For an FHA or VA loan, do credit scores matter or not?

Both FHA (Federal Housing Agency) and VA (Veterans Administration) are types of loans secured by the United States, that’s for sure. But in order to get one of these loans you have to be approved by a bank or mortgage company first. This essentially is what makes the home financing process so difficult! Let me see if I can break it down.

An FHA loan is a hugely popular loan these days because the government is offering it at really low interest rates and it requires a very little minimum down payment. HUD (Housing and Urban Development) has expanded FHA loan guidelines to help as many Americans buy homes rather than renting, well kind of. In doing so they have set the minimum credit score as low as 580.

So why aren’t more people buying homes? Well, the banks that actually qualifies and issue the loans to people like you and me play by their own rules. These banks are just a little more scared than the U.S. Government to offer loans to a credit score lower than about 640 these days. So even though FHA says that a prospective home owner with a credit score of 581 is perfectly fine and acceptable, you’ll have a really hard time finding a bank to hand over the cash.

VA loans are a totally different animal. Veterans are offered the special privilege of one hundred percent financing for their service to our country and presumably no credit check. Well that’s not entirely true either. A Veteran must still have their credit pulled and reviewed by a bank before they may be approved for a loan. In this case the actual numerical credit score at the top of the page doesn’t necessarily matter, it’s what the credit history says that can make or break this Vet’s ability to buy a home. Filing bankruptcy, having a short sale or foreclosure and defaulting on government debt (student loans) are still looked down upon even on these VA loans.

When it comes right down to it, your credit still plays a role in everyone’s ability or inability for that matter, to qualify for a home loan. The days of no credit check home loans are long, long gone. It is literally more important than ever to have your credit in tip-top shape.