FHA Versus VA Loans Mortgage Options For AUS Approval

It is easier to get an automated underwriting system (AUS) on FHA versus VA loans with late payments in the past 12 months. Many home buyers go with FHA Versus VA loans even though they have a VA certificate of eligibility (COE) if they cannot get an AUS approval on VA loan AUS and cannot qualify for VA manual underwriting. Another reason why they choose FHA versus VA loans is that most lenders have overlays on VA loans.

VA Loans Credit Score Requirements

Borrowers do not realize that the VA does not have minimum credit score requirements. VA also does not have debt to income ratio requirements. It is easier to get an automated underwriting system (AUS) approval for FHA versus VA loans. HUD, the parent of FHA, is more likely to render AUS approval on late payments in the past 12 months on FHA loans with a larger down payment. It is difficult to get an AUS approval for VA loans if borrowers have had late payments in the past 12 months.

Example of Lenders Having Higher Credit Requirements On VA Versus FHA Loans

A perfect example, a particular lender that has minimum credit score requirements of 580 credit scores to qualify for an FHA loan. However, the same lender requires a 620 FICO on VA loans. The 620 credit score requirement is not a VA Guideline. BUT that particular lender has overlays on VA loans. Unfortunately, many borrowers do not realize that with some lenders, it is easier to qualify for FHA Versus VA loans. We will discuss FHA Versus VA loans on this BLOG. Mortgage guidelines on collections and charged-off accounts on VA and FHA loans.

Eligibility Requirement Comparisons of FHA versus VA Loans

FHA is hands down the most popular mortgage loan program in the United States. There are far more FHA versus VA loans that are originated and funded in the United States. Every American can qualify for FHA loans. BUT not every American can qualify for VA loans. Need to be a Veteran with a Certificate of Eligibility to qualify for VA loans.

HUD Guidelines To Qualify For An FHA Loan

The minimum Credit Scores Required to qualify for FHA Loan with a 3.5% down payment is 580 FICO.

The minimum Credit Scores Required to qualify for FHA Loan with a 3.5% down payment is 580 FICO. Borrowers with lower than 580 FICO and down to 500 Credit Scores can still qualify for an FHA loan with a 10% down payment. For borrowers who have credit scores between 500 and 619 FICO, you normally have the best chances to get an AUS approval with debt to income ratio of 31% front end and 43% DTI back end to get an approve/eligible per automated underwriting system unless you have strong compensating factors. If you have credit scores of at least 620 FICO, the front-end debt to income ratio is capped at 46.9% front-end and the back-end debt to income ratio can be as high as 56.9% DTI for AUS approval.

Can I Qualify For An FHA Loan With Bad Credit?

HUD Guidelines:

  • Outstanding Collections and Charge Offs do not have to be paid to qualify
  • Can qualify for two years after a Chapter 7 Bankruptcy discharged date
  • Can qualify three years after the recorded date of a foreclosure and deed in lieu or sheriff’s sale
  • Can qualify three years after the short sale date of a short sale that is reflected on the HUD-1 Settlement Statement

Deferred Students Loans are no longer exempt from the calculations of deferred student loans that have been deferred for more than 12 months.

VA Guidelines To Qualify For Home Loans

Not everyone can qualify for a VA Loan.

To qualify for a VA Loan, borrowers need to be a Veteran with an honorable discharge and a valid Certificate of Eligibility also referred to as COE by the United States Department of Veteran Affairs:

  • There are no minimum credit score requirements to qualify for VA Loans
  • However, most lenders will have a minimum credit score requirement on VA Loans
  • Capital Lending Network, Inc. has no overlays on government and conventional loans
  • Many lenders require 620 minimum credit score requirement even though the Department of Veterans Affairs does not have minimum credit scores
  • Most Lenders will require a 620 to 640 FICO Credit Scores
  • Credit Score requirements by Lenders are Overlays and not a requirement by the Veterans Administration
  • There is no maximum debt to income ratio requirements on VA loans with an AUS approval

The key to getting an automated underwriting system (AUS) approval on VA loans with over 60% debt to income ratios is to have strong residual income.

VA Residual Income Requirements

The residual income is what is the money that is left over to pay for groceries, child care, school, utilities, and other expenses

There are VA Residual Income Requirements:

  • Residual Income is the money that is left over after  borrower has after paying his or her mortgage payments, minimum revolving credit card debts, auto loans, and installment debts
  • The residual income is what is the money that is left over to pay for groceries, child care, school, utilities, and other expenses
  • The Residual Income Requirement is what plays a factor in getting an approve/eligible per AUS Findings on VA Loans With Low Credit and VA Loans With Higher Debt To Income Ratios
  • Outstanding Collections and Charge Off Credit Accounts do not have to pay off to qualify
  • Can qualify two years after a Chapter 7 Bankruptcy discharged date
  • Can qualify two years after the recorded date of a foreclosure or deed in lieu of foreclosure
  • Can qualify two years after a short sale date which is reflected on the HUD-1 Settlement Statement of the short sale

Deferred Student Loans that have been deferred for more than 12 months are exempt from debt to income ratio calculations on VA loans.

VA Loans With Low Credit Scores And High Debt To Income Ratio

Borrowers with a Certificate of Eligibility who were told by the lenders they do not qualify for FHA loans and not a VA loan, please contact us at Capital Lending Network, Inc. at 262-627-1965 or text us for a faster response. Or email us at gcho@gustancho.com. VA Loans are the easiest mortgage programs to qualify for. Homebuyers told they only qualify for an FHA loan and not a VA loan, the chances are that the lender has a lot of overlays on VA loans.


Alex Carlucci is an experienced private mortgage banker. He has been in the mortgage industry for 20 years, and prides himself of his excellent customer service and communication.