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VA Home Loan Credit Score

By: Grant Moon 10/05/12 08:35 am

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VA Loan Credit Score

 

VA home loans are designed as a benefit to qualified veterans and service members.  No money down is perhaps the highlight of a VA home loan but there are other benefits as well. There is no mortgage insurance required for a VA loan for instance and credit guidelines are relaxed as well.  Conventional mortgages on the other hand can severely adjust an interest rate with as little as five percent down and a 640 credit score.  Not so the VA.

How does a credit score affect a VA loan interest rate?  Let’s first look at a couple of facts about credit scores.  First, the VA doesn’t have a minimum credit score requirement.  Lenders may but the VA does not. There are however standards that VA lenders follow and most lenders use the same credit score minimums.  Second, the credit score used is the middle of the three reported scores.

Many VA lenders today like to see a minimum credit score of 640. However, there are VA lenders that can require lower scores, down to 620 and even lower on a case-by-case basis.  The difference that credit scores make on a VA loan affects an interest rate and any discount points associated with that rate. The higher the credit score, the better your rate and point combination may be.

For example, if your middle credit score is 780 then you might be offered a 3.50 percent rate with no discount points.  However, if your middle credit score is 640, then that same interest rate would cost you an additional discount point, or one percent of your loan amount.  On a $200,000 loan, that would mean an additional $2,000 charge.  Lenders will also allow you to increase your interest rate by about .25 percent in lieu of paying a point.  In this example, your rate would rise to 3.75 percent from 3.50 percent.

Bottom Line: Your credit score can raise or lower your rate and raise or lower your closing costs.  Pay close attention to your VA loan officer and follow their guidance when it comes to selecting your rate.  Credit scores do matter.

It is important to understand your credit report as it has a lasting impact in many facets of your life. Sometimes credit reports have wrong information. In fact, it is estimated that one in four people have wrong information on their credit report. If that’s the case you should contact the reporting agency and request it to be removed. For a pattern of late payment history and bad credit you then it is wise to seek financial counseling to break the cycle. Good credit scores begin with good financial education and budgeting.

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