The VA loan program is pretty awesome, but many VA-eligible borrowers don’t understand what makes it so great and underestimate its value. We are going to do a head-to-head comparison in this article to compare the VA loan program and the conventional loan program and their relative qualification requirements. There are three aspects to loan qualification that we’re going to cover: credit score, income requirements, and employment history. You’ll find that while many of the qualification requirements are generally the same, lender discretion is allowed in far more cases than with conventional loans.
Credit Score Requirements
The VA Lender’s Handbook does not specify a minimum credit score requirement for a borrower to be approved for a VA loan. They do, however, require that the lender make sure the borrower has “satisfactory” credit for the loan they are applying for. Most lenders interpret this to mean a minimum credit score of 620. Many lenders, however, will go as low as 580. The great thing about the VA loan program, however, is that it allows lenders to use their discretion when analyzing a borrower’s credit report to see exactly why their score is so low and see whether they can still consider the borrower an acceptable credit risk. To get a conventional loan, you’ll definitely need a minimum of 620, and at least 740 to avoid extra fees and headaches. VA wins this match-up with no problem.
Income and employment are often blurred because they are interconnected. To differentiate this section from the one that follows, this paragraph will be talking about debt-to-income ratios, while the next paragraph will be talking about employment history. The maximum debt-to-income ratio (DTI) on both a VA loan and a conventional loan is 41%. However, just like with credit score, a VA lender has the discretion to approve a loan with a DTI higher than 41%, they simply have to provide an explanation in the loan documentation when the send it to the VA. The loan can still be processed and closed without VA’s prior approval, and simply needs to have an explanation as to why it was approved even though the DTI was higher than 41%. While this match-up is closer than the first one, VA still has the advantage.
There’s a lot to analyze here: full-time work, part-time work, currently verifiable income, past employment history, second-jobs, self-employment income, etc. For the most part, however, the VA loan program and conventional have virtually identical requirements. Both require 2 years of unbroken employment history and require you to have worked at your current job for 30 days if it’s full-time, and 2 years if it’s part-time, self-employment, or similarly un-guaranteed work. The only real flexibility the VA offers here that conventional does not is the documentation they allow to be used to verify the employment, which is not a huge advantage. This match-up is more of a draw, but that still means that VA is the overall winner by a two out of three points.
The Why and How
So why is the VA loan program better than conventional? Because the VA loan program is set up to be a benefit to those who have served in the military. Conventional is just the process by which you buy a house, and the VA loan program is designed to be a way to make that process easier, faster, and cheaper, as well as make it easier for you to get the house you want on better terms. How do you get a VA loan? That’s pretty easy; you just call us at Low VA Rates using the number on our website or by contacting us via chat and tell us what you’re looking for. We’ll answer your questions and get you the best loan option that will work for you.
Being easier to qualify for isn’t the only benefit of the VA loan program. You’ll also enjoy lower interest rates, better refinance options, and built-in protections on ARMs and in the event that the market dips that conventional loans simply can’t offer. We’ll keep publishing more articles comparing the VA loan program to the conventional loan program to show you the differences.