Can You Get a VA Loan With Bad Credit? A Complete Guide

Purchasing a home is often seen as part of the American dream. But what if you have less-than-perfect credit? Is homeownership still possible? If you’re eligible for a VA loan, the answer is likely yes.

VA loans are an attractive option for many borrowers because they require no down payment and no monthly mortgage insurance. Even better, the VA itself does not impose a minimum credit score requirement to qualify. So can you get a VA loan with bad credit?

While individual lenders set their own credit policies, VA loans provide more flexibility for lower credit scores than conventional mortgages. This guide explains everything you need to know about getting a VA home loan with bad credit.

What Credit Score is Considered Bad for a Mortgage?

First let’s define what counts as “bad credit.” This term is subjective but generally refers to credit scores below 620.

Here’s how scores break down:

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

Anything under 580 is usually considered poor or bad credit by lenders. But remember – with a VA loan, you aren’t at the mercy of strict conventional loan requirements.

Can You Get a VA Loan With Bad Credit?

The short answer is yes, you can get a VA loan with credit scores around 500 to 580 or below. The VA itself does not set a minimum credit score. All credit decisions are made by individual lenders.

That said, lenders view borrowers with lower scores as higher risk. So you may face higher interest rates or need to provide compensating factors to offset the credit risk.

Every situation is different. With the right lender, borrowers with scores in the 500s, a recent bankruptcy or foreclosure, or other credit challenges can possibly still qualify.

What Credit Score Do You Need for a VA Loan?

The minimum credit score for a VA loan varies by lender. Here are some common requirements:

• Veterans United – 620 minimum in most cases
• Navy Federal – 620 minimum
• USAA – 620 minimum
• Freedom Mortgage – 580 minimum
• Caliber Home Loans – 580 minimum

So while 620 is a common minimum, other lenders may go lower – sometimes down to 500 for a VA loan.

The best way to find out if you’ll qualify is to apply directly with different lenders. Get pre-approved to see options for your situation.

Factors Besides Your Credit Score

When reviewing a VA loan application, lenders look at more than just your credit scores. Other aspects can compensate for low scores.

Debt-to-Income Ratio (DTI) – Your DTI compares your total monthly debt payments to gross monthly income. VA allows ratios above 41% with extra review.

Residual Income – Residual income is money left over each month after paying bills. There are VA tables calculating required residual income based on household size and region.

Down Payment – Some lenders require a down payment if the purchase price exceeds the value. This lowers risk.

Compensating Factors – Like job stability, significant assets, or VA disability pay.

Previous VA Loan Use – Prior on-time VA loan payments may help offset lower scores.

So make sure your lender considers the full picture, not just your credit.

Tips for Getting a VA Loan With Bad Credit

If your credit score is on the lower end, here are some tips to boost your chances of getting approved:

• Shop multiple lenders – Compare quotes to find the best rates and approval odds.

• Check your scores – Make sure the lender uses correct updated scores.

• Bring a down payment – Even a small 3-5% down can increase approval chances.

• Highlight stability – Show consistent income and long-term employment.

• Reduce debt – Pay down balances and consolidate debt to lower DTI.

• Lean on VA benefits – Disability pay or GI Bill income helps.

• Bring proof of improvement – Show you’ve paid bills on time or resolved issues.

With preparation and a committed lender, VA loan approval is possible even with less than exceptional credit.

Can You Get a VA Loan After Bankruptcy or Foreclosure?

Many assume a bankruptcy or foreclosure ruins their chances for a home loan. But you can still qualify for a VA loan even following these credit events.

For conventional mortgages, you typically must wait 2-7 years after a foreclosure or bankruptcy. But VA has shorter waiting periods:

• 1 year after a bankruptcy – If you’ve completed Chapter 13
• 2 years after a foreclosure – FHA requires 3 years

The VA understands extenuating circumstances can cause financial setbacks. If it’s been at least 12 months since a bankruptcy discharge or 2 years since a foreclosure, approval is possible.

How to Improve Your Credit for a VA Loan

The best way to increase your chances of VA loan approval is boosting your credit score. Here are effective ways to improve your credit:

• Review your credit reports and dispute any errors with the bureaus. Errors can drag down your scores.

• Pay all bills on time each month. Payment history is a major factor in your scores.

• Pay down balances below 30% of credit limits. Keep debt low.

• Don’t close old credit accounts as it lowers your history length.

• Limit new credit applications that cause hard inquiries on your reports.

• Enroll in credit monitoring and practice good credit habits. Improving scores takes diligence and time.

Even a small score gain of 50 points or so can open more VA loan opportunities and better rates.

Alternatives if Denied a VA Loan

If you receive a denial on a VA loan, don’t give up. You may still have options:

• Ask another lender – Just because one lender denies you doesn’t mean they all will. Shop options.

• Improve your credit – Work on increasing your score and reapply in 6 months.

• Apply with a co-signer – Adding a co-signer with better credit can help approval odds.

• Explore FHA loans – They require just a 500 FICO score.

• Lease to own – Leasing a home first with an option to buy can build credit.

• Try manual underwriting – Ask lenders if they offer a manual review process.

While unusual, it is possible in some cases to get a VA loan approval even with a score in the 500s. Be persistent.

The Bottom Line

Traditional mortgage standards often prevent borrowers with less than stellar credit from attaining homeownership. But VA loans provide an avenue with more flexibility, even if your credit score is poor.

While lenders ultimately make approval decisions, the backing of a VA loan can open doors otherwise closed. With the right approach, preparation, and research to find a lender willing to review your full financial profile, VA loan approval is possible despite bad credit or past financial struggles.