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V.A. Loans Harder to Get

Military veterans have long been accustomed to a relatively easy mortgage process. Even borrowers with no down payment or a low credit score were usually granted V.A. loans, in large part because the Department of Veterans Affairs insures a quarter of the loan amount.

But about two years ago, lenders began limiting the conditions under which they would offer these mortgages, and industry executives say that since the start of the year, all the nation’s major lenders have followed suit.

“It’s been a tightening across the board,” said Nathan Long, the chief executive of, an online broker of V.A. mortgages.

Lenders will still offer V.A. loans with no down payment, he said, but “if you have a credit score of 610, the best thing to do is work on your credit and try again in a couple of months, because you don’t really have any options.”

Mr. Long says major lenders like Bank of America, Citigroup and JPMorgan Chase, typically will not offer V.A. loans to borrowers with credit scores below 610. Debora Blume, a spokeswoman for Wells Fargo, said the cutoff score for her bank’s V.A.-insured loans was 600.

The tighter credit policies also extend to the Streamline Refinance program, which allows borrowers with V.A. loans to refinance into another V.A. loan with very little paperwork and, until recently, no appraisal.

Mr. Long and V.A. representatives say that lenders are now requiring borrowers to pay for an appraisal, which can cost $300 or more depending on a home’s location. If the new loan amount is more than the value of the home, they will most likely reject the application.

Not surprisingly, V.A. loan volume has fallen so far this year. William White, the acting assistant director for loan policy at Veterans Affairs, said his agency was on pace to insure about 300,000 mortgages this fiscal year, which ends Sept. 30, versus 325,000 in 2009. The nation’s overall loan volume rose about 19 percent during the same period, according to the Mortgage Bankers Association, to $1.92 trillion from $1.62 trillion. (The trade group tracks only total dollar amount.)

Mr. White said he understood why lenders might be restricting the loans, as the V.A. insurance only covers 25 percent of the loan amount. But he added that borrowers of V.A. loans generally had a lower default rate than prime borrowers over all — 2.6 percent versus 3.4 percent, according to the Mortgage Bankers Association — despite the fact that their credit scores were typically lower.

V.A. mortgage borrowers tend to “show some discipline,” Mr. White said, offering one explanation, “and we think they try real hard to make their payments.”

The average credit score for a V.A. borrower last year was just over 700, while the average credit score for all borrowers was 750, according to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, the government-sponsored companies that establish underwriting standards.

Mr. Long noted that V.A. loans remain competitive with other loan products. Borrowers who qualify — they must prove 24 months of continuous active military duty, and cannot have experienced a dishonorable discharge, among other things — can secure rates of 4.75 percent on 30-year fixed-rate loans, he said. That is the case even for borrowers with 620 credit scores, he added. The average rate nationwide for all 30-year fixed-rate loans is around 4.70 percent.

There is a one-time insurance fee that varies according to the size of the loan and the borrower’s credit profile, but the average is about 1.75 percent of the loan amount. On a $200,000 mortgage the cost would be $3,500. About a quarter of applicants — disabled or retired veterans, for instance — qualify for exemptions from that payment.