VA's own answer is direct: VA does not use credit scoring. Its credit standards tell lenders to review each veteran's credit individually, look for a 12-month history of satisfactory payments, and treat a lack of credit as neutral. The score that matters in practice is the floor each lender adds on top of VA's rules, called an overlay, and floors differ from lender to lender.
Why lender floors differ
VA guarantees part of the loan, but the lender still makes it and services it, so most lenders set a minimum score for VA loans. Floors commonly fall between 580 and 640. A veteran with a 590 middle score can be turned down by a lender with a 620 floor and approved by one with a 580 floor on the same day. As a mortgage broker, we shop multiple wholesale lenders with different floors, so we can look for one whose floor your score clears.
Your score for the loan is your middle score, the middle of the three from Equifax, Experian and TransUnion. Once a lender's floor is met, the underwriter reads the history the way VA asks: payments over the last 12 months, any late payments within that year with an explanation, and judgments or federal debts paid or under a written repayment agreement.
A $340,000 home in Okaloosa County with $0 down
A veteran using VA for the first time buys a single-family home near the bases in Okaloosa County. The household earns $7,300 a month and pays $450 a month on other debts. The funding fee is 2.15% with less than 5% down, financed into the loan. At a 5.75% rate on a 30-year fixed, with taxes at 0.85% of the price and insurance at $260 a month:
| VA, $0 down | FHA, 3.5% down | |
|---|---|---|
| Down payment | $0 | $11,900 |
| Upfront fee added to the loan | $7,310 (2.15% funding fee) | $5,741.75 (1.75% MIP) |
| Total loan | $347,310 | $333,841.75 |
| Principal and interest | $2,026.81 | $1,948.21 |
| Monthly mortgage insurance | $0 | $150.38 |
| Taxes and insurance | $500.83 | $500.83 |
| Total payment | $2,527.64 | $2,599.42 |
VA keeps $11,900 in the veteran's pocket at closing and runs $71.78 a month less, since VA has no monthly mortgage insurance. With the $450 of other debts, the total ratio is 40.8%, under VA's 41% guideline. A veteran receiving VA disability compensation skips the funding fee, so the loan is $340,000 and the payment drops to $2,484.98.
What VA checks instead of a minimum score
VA's main income test is residual income, the money left each month after taxes, debts, the house payment and upkeep. VA publishes a table by family size and region, and when total debts run above 41% of income, VA wants residual income at least 20% above the table. A buyer with strong residual income can be approved above 41%.
Program by program for a veteran
- VA: No minimum score set by VA; AAA Capital Funding goes to 500; $0 down.
- FHA: 580 for 3.5% down, 500 to 579 with 10% down.
- USDA: No handbook minimum, but most lenders want about 640 for USDA's automated approval.
- Conventional: Starts at 620, with PMI below 20% down.
If a lender says your score is too low
Paying card balances below 30% of their limits and asking the lender for a rapid rescore can move a score in days. Disputing errors on any of the three reports helps too. Before any of that, have a broker check lenders with lower floors, since the gap may disappear with a different lender. The VA loan requirements guide covers entitlement, the Certificate of Eligibility and the funding fee in more depth.
See your VA price in the affordability calculator, then call AAA Capital Funding at 888-601-8344 with your scores and your Certificate of Eligibility. We do VA loans from a 500 score and shop wholesale lenders for the best terms your score earns.