VA loan lenders ratchet up credit standards

| September 17, 2010 | 0 Comments

Chris Birk
VA Mortgage

COLUMBIA, Mo. — Service members in Hawaii and across the country are finding it tougher to take advantage of their Department of Veterans Affairs entitlement to purchase or refinance a home.

VA loans have weathered the foreclosure crisis and remain one of the most powerful lending programs on the market. But VA-approved lenders have ratcheted up their credit and underwriting standards in the last 18 months, part of an industry-wide reaction to the subprime mortgage meltdown.

The result is that some military members and their families are struggling to utilize the benefits earned by their service.

These government-backed loans, which feature no down payment or private mortgage insurance, have helped more than 18 million veterans become homeowners since World War II. Prospective borrowers can still secure a no-down payment loan, but in most cases, they’re going to need a credit score of at least 610 to qualify. Major lenders in most cases won’t provide loans to veterans who fail to hit this benchmark.

At the same time, those with existing VA loans are seeing a crackdown when it comes to refinancing. The VA’s Interest Rate Reduction Refinancing Loan, better known as a VA Streamline, has long been heralded for its simplicity. The agency doesn’t require a credit check, underwriting or appraisals on the Streamline, which was designed to help veterans lower their rates and monthly payments.

But the gap between what the VA requires and what lenders mandate has widened like never before. Lenders are now taking a long, hard look at a veteran’s credit score and other pertinent financial information. In many parts of the country, including Hawaii, borrowers are footing the bill for an appraisal, which can cost $300 or more. Plus, refinancing applications are getting bounced when loan amounts are greater than those appraisals.

Veterans still have unique access to one of the most flexible and safest home loan options ever created. VA loans continue to have the lowest rate of foreclosure among the major lending programs, according to first-quarter figures from the Mortgage Bankers Association.

A solid credit and financial profile is more important than ever for prospective borrowers and existing homeowners. Service members should keep a close eye on spending, debt and bills. On average, a 30-day late payment will knock 40 to 110 points off a credit score; a 90-day late payment will shave off 70 to 135 points. 

Since underwriting standards aren’t likely to loosen anytime soon, service members who seize the opportunity to boost their credit score will put themselves in the best possible position to secure a home loan.

The Federal Trade Commission website,, offers some key steps borrowers can take to rehabilitate their credit score.

(Editor’s Note: VA Mortgage is not affiliated with any government agencies, including the Department of Veterans Affairs.)

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