How to Get Approved for a VA Loan With Bad Credit

Having less-than-perfect credit doesn’t have to stop you from using your VA home loan benefit. While lenders may scrutinize your application more closely there are steps you can take to boost your chances of getting approved for a VA mortgage, even with bad credit.

This comprehensive guide covers everything you need to know about getting a VA loan with bad credit including

• What credit scores are considered bad
• Tips for improving your credit
• Factors lenders consider besides credit scores
• Waiting periods after bankruptcy or foreclosure
• Available loan types with bad credit
• Finding the right VA lender
• Alternatives if you don’t qualify

Follow these tips and you can be well on your way to VA home financing, regardless of your current credit situation.

What Credit Scores Are Considered Bad for VA Loans?

The VA itself doesn’t set minimum credit score requirements for eligibility. However, many lenders consider scores below 620 as poor credit. Some common credit score tiers are:

• 800+: Exceptional
• 740-799: Very Good
• 670-739: Good
• 580-669: Fair
• 579 and below: Poor

Scores below 580 will likely face the most challenges getting approved. While not impossible, you’ll need to take extra steps to offset the risk of your low score.

Tips for Improving Your Credit Score

Before applying for a VA loan, take time to boost your credit if it’s on the lower end. Some tips include:

• Pay all bills on time – payment history is 35% of your FICO score.
• Keep balances low – amounts owed are 30% of your score.
• Check for errors – mistakes on your report drag down your score.
• Limit new credit – opening new accounts dings your score temporarily.
• Consider credit counseling – get expert guidance on improving your profile.

With time and diligent credit management, you can significantly improve your VA loan eligibility.

Factors Besides Your Credit Score Considered by Lenders

VA lenders look at more than just your credit score when approving loans. Other aspects that help determine your overall creditworthiness include:

• Debt-to-income (DTI) ratio – shows your ability to manage monthly debts.
• Employment history – steady income improves your risk profile.
• Down payment amount – more equity signals greater commitment.
• Savings and assets – reserves help cover mortgage payments if income disruption.
• VA disability pay – stable, reliable income source directly from the VA.

Bringing strengths across these areas to the table can help compensate for a lower credit score when applying for a VA loan.

Waiting Periods After Bankruptcy and Foreclosure

If a past bankruptcy or foreclosure is dragging your credit down, you may have to wait a period of time before getting VA-approved. Typical waiting periods are:

• 2 years after Chapter 7 bankruptcy
• 1 year after Chapter 13 bankruptcy
• 2 years after a foreclosure

These are shorter than waits for conventional loans but can still hinder your immediate financing options. The seasoning period gives you a chance to rebuild your credit.

Available VA Loan Types With Bad Credit

You can qualify for any VA loan program, even with poor credit. Some options include:

• VA Purchase Loans – Buy a home with 100% financing.

• VA Cash-Out Refinance – Tap equity to pay off debts.

• VA Streamline Refinance – Lower rates/payments on existing VA loan.

• VA IRRRL – Refinance and lower interest rate only.

While you can get any VA loan, your credit score impacts the interest rate lenders will offer. The lower your credit score, the higher your rate will likely be compared to applicants with good credit.

Finding the Right VA Lender for Bad Credit

If you have bad credit, finding the right lender should focus on three factors:

1. Willingness to approve lower scores

2. Flexibility with compensating factors

3. Loan rates for lower scores

Compare offers from multiple lenders to find the best fit for your situation. Mortgage brokers can help match you with appropriate lender options.

Avoid lenders asking for upfront fees or demanding you purchase other products. Make sure you understand all terms and conditions before committing to a VA lender.

Alternatives if You Don’t Qualify for a VA Loan

If your credit score or background makes VA loan approval challenging, consider these alternative options to get your home financing on track:

• Apply with a co-borrower who has better credit to improve your application.

• Build more savings for a larger down payment to reduce risk for the lender.

• Wait the required time period after bankruptcy or foreclosure to reapply.

• Repair your credit by paying down debts and disputing any errors.

• Provide additional proof of income sources to offset your low credit.

• Work with credit counseling agencies to create a concrete plan to improve your score.

With time and discipline, you can get your credit back on track to take full advantage of the VA home loan program. Don’t get discouraged if you don’t qualify right away.

The Bottom Line

Bad credit doesn’t preclude you from using your hard-earned VA loan benefit. While approval is tougher, understanding lender requirements, improving your credit, and offsetting risk can help you get the green light. Find an experienced VA lender willing to take a chance on you when others won’t.