If you’re a military borrower, getting approved for a VA loan with bad credit is possible, regardless of any blemishes in your financial history. The U.S. Department of Veterans Affairs (VA) will even guarantee mortgages for veterans who have overcome a previous bankruptcy or foreclosure.
Getting approved for a home loan can be challenging if you have bad credit. But if you’re a veteran or active duty military you may still qualify for a VA home loan even with less-than-perfect credit. VA loans are an incredibly valuable benefit for servicemembers offering 100% financing and flexible credit guidelines.
In this complete guide, we’ll walk through everything you need to know about getting a VA mortgage with bad credit We’ll cover
- What credit scores are considered “bad”
- Tips for improving your credit score
- Factors lenders consider besides your credit score
- Types of VA loans available
- Lenders that work with bad credit borrowers
Let’s dive in!
What Credit Score is Considered Bad for VA Loans?
The VA itself does not set minimum credit score requirements for eligibility. That decision is left to individual lenders. However, scores below 620 are generally considered poor.
Here’s a breakdown of credit ranges:
- 800+ = Exceptional
- 740-799 = Very Good
- 670-739 = Good
- 580-669 = Fair
- 579 and below = Poor
So if your score falls in the fair or poor ranges, you may have challenges getting approved, but it’s not impossible.
Tips to Improve Your Credit Score
Before applying for a VA loan, it’s smart to take steps to boost your credit if needed. Here are some tips:
- Pay all bills on time – payment history is 35% of your score
- Keep balances low – amounts owed is 30% of score
- Limit new credit inquiries
- Correct any errors on your credit reports
With time and diligent credit management, you can raise your score and improve your chances of getting a home loan.
What VA Lenders Look at Besides Your Credit Score
Lenders will look at several factors when reviewing a VA loan application, including:
- Your debt-to-income ratio – ideally below 41%
- Employment history and stability
- Down payment amount
- Savings and assets
- Previous landlord references
Solid performance in these areas can help compensate for bad credit.
Types of VA Loans Available with Bad Credit
You can qualify for any type of VA loan with lower credit scores:
- VA Purchase Loans – For buying a home
- VA Cash-Out Refinance – Taking equity out of your current home
- VA Streamline Refinance – Refinancing an existing VA loan into a lower rate/payment
VA cash-out and streamline refinancing are great options if you already have a VA home loan but want to improve your rate or tap equity.
Lenders That Work With Bad Credit Borrowers
Some lenders are more flexible than others when it comes to credit requirements. Places to look include:
- Online lenders like Veterans United
- Smaller community banks and credit unions
- Mortgage brokers who can shop multiple lenders
Be sure to ask about their minimum credit policies and get quotes from multiple sources.
Improving Your Chances with Bad Credit
Even if your credit score is on the lower end, you can boost your odds of getting approved by:
- Making a larger down payment to reduce risk
- Having a co-signer with better credit
- Working with a lender that offers “credit rehab” mortgage programs
- Documenting solid income, assets, and debt ratios
With the right lender, getting a VA home loan with bad credit is doable. Be sure to seek out lenders willing to review your entire financial profile, not just your score.
Alternatives if You Can’t Get a VA Mortgage Right Now
If your credit needs more time to improve, consider these options instead of a traditional mortgage:
- FHA loan – Requires just a 580 score
- VA-backed renovation loan – Fix up a distressed property
- Rent for 1-2 years and recheck credit
Don’t get discouraged if you can’t get a VA loan immediately. With dedication and smart financial moves, your credit can recover.
Let’s Recap…
- Credit scores below 620 may make getting a VA loan difficult
- Payment history, debt levels, and compensating factors also matter
- Consider FHA loans, renovation programs, or waiting if you need more time
- Shop multiple lenders to find one willing to work with your situation
Owning a home is possible even with less-than-ideal credit if you leverage the benefits of VA loans. Now that you understand the guidelines and options, you can move forward with your homebuying goals.
Getting a VA loan after bankruptcy or foreclosure
After bankruptcy or foreclosure, most lenders enforce a waiting period before you can get another loan. This is also true for VA loans, but the mandatory waiting periods can be far shorter than you’ll find with most other loan programs.
Getting a VA loan after bankruptcy
- 2-year waiting period after a Chapter 7 bankruptcy. The VA is sensitive to service-related issues that may lead to bankruptcy filings. Military borrowers have to wait just two years from their bankruptcy discharge date to apply for a new VA loan (compared with four years for a conventional loan).
- 12 months of payments after a Chapter 13 bankruptcy. VA borrowers who’ve made 12 on-time monthly payments as part of a Chapter 13 bankruptcy or credit counseling program may qualify for a new VA loan.
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 approved for a VA loan with bad credit?
Can I get a VA loan with a 580 credit score?
What is the minimum credit score to buy a house in Virginia?
Are VA home loans available for 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 factors can affect the interest rate charged on a VA loan with bad credit?
Your credit score can have an impact on the interest rate that lenders quote. Generally, though, the impact of credit scores on rate is more pronounced with conventional mortgages than with VA loans. Like credit score minimums, rates will differ among lenders. Are there specific VA lenders for bad credit?
Are there any VA lenders who will accept a FICO score of 580?
Some VA lenders might be fine with a 580 FICO score. Others will want to see something higher. The key is understanding this isn’t a one-score-fits-all kind of thing.
What is the minimum FICO 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.