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A Look at the Credit Score Benefits of VA Loans

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VA loans provide an array of significant homebuying benefits for qualified borrowers, from no down payment or private mortgage insurance to consistently lower interest rates.

But one of the biggest benefits of all — more relaxed credit score requirements — can also prove one of the most confusing, especially for first-time buyers. That’s in part because what the VA requires and what lenders need can sometimes be different.

The VA doesn’t require borrowers to meet any credit score requirement. But the government also doesn’t make home loans. Rather, it basically insures a portion of a loan made by a private approved lender, like Veterans United.

That financial guaranty gives lenders confidence to extend financing to borrowers with no down payment, competitive interest rates and other big-time benefits. But private lenders are still on the hook for the bulk of the loan if a homeowner defaults.

To help mitigate risk, lenders will often have additional requirements that can go above and beyond what the VA needs to see. Having a credit score benchmark is among the most common.

Credit Score Benchmarks

Right now, VA lenders are typically looking for a credit score of at least 620. That’s considered a “Fair” credit score, which is a step below “Good” and two below “Excellent,” according to FICO. So the idea that VA loans require anything near perfect credit isn’t remotely close to true.

But how does that 620 score stack up against other loan programs?

Incredibly well. In fact, that “Fair” credit score benchmark represents another significant benefit of VA home loans.

The average credit score for a successful conventional purchase loan was 755 in February, according to mortgage software firm Ellie Mae. For FHA loans, the average score was 686.

In addition to the higher credit scores, both conventional and FHA loans have minimum down payment requirements (typically 5 percent and 3.5 percent, respectively). Borrowers who can’t muster a 20 percent down payment will have to spend additional money each month for mortgage insurance.

Getting Help

VA loans have more flexible and forgiving requirements. Coupled with benefits like $0 down payment and no PMI, those looser standards have helped open the doors of homeownership to scores of military borrowers who might otherwise miss out. About 8 in 10 VA borrowers wouldn’t qualify for conventional financing.

Still, given the unique nature of their service and sacrifice, even that 620 benchmark can be tough to hit for prospective VA homebuyers. And that’s where the Lighthouse Program at Veterans United can help make a tremendous difference.

Lighthouse credit consultants work with veterans and service members for free to develop a plan to repair their credit and get on the path to loan prequalification. Veterans work one on one with a personal consultant and have access to a host of tools and information to help them improve their credit.

This free, no-obligation program has helped more than 2,000 veterans and military families improve their financial and credit profiles and purchase their dream homes. You can reach a Lighthouse Program specialist at 800-698-5158.

Talk with a Veterans United loan specialist today at 1-800-VA-LOANS.

Chris Birk is executive editor of Veterans United Home Loans and author of The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits. Nearly 330,000 people follow his VA Loans community on Facebook. You can also follow him on Google+.

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