August 7, 2024
When applying for a government-backed home loan like a VA or FHA mortgage, it’s important to know how your credit issues may affect your ability to be approved for a residential mortgage loan.
Knowing which potential credit problems you may need to correct (as early in your house-hunting journey as you can) can greatly benefit you before loan application time.
Some borrowers don’t believe they have credit issues. However, they sometimes change their minds after reviewing credit reports due to errors, items that should have fallen off the report ages ago, and evidence of identity theft.
Credit problems such as undischarged bankruptcy, a recent foreclosure, or delinquency on federal debts might hurt your chances of securing an FHA or VA-backed mortgage.
To be approved for a mortgage, expect to spend a lot more time with your credit reports than you have in the past.
The Consumer Financial Protection Bureau has a list of suggested steps to help consumers improve their credit. Those steps include a major emphasis on making on-time payments, reducing outstanding debts, and saying no to new credit applications until after your home loan has closed.
Taking those steps can help improve your credit but do not expect overnight results. Credit repair is a long game.
There is no specific minimum credit score guideline from the VA for government-backed loans secured by the Department of Veterans Affairs.
You’ll learn that many lenders may want a credit score of at least 620 to be considered for the best rates and terms.
Similarly, a minimum credit score of 500 to 580 for FHA mortgages is generally required, although some lenders may feature additional criteria. The same occupancy rules apply, and you can’t have a current undischarged bankruptcy or delinquent federal debt.
Borrowers should expect lenders to look for late/missed payments in the 12 months before the loan application, and their income history will be reviewed to ensure they have been in the job market for at least 24 months.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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