to a particular lender or to moving forward with the homebuying process.

Here’s a look at the three basic steps to applying for a VA Home Loan:

  1. Familiarize yourself with the broad FHA Loan eligibility requirements above

  2. Start your FHA Loan application today with one of vetted VA Lenders

  3. Finalize your loan application and provide all necessary paperwork to your lender, including W-2s, tax returns and recent bank statements

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Bevia Patrick

Since its inception in 1995, Patrick Team Properties has exemplified a profound commitment to its clients by providing the highest standard of service, integrity and work ethic in the field. Patri....

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