It’s important to remember that being eligible for a VA loan and actually getting one are two very different concepts.
To be eligible means the VA has determined you meet the initial VA loan eligibility requirements and have earned some degree of home loan entitlement. But your Certificate of Eligibility isn’t a coupon you can just redeem for a VA loan or refinance of your choice.
It just doesn’t work that way. And, for that matter, it couldn’t work that way. The reason is that veterans aren’t getting a loan directly from the VA. Instead, the agency is guaranteeing a portion of a loan that’s being issued by an approved lending institution.
And mortgage lenders aren’t in the business of doling out housing loans to folks who meet some basic requirements, even if those requirements are rooted in service to our country. Lenders simply have too much to lose.
The reality is that not every veteran and active duty service member who qualifies for a VA loan will ultimately receive one.
A housing loan, even one backed with a VA guaranty, represents a major vote of confidence on behalf of a lender. And what they’ve become confident in is your ability to repay the hundreds of thousands of dollars they’re loaning you, with interest, of course.
Veterans and active duty members with a shaky financial profile can find themselves on the outside looking in.
The VA does not have strict, chiseled-into-stone criteria when it comes to obtaining a loan. There are some broad requirements that are generally much more forgiving than consumers typically find with conventional loans.
But satisfying the VA is only part of the battle. You also have to convince the lender that you’re worth the investment. And right now, lenders are looking for a credit score of around 620 to move forward.
Serving Two Masters
In some respects, military borrowers have to serve two masters when it comes to credit and purchasing a home with a VA loan. And one is much less forgiving than the other.
VA officials want to see a sustained pattern of on-time payments and good credit management. In the grand scheme, one-time blips and isolated occurrences of unsatisfactory repayment probably won’t derail a service member’s ability to participate in the program. The agency wants to ensure the veteran is a “satisfactory credit risk,” and that phrase isn’t defined by a particular credit score or even a range.
But the VA doesn’t issue the loan. The approved lender that does is going to take a much harder and more black-and-white view of a veteran’s credit profile. While the VA guaranty inspires confidence, lenders are still on the hook for 75 percent of that loan if the borrower defaults. Mortgage lenders that issue housing loans to shaky borrowers don’t stay in business long.
In the end, it all works out to some cold calculus for military borrowers: You can’t have poor credit and expect to purchase a home.
To see how your credit stacks up or to get some free self-help resources for repairing your score, fill out a short form at Veterans United Home Loans or call a loan specialist at 855-524-7279.
Photo courtesy of james.thompson.