When it comes to obtaining a VA loan, many people wonder what credit agency the VA uses to determine their creditworthiness. The answer is that the VA doesn’t actually use a specific credit agency.
In fact, the VA doesn’t even have its own credit score. Instead, the VA relies on a combination of factors to determine whether or not a borrower is eligible for a VA loan.
The Role of Credit Scores in VA Loans
While the VA doesn’t have its own credit score, lenders who work with the VA do use credit scores to determine whether or not a borrower is eligible for a VA loan.
There are three major credit bureaus in the United States: Equifax, Experian, and TransUnion. Lenders can use any or all of these credit bureaus to obtain a borrower’s credit score.
Lenders typically use a borrower’s FICO score to determine their creditworthiness. FICO scores range from 300 to 850, with higher scores indicating a lower risk for lenders. Generally, borrowers with FICO scores of 620 or higher are considered eligible for a VA loan.
Other Factors Considered by the VA
In addition to credit scores, the VA also considers several other factors when determining a borrower’s eligibility for a VA loan. These factors include:
Employment and Income History
The VA wants to see that borrowers have a stable employment history and a steady source of income.
Borrowers must typically provide their income and employment history documentation, including pay stubs, tax returns, and W-2 forms.
The VA also looks at a borrower’s debt-to-income ratio when determining their eligibility for a VA loan.
This ratio compares a borrower’s monthly debt payments to their monthly income. Typically, borrowers with a debt-to-income ratio of 41% or lower are considered eligible for a VA loan.
Residual income is the amount of money borrowers have left over each month after paying all of their expenses.
The VA uses the residual income to ensure borrowers have enough money to cover their living expenses and mortgage payments. The specific residual income requirements vary based on a borrower’s location and family size.
While the VA doesn’t use a specific credit agency, lenders will look at a borrower’s credit history when determining their eligibility for a VA loan. Borrowers with a history of late payments, bankruptcies, or other credit issues may have difficulty qualifying for a VA loan.
In summary, the VA doesn’t use a specific credit agency to determine a borrower’s creditworthiness. Instead, lenders who work with the VA use credit scores from one or more of the major credit bureaus.
However, credit scores are just one of many factors the VA considers when determining a borrower’s eligibility for a VA loan.
Borrowers must also meet specific employment, income, debt-to-income ratio, and residual income requirements.
By understanding these requirements, borrowers can increase their chances of qualifying for a VA loan and achieving their dream of homeownership.