If you are wondering about getting a VA loan with bad credit, you’re not alone. It is a common question asked by our veterans and active-duty service members. This article explores how securing a VA loan with bad credit is not only possible but also more accessible than you might think, thanks to the unique benefits and allowances of the VA loan guarantee program.
Can you obtain a VA loan with bad credit? Yes, you can. The VA loan program was designed to help veterans and active-duty service members achieve homeownership despite financial challenges. That said, one must know the VA loan guarantee does not lend you the funds, so the VA loan needs to be approved and funded by a private lender who must follow federal lending regulations and may have a minimum credit score requirement. But, it is worth investigating to find out where you stand.
There are a lot of reasons, and circumstances, that can create bad credit situations for military active-duty service members and veterans. Let’s take a look at some of the numbers that the VA loan program looks at when evaluating you for eligibility. In some cases they have built-in work-arounds to give loans for veterans with bad credit. In other cases, there are ways to improve your scores and credit history that can put you back on track in short order.
Getting approved for a VA home loan when you have poor credit may seem daunting, but it is possible. As a veteran, active-duty servicemember, or surviving spouse, you have earned VA home loan benefits that can help you become a homeowner, even if you’re recovering from past credit challenges.
In this article, we’ll explain what poor credit means when it comes to VA loans, whether lenders will approve borrowers with low credit scores, strategies for improving your credit, and tips for getting a VA home loan with less-than-perfect credit
What is Considered Poor Credit for VA Loans?
The VA itself does not set minimum credit score requirements for its guaranteed mortgage program. However, individual lenders establish their own credit standards when reviewing VA loan applications.
Many lenders view FICO credit scores below 580 as poor or bad credit Some set their minimum score limits in the low 600s The average FICO score for approved VA loans is around 670.
So if your credit score falls below a lender’s minimum you may have a harder time qualifying. But take heart a poor score doesn’t automatically disqualify you from VA home loan financing.
Can You Get Approved for a VA Loan with Bad Credit?
Yes, it’s possible to get approved for a VA-backed mortgage even if you have poor credit scores.
Lenders understand eligible borrowers have earned VA home loan benefits. So they may be willing to look past credit challenges if you have positive compensating factors.
These are elements that help offset the risk of low credit scores in a lender’s eyes. Compensating factors can include:
- Significant cash reserves
- Minimal existing debt obligations
- Strong employment history
- Solid residual income
- Previous successful homeownership experience
- Strong VA entitlement
- Military pay and benefits
Documenting these kinds of strengths in your loan application can help improve the chances of approval despite poor credit.
Tips for Getting a VA Mortgage with Bad Credit
If your credit scores fall short of a lender’s typical requirements, take these steps to boost your odds of getting approved:
Check credit reports. Review your credit reports for errors that may be unfairly dragging down your scores. Dispute any inaccuracies with the credit bureaus. Fixing mistakes can give your credit an immediate boost.
Pay down balances. Having high balances relative to your credit limits hurts your scores. Pay down credit card and installment loan balances to improve this important credit factor.
Become an authorized user. Ask a family member with a long credit history and solid payment track record to add you as an authorized user on one of their credit cards. Their positive profile can help offset your credit challenges.
Limit applications. Each application for new credit results in a hard inquiry on your credit reports. Too many hard inquiries in a short timeframe can ding your scores. Before applying for a mortgage, limit other credit applications.
Lean on a co-signer. Adding a co-signer with stronger credit can help you meet a lender’s credit requirements. Just know the co-signer will be equally responsible for the loan.
Improve scores. Building your credit scores before applying for a VA loan can expand your lender options. On-time payments, low balances, and credit mix will boost your profile over time.
Ask about exceptions. Don’t assume you’ll be automatically denied because of low credit. Ask lenders about possible exceptions or alternative qualification options for borrowers with credit challenges.
Shop around. Each lender has its own credit requirements. If one lender rejects your application due to credit, keep shopping around. You may find more flexible standards at another institution.
Leverage advantages. Highlight advantages like your military status, employment stability, savings, and more. Lean on those strengths to offset credit weaknesses in the lender’s eyes.
Get prequalified. Going through prequalification allows a lender to assess your profile, including credit, before you officially apply. The lender can provide feedback on your approval odds and suggest ways to improve your chances.
Repair first. In some cases, your credit may be poor enough that taking 6-12 months to repair and rebuild scores before applying for a mortgage is wise. This can open up many more lender options.
VA Lenders That Work with Poor Credit
Some lenders position themselves as specialists in helping borrowers get approved despite credit challenges. This can include:
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Online lenders – Many online mortgage lenders use alternative qualification methods that may be more flexible on credit. Veterans United, Navy Federal, and Quicken Loans are examples.
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Subprime lenders – Specialists in higher-risk loans may approve borrowers with poor credit, but also charge higher interest rates and fees.
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Credit unions – Member-owned credit unions may have more flexibility to help their customers get approved. Navy Federal is a top VA lender.
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Major banks – Large banks like Chase and Wells Fargo have many mortgage programs and resources. Their size can allow for exceptions on credit.
