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

The VA doesn't have a minimum credit score requirement, but most lenders do. Here we take a look into typical VA loan credit requirements and lender expectations.

A good credit score is an excellent starting point for anyone considering a VA loan. But what exactly is a good credit score? Does the VA have a credit score minimum? How do VA credit requirements stack up against other mortgage options?

One of the best benefits of the VA 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 financing. The VA loan program seeks to accommodate as many military buyers as possible with a simple and accessible mortgage.

Does the VA loan have a minimum credit score requirement?

The VA doesn't set a minimum credit score requirement, but lenders who make the loans often do. Credit requirements vary by lender, but the typical minimum credit score requirement for a VA loan is 640.

If your credit isn't too hot, don't worry. Veterans United's Lighthouse program is designed to help you improve your credit score — no strings attached. Start your VA loan with Veterans United and see if your credit qualifies you for a VA loan.

Understanding the VA's Role

It's important to understand the VA's role in the VA loan process. The Department of Veterans Affairs oversees the program and guarantees a portion of each loan in case of default. But the VA does not issue loans, and the agency does not enforce credit score minimums. Private lenders handle both of these duties.

Most VA lenders use credit score benchmarks. Applicants with scores below a lender's standard usually can't be approved for VA financing. That minimum will vary from lender to lender. At Veterans United Home Loans, we typically look for a credit score of at least 640.

How do VA Loan Requirements Compare to Others?

FICO credit scores range from 300-850. FICO no longer releases the median nationwide score, but as of April 2019, the national average FICO score was 706. Keeping that in mind, a 640 minimum is fairly borrower-friendly. It's not necessarily an easy score to obtain, but it's an accommodating benchmark when measured against other loan options.

Conventional loans:

The government does not back conventional loans. Since lenders are at greater risk without a government guarantee, conventional loans are tougher to obtain. Bigger down payments and higher credit scores are usually required to snag conventional financing.

According to John Councilman, federal housing chairman for The National Association of Mortgage Brokers, a credit score below 740 could bring on added scrutiny and sizable fees in the conventional lending market.

As a result, most conventional borrowers maintain impressive FICO scores. In October 2020, successful conventional loan recipients for all closed loans posted an average FICO credit score of 762, according to mortgage software provider Ellie Mae.

FHA loans:

Like VA loans, the federal government backs FHA loans. The FHA requires borrowers to have a minimum credit score of 580, but in the midst of a global pandemic, it's common to see FHA lenders requiring a 640 to obtain financing.

Higher scores are a trend in recent months, with the average credit score for all FHA loans in October 2020 landing at 681, compared to 665 in October of 2019.

Beyond credit, FHA loans require a minimum of 3.5 percent down, an up-front mortgage insurance premium and monthly mortgage insurance, which runs for the life of the loan.

USDA loans:

USDA loans are yet another government-backed option, but they're only available in rural areas. The USDA does not enforce a minimum credit score, but like other government-backed options, most USDA lenders are looking for a 640 or above.

What if I Fall Short on Credit Requirements?

Potential VA loan borrowers needn't abandon their dreams of homeownership due to a low credit score. The best feature of credit is its fluidity. Your credit changes constantly.

Improve your fiscal habits, and your credit score will gain positive momentum. But knowing what improvements to make can be tricky. Should you pay off high-interest debt? Should you cancel certain credit cards? How should you handle that bankruptcy looming over your credit report?

If you're considering a VA loan but need help navigating your credit options, get some free help from the Veterans United Lighthouse Program.

Lighthouse works tirelessly (and at no charge) on behalf of service members who fall short of VA loan requirements. Working with Lighthouse is a no-cost process, but not necessarily an easy one. Improving your credit requires commitment and hard work. If you're ready to make the necessary changes to pursue a VA home loan, partner with a helpful advocate.

Get some clarity on your financial situation by talking to a Veterans United loan specialist at 855-870-8845 or fill out this online form to get started today.