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, having a low credit score shouldn’t stop you from achieving the dream of homeownership. The VA home loan program makes it possible for veterans and active-duty service members to buy or refinance a home even with less-than-perfect credit
In this comprehensive guide, we’ll cover everything you need to know about getting approved for a VA loan if you have bad credit.
What Credit Score Do You Need for a VA Loan?
The Department of Veterans Affairs (VA) itself does not have a minimum credit score requirement for its home loan guarantee program. Rather, the VA looks at your entire financial profile, including your income, assets, debts, and credit history.
However, the private lenders who actually provide VA loans typically do have minimum credit score requirements. At most lenders, you can qualify for a VA loan with credit scores as low as 580-620.
Here are the typical minimum credit score requirements from private VA lenders:
- VA Purchase Loan: 580-620
- VA Cash-Out Refinance: 580-620
- VA Streamline Refinance: No minimum score
Even if your score falls below these ranges, it’s still possible to get approved if you have strong compensation, significant assets, or other positive factors in your application.
What if I Have Bad Credit Due to Financial Hardship?
The VA understands that many veterans have faced financial challenges. Events like job loss, medical issues, or divorce can damage your credit through no fault of your own.
If you have late payments collections or other derogatory marks because of extenuating circumstances, make sure to explain this in your loan application. Providing documentation helps strengthen your case.
As long as you’ve recovered financially, a history of financial hardship won’t necessarily disqualify you from a VA loan. What matters most is your current situation.
Does a Lower Credit Score Affect VA Loan Terms?
While having a lower credit score won’t prevent you from using your VA home loan benefit, it may impact your loan terms. Here are two potential effects:
Higher Interest Rate: Lenders use your credit score as one factor in setting the interest rate for your VA loan. The better your credit, the lower rate you can qualify for. With a lower score, you’ll likely pay a higher rate.
Higher Closing Costs If you pay discount points to buy down your interest rate, those upfront loan fees will be higher if you start off with a higher rate. On the bright side, you can finance closing costs into your VA loan amount
The good news is VA loan rates are still very competitive even for borrowers with less-than-perfect credit. Shop around with multiple lenders to see who offers the best deal.
How to Improve Your Credit Score Quickly
If time permits, taking action to boost your credit score before applying for a VA loan can pay off. Here are some tips for improving your credit score fast:
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Correct errors on your credit reports. Mistakes can drag down your scores. Dispute any inaccuracies with the credit bureaus.
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Get current on past-due accounts. Bringing accounts out of collections or late status can provide a quick score boost.
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Pay down credit card balances. Having high balances relative to your limits hurts your credit utilization rate. Pay down cards to below 30% of the limit.
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Become an authorized user. Ask a family member with good credit to add you as a user on a long-standing account.
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Limit new credit applications. Too many new accounts can lower your average account age which impacts your scores.
With diligence and commitment, you may be able to improve your credit enough to get better VA loan terms.
VA Loan Credit Requirements vs. Conventional Loans
Compared to conventional loans, VA loans offer more flexible credit standards that benefit veterans. Here’s a quick comparison:
| Loan Feature | VA Loan | Conventional Loan |
|---|---|---|
| Minimum Credit Score | No official minimum; often 580-620 | Typically 620 |
| Down Payment | 0% allowed | Typically 5-20% |
| Mortgage Insurance | No PMI required | PMI required if less than 20% down |
| Homebuyer Education | Not required | Often required with lower scores |
As you can see, VA loans give veterans key advantages, especially if you have limited funds for a down payment or closing costs.
What Factors Does the VA Look at for Bad Credit Applicants?
When evaluating a VA loan application from a borrower with derogatory credit, lenders look closely at the following aspects:
Credit History – They review your full history, not just your score. Having strong credit in the past can offset more recent issues.
Payment History – Your track record of paying housing expenses and other obligations on time carries weight.
Down Payment – A larger down payment signals you’re financially committed to homeownership.
Residual Income – This shows your net income after paying debts. Higher is better.
Clear Explanations – Documentation and letters that explain past credit problems help your case.
