How Credit Affects VA Loan Refinancing
How Credit Affects VA Loan Refinancing
Whether you apply for a new loan or a VA refinance, you must convince the bank to take a risk on you. Even if you have your Certificate of Eligibility in hand to show you have paid your dues in terms of service for these loans, a bad credit record can doom your request. For the VA refinance process, the credit requirements are not as strict as for a new loan, but you must still convince the bank that you have the money to pay the mortgage and other debts. With a VA loan, the government backs up to 25% of the loan, so all taxpayers are in jeopardy if loan applicants or refinancers are poor credit risks.
Proof Of Current Income
When you apply for a VA loan or a VA refinance from Capital Bank, N.A., you will need to provide your lender with proof of income, which includes pay stubs to show you have an income sufficient to make the payments. You will also need to provide tax forms, banking information, Social Security numbers, and other personal details. As long as your current information shows that you have the means to pay your bills in the future, you are likely to qualify for your VA home loan benefits.
Credit Score Requirements
The VA does not have a minimum credit score requirement, although it expects the lender to verify the borrower’s credit history. Many times, the lender will have standards that set a 620-680 minimum credit score. To obtain a new loan or a VA refinance, you may have to work on your credit record to qualify for a loan. Each lender has its own criteria. Your credit does not have to be perfect, but it needs to show a pattern of responsibility.
Your credit score or FICO, which your VA-approved lender will evaluate, is based on a mathematical formula. Various components of your credit habits are assigned a value of your total score. These are:
- Payment history: 35%
- Available credit: 30%
- Length of credit: 15%
- Types of credit: 10%
- Credit inquiries: 10%
Improving Your Credit Score
While you cannot erase the past, you can improve your record by making your payments on time and paying down your credit cards so that you are using less than your available credit (about 30% is ideal). These two actions will show a lender that you are using credit and paying off debt responsibly. Depending on your circumstances, your lender for a new loan or VA refinance may concentrate more on the last year or so. As credit scores rise, the lender may give you the benefit of the doubt and approve your loan.
For example, some current service members and Veterans have credit problems related to past or current deployments. While you are gone, you want to maintain your credit and prevent anyone from taking out new credit in your name without your consent. If you did not take proper precautions to make sure that your bills were paid on time, you may find yourself with a record of late payments. As noted above, you can improve your credit rating by establishing a record of on-time payments. If you remain on track, a lender is likely to be more forgiving of past problems. Capital Bank, N.A. is happy to work with you so that you can qualify for your VA refinance.
Certifying Your Eligibility
Your first step to claiming your VA home loan benefits for a new home or a VA refinance is to establish your eligibility with the VA. You are granted a Certificate of Eligibility if you have fulfilled at least one of the following criteria:
- You served 90 days in wartime or 181 days in peace time
- You are a current service member who has served for at least 90 days
- You served in the National Guard or Reserves for six years
- You received a discharge for hardship, at the request of the government, or due to reduction in force, certain medical conditions or a disability
- You are the un-remarried spouse of a former service person who is missing in action, a prisoner of war, killed in action, or who became disabled during service
Once you have your COE paperwork in hand, you can proceed to apply with the lender. For some types of VA refinance loans, you do not need to obtain a new COE.
Start Your VA Refinance Now
If you are eligible, why not see if you qualify for a VA refinance loan? You deserve access to lower interest rates as a result of your service, so contact Capital Bank, N.A. today to get the process started. You can complete your pre-qualification form online, or you can call our loan specialists at (866) 216-3577 to ask questions or apply over the phone.