Cast a wide net when mortgage shopping. Compare multiple lenders to find the most competitive loan offer possible despite your low credit scores.
How to Improve Your Credit for VA Loan Approval
Here are key tips for boosting credit scores over time to improve your VA mortgage prospects:
- Make all loan and credit card payments on time each month
- Keep balances low on credit cards and loans
- Limit new credit applications
- Build credit history by becoming an authorized user
- Dispute and fix errors on your credit reports
- Pay off collections accounts and charge-offs if possible
- Sign up for credit monitoring to stay on top of your scores
- Hold off on large purchases that require new financing
With diligent credit management over time, you can significantly improve your VA loan eligibility and chances of approval.
Alternatives if You Can’t Get Approved for a VA Home Loan
If your credit is poor enough that VA loan approval remains challenging, consider these alternative options:
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FHA loan – FHA loans require just a 580 minimum FICO score. If your score exceeds this threshold, an FHA mortgage is easier to obtain than a VA loan.
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USDA loan – For properties in rural areas, USDA mortgages have no minimum credit score requirement.
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Subprime loan – Subprime lenders extend credit to borrowers with scores as low as 500. But interest rates are high.
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FHA 203(k) loan – FHA 203(k) mortgages can finance home purchases plus financing for renovations to fix up distressed properties. Minimum score is 500.
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Family loan – Borrowing from family members is an option if they are willing and able to provide funds for a mortgage. Be sure to formalize terms.
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Rent – Renting for 1-2 years gives you time to significantly improve your credit and better position yourself for eventual VA loan approval.
The key is staying determined to build your credit. With diligence and patience, you can recover from past mistakes and still access your earned VA home loan benefits.
Work with a Trusted VA Loan Expert
As you seek VA home financing with poor credit, make sure to work with a lender that specializes in these unique loans. mortgage lenders like Veterans United and Navy Federal have helped tens of thousands of eligible borrowers with credit challenges purchase homes over the years.
Their expertise can prove invaluable as you navigate the process of getting approved, even with less-than-perfect credit. They understand how to assess your full financial profile, highlight your strengths, suggest ways to improve your chances, and match you with flexible qualifying options.
Don’t let poor credit scores deter you from pursuing the dream of homeownership. You’ve earned amazing VA loan benefits, and skilled lenders can help you make the most of those benefits.
VA Home Loans for Bad Credit Scores: What’s in a Number?
Although you may have heard a lot of credit scores associated with the VA loan system, there are not minimum credit score requirements that the VA enforces. That doesn’t mean they don’t matter, but the fact is that the VA loan system doesn’t have any rules about low credit scores. You will see a lot of credit score numbers out there associated with VA loans, but those all come from traditional private lenders. The VA says “the VA requires a lender to review the entire loan profile.” That means the Department of Veterans Affairs is interested in the big picture of the eligibility requirements of your mortgage, not just one number.
Credit Alert Interactive Verification Reporting System (CAIVRS)
When it comes to your credit report, you’ve probably heard of the big three credit reporting agencies – TransUnion, Equifax and Experian. Now is a good time to familiarize yourself with CAIVRS, which is a government database that tracks liens, judgments, defaults, foreclosures and delinquent federal debt. If you are looking for a government loan – and the VA loan program is one of those – you don’t want to be in the CAIVRS system. It doesn’t technically affect your credit score, but it’s another government mortgage system to be aware of. And while the VA loan system won’t check your credit score, it will check CAIVRS.
Can I Qualify For a VA Loan With Bad Credit? (VA Mortgage Updates and First Time Home Buyer Advice)
FAQ
Can you get a VA home loan with a 500 credit score?
Can I get a VA loan with poor credit?
Can I get a VA loan with a 580 credit score?
What is the minimum FICO for a VA loan?
Is it possible to get a VA home loan with bad credit?
It is possible to get a VA loan with bad credit. In fact, there is technically no minimum credit score requirement enforced by the VA. That doesn’t mean your credit is irrelevant, however. As said above, most VA-approved lenders prefer a credit score of at least 620, but you might be able to find lenders with lower minimum guidelines.
What are the requirements to qualify for a VA loan with bad credit?
It is possible to get a VA loan with bad credit. In fact, there is technically no minimum credit score requirement enforced by the VA. That doesn’t mean your credit is irrelevant, however. As said above, most VA-approved lenders prefer a credit score of at least 620, but you might be able to find lenders with lower minimum guidelines.
What is the minimum credit score required for a VA Loan?
Across the spectrum of VA lending, a 620 FICO score is a common credit score minimum. But that benchmark can be higher or lower depending on the lender, the economic environment, how much you’re hoping to borrow and more. Some VA lenders might be fine with a 580 FICO score. Others will want to see something higher.
How can I improve my credit score to qualify for a VA loan?
If you still have trouble qualifying for a VA home loan with bad credit, there is one other option: Put your loan on hold and take steps to improve your credit score. Taking six months or a year to focus on making on-time payments could create a significant boost to your credit score.