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.
As a veteran exploring your home financing options, you may be wondering if having a low credit score will prevent you from qualifying for a VA loan. The good news is that VA loans are more flexible when it comes to credit requirements compared to conventional loans or FHA loans. In this article we’ll break down everything you need to know about getting approved for a VA mortgage with less-than-perfect credit.
VA Loan Credit Score Requirements Overview
The Department of Veterans Affairs (VA) itself does not have a minimum credit score requirement for its loan program. That said, most lenders will look for a credit score of at least 600-620 on VA loans.
Here’s a quick rundown of key VA loan credit score guidelines:
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The VA does not mandate a minimum credit score. Individual lenders set their own standards.
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Most lenders require a minimum FICO score of 600-620. Some may approve borrowers with scores in the 500s.
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Lower credit scores can still qualify but may need significant down payments or lower debt-to-income ratios.
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Manual underwriting allows for more flexibility for borrowers with credit issues.
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VA loans offer more latitude for lower scores than conventional loans or FHA loans.
So in short – yes, you can get approved for a VA loan even if you have less-than-perfect credit. But your interest rate and loan terms may not be as favorable as borrowers with higher scores.
What Credit Score Do You Need for a VA Loan?
While the VA itself does not mandate a minimum credit score, most lenders will want to see at least a 600 FICO score for their VA loan programs. Some lenders may approve VA loans in the 500s, especially with strong compensating factors like a sizable down payment or excellent income and low debts.
According to 2022 VA loan data, over 5,100 VA loans were approved for borrowers with credit scores between 575-600. Nearly 28,000 were approved for those with scores of 600-625.
So even with a score on the lower end, VA loan approval is possible depending on your entire financial profile. That said, interest rates are heavily influenced by your credit score. You will likely pay a higher rate with a lower score.
Can You Get a VA Loan with Bad Credit or No Credit?
Bad credit or no credit history does not automatically disqualify you from a VA loan. But it can make the process more challenging. Here are some tips if your credit score is poor or nonexistent:
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Shop with lenders that specialize in bad credit VA loans. They may be more flexible.
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Consider having a co-signer with better credit to strengthen your application.
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A larger down payment can help offset credit weaknesses.
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Document reliable income and minimal debts to show you can afford the mortgage.
While poor credit makes approval harder, it is still possible with the right lender. Be prepared to possibly accept a higher interest rate or extra fees to compensate for the additional risk.
How to Improve Your Credit Score for a VA Mortgage
If your credit score is holding you back from a VA loan approval, take steps to improve it before applying. Here are some tips:
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Pay all bills on time going forward. Set up autopay if needed.
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Pay down credit card and revolving debt balances. Get balances below 30% of limits.
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Dispute and correct any errors on your credit reports.
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Limit new credit inquiries by only applying for what you need.
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Consider credit counseling if needed to get your finances on track.
With diligent credit management, you may be able to improve your score significantly within 6-12 months. This can help you qualify for better VA loan terms. Be patient and focus on healthy credit habits.
Using Manual Underwriting for a VA Loan with Low Credit
If your credit score is below minimum thresholds for automated approval, ask your lender about manual underwriting for your VA loan. An underwriter will review your full financial profile and may approve your loan despite credit weaknesses.
Factors the underwriter may consider include:
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Your employment and income stability
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Minimal other debts and sufficient income for the mortgage payment
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Large down payment to offset credit risk
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Recent positive credit history (on-time payments, lowering debts)
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Explanations or mitigating circumstances for credit issues
While manual underwriting takes longer, it can help you get approved if automated underwriting screens out your application. Discuss manual underwriting with lenders that work with low credit borrowers.
Alternatives to Consider if Denied a VA Loan Due to Low Credit
If your credit score is too low at the moment to meet VA loan requirements, you may want to consider the following alternatives while you work on improving your credit:
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Explore lenders that offer non-prime or alternative VA loan programs. They are more flexible but often charge higher rates/fees.
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Look into FHA loans which have lower minimum score requirements (as low as 500 FICO).
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Find a co-signer with better credit to strengthen your loan application.
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Save up for a larger down payment to offset your credit weaknesses.
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Rent for the short term while aggressively paying down debts and improving credit.
With a focused effort, you can raise your credit score and qualify for a better VA loan in the future. Don’t get discouraged if you don’t quite meet the mark yet.
The Key Takeaway
While excellent credit will help you land the very best VA loan offer, you can still qualify with a lower credit score depending on your full financial profile. Do your research to find lenders that work with less-than-perfect credit. You can still achieve your dream of homeownership through a VA loan – it just may take more effort and diligence. Stay focused on improving your credit and reducing debts, and you’ll be in a strong position to get approved.
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 I use a VA loan with a 500 credit score?
What is the lowest credit score for a VA home loan?
Can I get a VA loan with poor credit?
Can I get a VA loan with a 580 credit score?
How does a VA mortgage lender determine your credit score?
Lenders will review your credit, debt and income to decide whether you qualify and to determine the interest rates they will offer. The VA doesn’t set a minimum credit score to qualify for a loan. But VA mortgage lenders can set their own minimum standards for FICO credit scores, which are typically in the low- to mid-600s.
Do VA loans have a minimum credit score?
– At **Rocket Mortgage**, the minimum qualifying credit score is **580**, and the VA guarantee allows lenders to assist borrowers with less-than-perfect financial histories[4].
What is a good FICO credit score for a VA loan?
According to a February 2023 Experian report, the national average FICO credit score is 714. Experian also notes that credit scores below 670 fall into the “fair” or “bad” groups. However, most VA lenders will typically look for a minimum FICO credit score of 620 to qualify for a VA loan.
How does a good credit score affect a VA loan?
Having a good credit score can significantly impact your VA loan experience aside from just helping you qualify. Borrowers with credit scores in the 720-740 range can often expect better rate terms, lower fees and more competitive interest rates when applying for a VA loan.