What Is the Minimum FICO Score to Buy a VA House?

One valuable benefit for those who have served in the Armed Forces is access to VA home loans. To be eligible, a veteran must have served 90 days in wartime or 181 days in peacetime, not be dishonorably discharged, and file VA Form 26-1880 (available online using the link under Resources). Approval is not automatic. Generally, a veteran must have a minimum FICO score to buy a VA house, although this requirement may be waived.

Identification

Like most mortgage lenders, the VA relies on the most widely used credit score, the FICO score (named for the company that created it, Fair, Isaacs, & Co.). Commercial lenders like Fannie Mae have minimum score requirements of 620-640, although 680 or higher is preferred. By contrast, the VA, like the Federal Housing Authority, accepts a minimum FICO score to buy a VA house of 580. For veterans who may have had credit problems in the past or lack a credit history, it's important to realize the VA does make exceptions and takes other factors in account in determining whether a veteran qualifies for a home loan.

Exceptions

Under some circumstances, the VA will waive the minimum FICO score to buy a VA home. For example, if the credit problems that led to a low score are due to inability to pay resulting from a combat injury, the FICO score is disregarded. Veterans who do not have a credit history (and so lack a FICO score) can substitute "non-conventional" information such as their record of payments of utility bills, phone bills and especially rent.

Considerations

A FICO score of 580 is considered "sub-prime" (not very good). A potential borrower must meet other VA criteria in order to qualify for a loan from the VA if the FICO score is low. The Veterans Administration guidelines stipulate that an applicant should have at least 1 year of on-time rent/mortgage payments and overall good use of credit. An infrequent late payment or two is less important than the overall pattern of credit use. Positive factors that can help include minimal debt, substantial savings or other assets, and a stable work history.

Serious Problems

If there is a bankruptcy, foreclosure, or the applicant is under a credit counseling plan, the requirements are more stringent. A 2-year record of good credit use following such an event is usually needed. Extenuating circumstances like serious medical problems are taken into consideration and VA loan advisors focus on whether you are in a position to assume more debt, rather than your FICO score. In the case of a Chapter 13 bankruptcy, the court-appointed trustee's approval is required. Finally, the VA limits loan amounts so that total debt payments (including other debts as well as the VA home loan) are no more than 41 percent of income.

Improving FICO Scores

Veterans who want to qualify for a VA home loan but don't quite meet the qualifications can do a lot to improve their FICO score, although it may take 1 to 2 years. The two key things to work on are making monthly payments on time (especially rent or mortgage payments) and reducing overall debt. These two items count for 65 percent of a FICO score. Give priority to lowering unsecured debt (like credit card balances). Avoid applying for new credit accounts or closing old ones more than once or twice a year. Each of these things will help you get the minimum FICO to buy a VA house.