VA Loans and Your Credit Scores Impact on Rates

Jennifer Beeston • January 6, 2021

VA Loans and Your Credit Scores Impact on Rates

VA loans are different from conventional loans in many ways. One of those ways is the impact to the rate based on your credit score. If you are doing a conventional loan your credit score is very important as it is one if the factors lenders are using to make up your rate. There are “adds” to the rate based on credit score. Pricing on conventional loans is done in 20 point “buckets” so basically 700 vs 720 have different Rates. For a conventional loan the lower the credit score the higher the risk. If a borrower goes bad on a conventional loan the lender gets stuck with the loan and a huge potential loss. 2008 anyone?

THIS IS NOT TRUE WITH VA. VA itself has no official credit score adds. VA is a federally backed loan. What this means is that regardless of credit score the government is insuring the loan so 800 vs 600 credit score = same risk to lender. The government is backing and insuring the loan so if the borrower goes into foreclosure, it is the government on the hook not the lender. The fact the government is on the hook makes it zero risk to the lender which is why you will see some lenders offering very similar rates to both a 600 and a 700 credit score.

The problem I see is that there are a lot of lenders that are using conventional pricing models with VA which is not a benefit to the borrower and is without merit. To be blunt, it is an easy way for a lender to make more money and have higher margins by playing into what society expects. If you have bad credit you generally accept that you are going to pay a much higher interest rate for something. That is true with credit cards and cars so generally if a person with less then perfect credit is told a rate is higher because of that they accept it. I am seeing lenders charge 2+% more for lower credit on VA and it is so so wrong and accepting that higher rate is unnecessary. Make sure you work with a lender who is not gouging you because of credit.

Important Points To Remember:

VA loans are federally backed loans.
VA does not have a credit score requirement, but lenders do. Some lenders will only do loans with a 660+ credit score while others will go down to 600. Before you have a lender pull your credit ask them their minimum score requirement.
If you are getting a VA loan and the lender is saying you are going to have to a lot of pay points or a much higher rate because of your score hang up and call another lender. Did I mention I am licensed in 46 states? You can book a time to get a quote and chat here https://calendly.com/jennifer-beeston-team/va.