Veterans and service members may have whats considered “poor” or “bad” credit and wonder if they can still use their VA home loan benefit. It’s important to understand the VA doesnt set credit score requirements. In fact, the VA doesnt mandate a minimum credit score at all.
The ability to obtain a VA loan with bad credit is determined by the specific credit requirements of each individual VA lender. Let’s take a closer look at how lenders may assess your poor credit and risk when applying for a VA loan.
Getting approved for a mortgage can be challenging if you have less than perfect credit Thankfully, VA home loans provide an excellent option for service members, veterans, and surviving spouses who want to buy a home but have bad credit
In this comprehensive guide, we’ll explain everything you need to know about getting a VA mortgage with bad credit.
What is Considered Bad Credit for VA Loans?
First things first – what exactly constitutes “bad credit” when it comes to VA lending?
The VA itself does not set specific credit score requirements or minimums. Rather, individual VA-approved lenders establish their own credit standards and criteria.
That said, a credit score below 620 is generally considered subprime or less-than-ideal credit in the mortgage industry. According to FICO’s credit score scale:
- 800 and above is exceptional
- 740-799 is very good
- 670-739 is good
- 580-669 is fair
- 579 and below is poor
So if your score falls in the “fair” or “poor” ranges, most lenders would view your credit as bad or troubled.
Having a prior foreclosure, short sale, bankruptcy or other major “credit event” on your record can also signal bad credit to lenders, regardless of your score.
Can You Get a VA Mortgage with Bad Credit?
The good news is yes, it is possible to qualify for a VA loan even with less than stellar credit.
Because the VA guarantees a portion of these loans, lenders are often willing to be more flexible with credit requirements compared to conventional mortgages.
That said, bad credit borrowers may face higher interest rates or extra fees. Some lenders may impose stricter standards and not work with very low scores.
Shopping around and comparing quotes from multiple VA lenders can help you find a company willing to approve you despite credit challenges.
Factors VA Lenders Consider Besides Your Credit Score
When reviewing a VA loan application with bad credit, lenders look at more than just your score and history. Other aspects of your financial profile also come into play.
Debt-to-Income Ratio
Your debt-to-income ratio (DTI) shows whether you have manageable monthly debts relative to your income. Most lenders want your DTI below 41%. A higher DTI paired with bad credit raises red flags, while a low DTI helps compensate for credit weaknesses.
Down Payment Amount
The VA does not require any down payment at all. But lenders often prefer larger down payments on riskier loans to demonstrate you have “skin in the game.” Bringing 10-20% or more to the closing table can help make up for poor credit.
Savings and Assets
Substantial liquid savings and other assets make lenders more comfortable approving applicants with bad credit. Reserves show you can cover mortgage payments even with a temporary income disruption.
VA Residual Income Guidelines
VA lenders consider your “residual income” per their published regional tables. This helps gauge if you will have enough income left over every month after paying major debts and expenses. Meeting these guidelines can help get an approval despite credit challenges.
Compensating Factors
Borrowers with credit weaknesses may point to compensating factors like a large down payment, minimal debts, or a long history of on-time rent payments to prove they are still a good risk.
Highlighting strengths in these areas beyond what VA requires can help you overcome bad credit.
VA Credit Requirements by Lender
While the VA itself does not impose credit standards, individual lenders often have minimum credit policies. However, these requirements can vary significantly from one VA lender to another.
Below is an overview of published minimum credit criteria at some of the top national VA loan providers:
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Veterans United: No minimum score, but most borrowers should have at least 620. They work with lower scores on a case-by-case basis.
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New American Funding: 620 minimum FICO score requirement.
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Navy Federal: 620 minimum score for purchase loans, 640 minimum for refinances.
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USAA: 620 minimum FICO score.
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PenFed: 660 minimum credit score requirement.
As you can see, required credit scores range from 620 on the low end up to 660 at more conservative lenders.
Shopping around is key to finding a lender who will work with your specific credit situation. Get quotes from multiple providers to see who offers the best deal.
And remember, even if one lender denies you, that does not mean you cannot qualify elsewhere. So don’t give up if your first application gets rejected!
Tips for Securing a VA Loan with Bad Credit
If your credit is less than stellar, here are some tips that can help your VA loan application succeed:
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Shop multiple lenders – Do not assume you will be automatically disqualified. Different providers have different credit policies.
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Check your credit reports – Make sure there are no mistakes dragging down your scores unfairly. Dispute and correct any errors.
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Pay down debts – Reducing credit card balances and other debts before applying can help improve your DTI.
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Save for a down payment – A larger down payment signals you are financially committed. Try for at least 10% down if possible.
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Highlight compensating factors – Play up strengths like your income stability, monthly cash flow, and years of on-time rent payments.
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Get a cosigner – Adding a cosigner with good credit may help you qualify and secure better terms.
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Explain past issues – When asked, openly explain any past credit problems and highlight steps you’ve taken to improve.
