VA Loans and VantageScore 4.0: What Lucy Learned About Minimum Scores

Lucy heard a number. It did not come from VA.

A situation that comes up often goes like this. A veteran, let's call her Lucy, is ready to buy a home. In a single week she hears two things: she needs a minimum credit score to use her VA loan, and the score has to be VantageScore 4.0. Nobody tells her who set either rule. She starts to wonder whether she should wait, repair her credit, or give up on the VA benefit altogether.

Lucy is an illustrative character, not a real client. But her situation is one that agents and loan officers see all the time, and it deserves a clear answer.

What VA actually says

The authority here is VA Pamphlet 26-7, Chapter 4. It says: "VA does not have a minimum credit score requirement."

Read that sentence slowly. It does not give a number. It does not name a score model. It says nothing about VantageScore, and nothing about any other scoring formula. If a minimum score is being attached to a VA loan, it is not coming from that sentence.

So where does the number come from?

It comes from the lender. VA guarantees a portion of the loan, but the lender is the one making it, and lenders can add their own rules on top of VA's. Those extra rules are called overlays. A lender's minimum score is an overlay. The score model that lender chooses to pull is part of the same set of lender decisions.

This is why two lenders can give the same veteran two different answers. Neither one is necessarily wrong. They are running different overlays, and the overlay is theirs, not VA's.

Where VantageScore 4.0 fits

VantageScore 4.0 is a credit score model, which is a formula for turning a credit file into a number. Whether a given lender uses it, another model, or a mix is that lender's call. The VA sentence above does not name it.

That is exactly why the model question matters. A score means very little until you know which formula produced it and who set the cutoff. When Lucy hears "you need a certain score," the first thing she needs to know is whether that is a VA rule or a lender rule. The pamphlet tells her it is not a VA minimum.

The one question Lucy asks

Lucy stops arguing with the number and starts asking where it comes from. With every lender she talks to, she asks: "What minimum score do you use, and on which score model?"

Then she listens for three things. First, whether the minimum is described as VA's requirement or as the lender's own overlay. Second, which model the lender pulls. Third, whether the answer stays the same when she asks it a second way. She writes down what each lender says and compares them side by side.

That one question turns a vague "no" into information she can use. Some answers will be a dead end. Others will show her a lender whose overlay fits her file.

What agents and referral partners can do with this

If you work with veterans, be careful about repeating a score cutoff as if it were a VA rule. A better line is: "VA itself does not have a minimum credit score requirement, but lenders can set their own, so let's ask each one what they use and on which model."

That keeps your buyer from walking away from the VA benefit because of one lender's overlay. It also keeps you from passing along a rule that is not VA's. Your buyer gets a clearer picture, and you look like the agent who knew the difference.

Your next step

If you have a veteran buyer who has been told no over a score, or you are a veteran who has, I can help you sort the VA rule from the lender rule and find the path forward. Call me at 843-LOW-RATE.

Jason Sharon, licensed mortgage broker. Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.