Improving Credit – Demonstrating you’re actively trying to improve your credit helps justify approval.
While every situation is different, focusing on these areas gives you the best shot at overcoming credit challenges.
Options to Get a VA Loan with Very Low Credit Scores
Veterans with credit scores below 550 may have a tough time getting approved with a traditional VA lender. But there are still options to explore:
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VA Credit Counseling – The VA offers free financial coaching and credit improvement plans. This demonstrates you’re committed to strengthening your finances.
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Reputable Credit Repair Companies – Legitimate credit help services exist that can legally improve your credit profile. Avoid companies making unrealistic guarantees.
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VA-Approved Subprime Lenders – Some lenders specialize in higher-risk borrowers and may offer VA loans to those with scores as low as 500. Rates are higher but they open the door for approval.
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100% Financing Options – Programs like VA loans plus down payment assistance grants can cover all costs so bad credit won’t sink your chance to buy.
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VA Streamline Refinance – Veterans with existing VA loans can refinance using the IRRRL streamline program, which has no credit minimums.
Persistence and creativity are key – with the right approach, your credit score does not have to stop you from tapping into your VA loan benefit.
Can You Get a VA Cash-Out Refinance with Bad Credit?
The VA cash-out refinance enables homeowners with existing VA loans to tap into their home equity, even if they have less-than-perfect credit.
As mentioned above, many lenders allow credit scores as low as 580 for VA cash-out refinancing. And the quick cash from your home’s value can be used to consolidate high-interest debts that may be dragging down your score.
A VA cash-out refi involves replacing your current VA loan with a new, larger mortgage. By withdrawing equity, you get cash back at closing which can be used for any purpose.
Just keep in mind the VA has rules around how much equity you can pull out, and your new loan amount cannot exceed the VA’s loan limits for your area.
Tips for Finding a VA Lender That Accepts Low Credit Scores
Shopping around with multiple lenders is key to getting approved for a VA loan when you have bad credit. Here are some tips for finding lenders to work with:
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Ask current VA borrowers for referrals to lenders they used and liked.
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Search online for “VA loans bad credit” and look for companies touting their experience with lower scores.
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Connect with mortgage brokers who have access to a network of credit-challenged programs.
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Look for lenders advertising VA loans specifically for scores around 550-620.
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Search for VA subprime or non-prime lenders who offer higher-risk programs.
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Consider small community banks and credit unions that offer more personalized service.
Casting a wide net improves your chances of finding a VA lender ready to say yes. Be sure to compare interest rates and fees quoted.
How Veterans Can Get the Best VA Loan Terms with Lower Credit
Even if your credit score is less than stellar, here are some tips for getting the best possible deal on your VA mortgage:
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Shop with multiple lenders to create competition and negotiation leverage
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Get pre-qualified to show you’re a serious buyer so lenders compete harder
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Consider points to buy down the rate if you plan to keep the home long-term
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Make a larger down payment to offset credit risk and potentially improve the rate
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Explain past credit issues clearly so lenders understand the full context
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Document income and assets thoroughly to accentuate positives that offset lower scores
With a little extra effort, less
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.
Private Lenders or VA-Approved Lenders Role with Credit Scores
Private lenders or VA-approved lenders are part of the discussion because, while the VA approves and insures your mortgage, the private lender actually gives you the money. Consequently, private lenders are a big part of this picture, and their loan requirements tend to be stricter than a VA mortgage loan guarantee. They will typically have a minimum credit score number.
Mostly you will see the credit score of 620 as the minimum for a mortgage loan, though in some places you will see the range of 580 to 620 for an appropriate minimum credit score. Sometimes people get mixed up because Federal Housing Administration loans require a 620 credit score, and they think that the whole federal government uses that same standard.
One thing to remember when working with private lenders is, even if they allow lower scores to qualify for a mortgage, they will likely charge you a higher interest rate over the life of the loan. That can add up over a 30-year mortgage, even one guaranteed by the VA.
You also may find companies online who claim to help veterans and active duty military personnel improve their credit scores and overall bad credit. We urge caution when looking into these. Many of them hide their fees and can cost a veteran more in the long run.