With preparation and persistence, veterans and military families with less-than-perfect credit can still achieve the dream of homeownership with a VA mortgage. Focus on putting your best financial foot forward and work with lenders willing to look at your full profile.
How Long Do You Have to Wait After a Foreclosure or Bankruptcy?
If you went through a foreclosure, short sale, deed-in-lieu, or bankruptcy in the past, extra waiting periods apply before you can qualify for a new VA mortgage.
Here are the typical seasoning requirements after these credit events:
- Foreclosure: 2 years
- Short Sale/Deed-in-Lieu: 2 years
- Chapter 7 Bankruptcy: 2 years
- Chapter 13 Bankruptcy: 1 year
These requirements are significantly shorter than what FHA, USDA, and conventional loans mandate. So the VA program provides a clear advantage if you’ve faced one of these situations.
That said, some lenders may still be hesitant to approve loans right at the 2-year mark. Waiting an extra year or more beyond the minimum can improve your chances if you dealt with a past foreclosure, short sale, or bankruptcy.
Can You Get a VA Loan After Multiple Foreclosures?
If you went through more than one foreclosure in the past, you may face extra scrutiny and challenges. However, with the right approach, you can still potentially get approved.
Beyond waiting the required 2 years after the most recent foreclosure, the keys are demonstrating you have put any issues behind you and managing your finances responsibly since.
Having reestablished good credit with no late payments, keeping card balances low, and socking away savings all help prove you are back on track. Letters vouching for your on-time rent payments also build your case.
Expect to make a solid down payment as well. In some cases, adding a cosigner may help overcome the burden of multiple past foreclosures when applying for a VA loan.
Should You Pay Down Debts or Save for a Down Payment?
Trying to qualify for a mortgage with bad credit can create a tough balancing act. Should you focus on paying down debts to lower your DTI? Or is socking away cash for a down payment more important?
As a rule of thumb, it is smart to work on both simultaneously in the months leading up to buying a home. Here is a strategic approach:
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Pay off any collections, charge-offs, or non-mortgage debts in default – these drive up DTI quickly.
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Pay down credit card balances to get each one under 30% of its limit.
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Build up 3-6+ months of mortgage payments and other living expenses in savings.
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Save separately for closing costs and your down payment goal. Shoot for at least 5-10% down.
Reduce high-interest debts aggressively so they impact your DTI less. But keep building savings and your down payment fund steadily too. Maintaining this dual focus helps place you in the best position to secure a VA loan approval with challenged credit.
Improving Your Credit Score to Buy a Home with a VA Loan
Realistically, trying to qualify for a mortgage in just a few months likely won’t allow enough time for substantial credit score improvements. But looking 6-12 months out, there are steps you can take to boost your scores.
Two key credit score factors are payment history (35% weighting) and amounts owed (30% weighting). So focus on these areas:
Bad Credit May Not Be the Only Hurdle
Veterans whove experienced bankruptcy, foreclosure or a short sale might face unique homebuying challenges beyond the hit to their credit score (which can be substantial).
These negative credit events usually come with required waiting periods, also known as seasoning periods, during which the Veteran will likely be unable to close on a home loan. The length of these waiting periods can vary depending on the event and the type of loan youre hoping to get.
Generally, VA loan waiting periods are shorter than conventional mortgage ones. But much like credit score minimums, guidelines on seasoning periods can vary by lender.
How to Improve Your Credit Score for VA Loans
While it isnt exactly novel (or always easy), one of the best ways to improve your credit score is simply to pay your bills on time. Your payment history is the biggest factor (35%) in dictating your credit score, according to FICO.
The second-biggest factor is how much you owe (30%), so strive to keep your credit balances at or below 30% of your total credit limit. For example, if you have a $1,000 credit limit, aim to keep your balance at or below $300. The last 35% is made up of your credit history length, new credit accounts and the types of credit.
Credit monitoring software can help you identify errors in your report and keep closer tabs on your basic scores. Just know that the scores you see from apps and tools will likely differ from those of mortgage lenders. Their scores are weighted specifically for mortgage lending.
You can also get free copies of your credit report from AnnualCreditReport.com.
One thing to be leery of is businesses claiming credit repair in exchange for payment. Veterans and service members can find plenty of free resources and credit education online.
Can I Qualify For a VA Loan With Bad Credit? (VA Mortgage Updates and First Time Home Buyer Advice)
FAQ
Can I 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 FICO for a VA loan?
Are there VA loan lenders that accept 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.
Is it more expensive to get a VA loan with bad credit?
A VA mortgage is possible with FICO scores below 620 but your loan will likely be more expensive.credit score is less than 620, but you might need to pay a higher interest rate. Remember, a bad credit VA loan represents an elevated risk to the lender and you may be charged more for that risk.
What are the requirements 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.
Is it possible to get a VA loan with a low credit score?
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.