How to Get a VA Home Loan with Bad Credit as a Military Member

Getting approved for a mortgage can be challenging when you have bad credit but service members and veterans have an advantage. VA home loans make buying a house possible even with bad credit through the military home loan program. If you are active duty a veteran, or a surviving spouse, you can qualify for a VA loan with a low credit score.

I want to explain how VA loans work when you have bad credit, who is eligible, and what factors lenders consider for approval. With some practical tips, you can position yourself to get a VA mortgage despite bad credit as an active or former military member.

What Are VA Loans?

VA home loans are backed by the Department of Veterans Affairs but issued by private lenders like banks and credit unions. The VA guarantees a portion of the loan amount reducing the risk to lenders. This allows lenders to loosen credit requirements for borrowers.

Unlike conventional loans, VA mortgages do not require down payments or private mortgage insurance. Closing costs can also be rolled into the loan amount. VA loans offer other advantages like no prepayment penalties and lenient guidelines for past foreclosures or bankruptcies.

VA Loan Eligibility for Military

Active duty service members, veterans, reservists, and surviving spouses can qualify for VA home loans if they meet length of service requirements. You must have:

• At least 90 days of active duty service during wartime
• At least 181 days of continuous active duty service during peacetime
• At least 6 years in the National Guard or Reserves
• Survived a spouse who died in the line of duty or from a service-connected disability

The VA uses lender guidelines and your credit history – not your credit scores alone – to decide if you can repay the loan.

What Credit Score Do You Need for VA Loans?

The VA itself does not have a minimum credit score. The lender sets credit requirements, typically between 580 to 620. Those with scores below 580 may still qualify by meeting other stringent criteria.

It’s a misconception that VA loans are only for those with pristine credit. Many lenders will work with credit scores in the fair range (580-669) or even poor range (below 579). The key is finding a lender who will manually underwrite your application.

Tips to Get a VA Loan with Bad Credit

Though the VA guarantees part of the loan, the lender takes on financial risk too. Follow these tips to improve your chances of a VA loan approval with bad credit:

Check your credit reports – Make sure there are no errors negatively impacting your scores. Dispute any mistakes with the credit bureaus.

Pay down debts – Lenders will look at your debt-to-income ratio. Pay off credit cards and other debts to lower your monthly obligations.

Build credit – Apply for a secured credit card or credit builder loan to add positive payment history.

Save for a down payment – Though not required, a down payment shows you are financially committed.

Get a co-signer – Adding a co-signer with better credit can help you qualify and get a lower interest rate.

Know your residual income – The VA calculates this based on family size, region, and loan amount. Higher is better.

Explain past credit issues – Lenders may be flexible if you experienced extenuating circumstances like medical problems or divorce.

Factors in Getting Approved for VA Loans

Along with your credit reports, lenders weigh other elements of your financial profile:

• Employment history – Stable jobs and income sources improve your changes. Explain any gaps.

• Assets and reserves – Money in the bank shows you can cover costs if financially strapped.

• Debt-to-income ratio – Total monthly debt payments, including the new mortgage, should be below 41% of gross monthly income.

• Down payment – Not required, but 5-10% or more helps get approved and lowers interest rates.

• Residual income – The VA wants to see “enough” monthly income left over after paying debts and living expenses.

Bring documents supporting these factors to your loan application appointment.

VA Streamline Refinancing for Bad Credit

If you already have a VA loan, you may be able to refinance using the VA streamline program. You can get a lower rate without the usual credit check requirements.

To qualify for VA streamline refinancing:

• You must have made 6-12 months of on-time payments on your current VA loan.

• The refinance loan can’t exceed the payoff amount on your current mortgage.

• Total monthly mortgage payments can’t increase by 20% or more.

• Upfront fees and closing costs are limited.

Streamline refinancing is the easiest option for refinancing a VA home loan with bad credit.

Sample VA Mortgage Rates with Lower Credit

Though your credit score affects mortgage rates, VA loan rates are competitive. Here are sample rates veterans and military members could expect with lower credit scores:

Government backing of VA loans keep rates affordable even with poor credit. Shopping lenders can help you find the best deal. Ask prospective lenders:

• Do you offer VA loans to borrowers with credit scores below 620?
• What VA mortgage rates are you currently offering borrowers with low credit scores?
• What is the minimum credit score your bank requires for VA loans?

Alternatives if Denied a VA Loan

If you get turned down for a VA loan, ask the lender why and what specific requirements you failed to meet. Then, consider these alternative mortgage options:

• FHA loans – Government-backed loans with low down payments and minimum 580 credit scores.

• USDA loans – No down payment required and credit scores as low as 640 accepted. For rural properties.

• Reapply with another lender – Each lender has its own requirements, so shop around.

• Improve your credit – Build your score and try reapplying in 6-12 months.

• Get a co-signer – Finding a co-signer with better credit can help you qualify.

• Rent – Renting for 1-2 years can demonstrate you can consistently pay housing costs.

Don’t get too discouraged if your first VA loan application is denied. Take steps to improve your financial profile and keep trying. VA loans provide a great opportunity for military members to buy a home despite bad credit.

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