Credit Scores: The Ever-Changing Standards

Fun Fact: VA itself has never had a minimum credit score requirement.

Lenders are the ones who have put in place minimum credit score requirements and they can vary dramatically based on the lender you speak with. Some of the largest VA lenders in the nation have set minimum credit score requirements of 600 which severely limits Veterans ability to buy a home.

A few years ago, Guaranteed Rate was at 600, then we dropped to 580, then 550.
As of the beginning of April 2024, Guaranteed Rate no longer has a minimum credit score for VA loans.

This flexible approach means that as a veteran, your credit score could be lower than 550, or even dip into the 500s, and you could still potentially qualify for a loan. However, it's crucial to remember that while the VA does not mandate a minimum score, individual lenders do. Therefore, finding a lender that adheres closely to the VA's more lenient standards is key. We follow VA Guidelines and no longer have a minimum credit score. If you would like to discuss your scenario, give me a call at 707-478-0637

The Importance of Credit History Over Credit Score

While your credit score might not be a deal-breaker, your credit history certainly could be. VA loans put a significant emphasis on an applicant's credit history. For example, if you have a credit score of 520 but have had multiple late payments on significant debts like a car loan within the year, you might find yourself facing difficulties in meeting the VA's credit history standards. The rule of thumb here is clear: no late payments in the last 12 months.

Exceptions and Manual Underwriting

There are exceptions to every rule, and in the case of VA loans, certain cases that do not meet the automated approval standards may qualify for a process called manual underwriting. This is a more thorough review process, favored by some lenders, which allows for a more nuanced look at a borrower's financial situation. It is particularly useful for veterans who may not have a strong credit score but can demonstrate financial responsibility in other ways.

For veterans aiming to improve their standing for manual underwrite approval, ensuring no late payments for the last 12 months is crucial. If you find that your financial history has some blemishes, consider setting a timeline to improve this record. Tools like FreeCreditReport.com can be helpful in tracking and understanding your credit history. It is important to note that many lenders do not do manual underwrites.

They are labor intensive and many lenders are not willing to put in extra work. WE LOVE MANUAL UNDERWRITES. Yes, I put that in all caps but I mean it. Not everybody fits the computer cookie cutter dreams and I feel it is critical to help Veterans use their benefit which is why we love manual underwrites.

Preparing Financially for a VA Loan

Beyond just credit scores and history, lenders will look at your overall financial health when considering you for a VA loan. This review can include examining your rental history (if applicable), ensuring you have not overdrawn your bank accounts, and that you are effectively managing your finances.

Living with Family or Without Current Rent?

For veterans living with family or without current rental payments, showing financial discipline becomes even more crucial. Start "paying yourself" a hypothetical mortgage payment into savings each month. This practice not only demonstrates financial stability but also helps accumulate savings that can be critical for future housing expenses.

Concluding Thoughts: Your Pathway to Homeownership

The journey to securing a home via a VA loan might feel intricate, but understanding and meeting the credit requirements can place you one step closer to homeownership. Always remember, every lender is different, and finding one that matches your needs and understands the nuances of the VA's guidelines will be key to your success. We are here for you so do not hesitate to reach out.

For any veteran facing challenges with credit history or financial management, remember that improvement is always possible. Starting today, you can take steps towards realizing your dream of owning a home. Remember, the pursuit of any significant goal, like homeownership, often requires patience and perseverance. Prepare thoroughly, grab a time on the calendar with the team to put together a plan, and keep your goal in sight. Veterans have access to unique resources and communities eager to support you along this journey, so make sure to utilize them fully.

Buying a home is not just a financial decision but a step towards stability and building a future.
Make sure you're ready, financially and personally.

For any further questions or for detailed guidance, give me a call 707-478-0637 or grab a time on the calendar to chat with the team. We are here to get you home!

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