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.
Buying a home is an exciting milestone. But for many, less-than-perfect credit can make it feel out of reach. If you’re a veteran or servicemember with a 550 credit score, you may be wondering if VA home loans are still an option The good news is, yes you can get a VA mortgage with a 550 FICO score While every lender is different, VA guidelines are more lenient than conventional loans.
I want to walk you through what goes into a VA home loan approval, so you can get a better idea of your chances with a 550 credit score. I’ll also share tips for improving your credit and finding the right VA mortgage lender. By the end, you’ll have a better understanding of how Veterans with lower credit still have access to $0 down financing.
VA Loan Credit Score Requirements
The Department of Veterans Affairs (VA) itself does not actually set a minimum credit score. Instead, they offer guarantees that motivate private lenders to relax their standards. This allows them to approve borrowers they’d otherwise turn down.
Most lenders do still set their own credit cutoffs for VA loans, but they tend to be lower than for conventional mortgages. Here are some examples I found of minimum credit scores for top VA lenders in 2023:
- Veterans United – 620
- Navy Federal Credit Union – 620
- USAA – 620
- Freedom Mortgage – 550
- Caliber Home Loans – 580
- Movement Mortgage – 580
As you can see, 550 falls within many lenders’ credit score ranges Freedom Mortgage even lists it as their minimum for VA purchase loans
VA guidelines look at your whole financial picture, not just your credit score. Things like income, assets, debts and down payment factor in too. So while useful, your credit score isn’t the whole story.
Qualifying For A VA Loan With A 550 Credit Score
As a refresher, FICO scores range from 300 to 850. 550 falls on the lower end of the “fair” credit tier according to Experian. To get approved with this score, you’ll want as many other positive factors as possible. Here are some tips:
Apply with a VA lender who goes down to 550 – Shop around to find a lender whose credit standards match your situation. Compare interest rates too.
Lower your debt-to-income ratio – Lenders look at your total monthly debt payments compared to income. The lower the better. Pay down balances if you can.
Have a higher down payment – VA loans don’t require a down payment. But funds from your own pocket show you’re invested. Even 3-5% down can help.
Bring on a co-signer – Adding someone with better credit is an option if other factors fall short. Just know they’ll be equally responsible for the loan.
Explain past issues – If you had financial struggles like a job loss or medical bills, share that. Context helps.
At the end of the day, underwriting is a case-by-case process. Your lender will weigh your entire application and make an approval decision based on their comfort level. Be patient and persistent to find one willing to work with your situation.
How To Improve Your Credit Score For A VA Mortgage
Whether you’re approved now or not, boosting your credit should be a priority. Higher scores open up better mortgage rates and terms. Plus, on-time payments raise your score over time.
Here are my top 7 tips for improving your credit:
1. Review your credit reports – Make sure there aren’t any errors dragging down your scores unfairly. Dispute mistakes with the bureaus.
2. Pay all bills on time – Payment history is a major factor. Set reminders so you never miss a due date.
3. Keep balances low – High utilization hurts. Try to keep each card below 30% of its limit. Pay down balances when possible.
4. Hold off on new credit – New accounts lower your average age of credit. Wait to apply for financing until after you close on your home.
5. Monitor your credit – Sign up for free monitoring so you can track your progress.
6. Become an authorized user – Ask a family member with good credit to add you to a longstanding account. Their history can give your scores a boost.
7. Practice good money habits – Sticking to a budget and prioritizing bills helps you make consistent payments. Live below your means.
With diligence and healthy financial habits, you can build stronger credit step-by-step over time.
Finding The Best VA Lender For You
Not all lenders are created equal. As you shop around, look for these features:
VA experience – Choose a lender who does a lot of VA loans. They’ll know how to guide your particular situation through underwriting. Ask how many they close each year.
Rate transparency – Compare options side-by-side. Avoid lenders who won’t give rate quotes without a credit check.
Reasonable fees – Closing costs can vary widely. Don’t just look at interest rates. Factor in entire loan estimates.
VA guidelines – Only go with lenders who follow legitimate VA underwriting standards. Don’t fall for myths about needing upfront fees.
Customer service – You’ll talk to your loan officer a lot. Make sure they clearly explain the process and respond promptly when you have questions.
The internet makes it easier than ever to shop multiple lenders from the comfort of your home. Seeking out the best fit for your 550 credit score takes some legwork but is worth it when you end up with the right home loan.
You Can Do This!
Improving your credit and qualifying for a mortgage takes time and discipline. But hundreds of thousands of VA borrowers do it every year, including many with credit challenges. If homeownership is your dream, don’t get discouraged. You can make it happen!
The first step is talking to lenders and getting a reality check on where your credit stands today. From there, you’ll have a clearer roadmap to your approval. Moving forward, be diligent about boosting your scores. With guidance from a lender you trust, you can be a homeowner before you know it.
What is considered “bad credit” for a VA loan?
The first issue is tackling unclear phrases like “bad,” “poor” or “less than perfect” credit. We use that kind of language since it can be tough to discern what constitutes “good” credit or at least a credit score that can get prospective buyers closer to the dream of homeownership.
Credit scoring firm FICO defines “Fair” credit as scores from 669 to 580, with anything below designated as “Poor” credit. But one lenders definition of bad or subprime credit can be very different than anothers.
Across the spectrum of VA lending, a 620 FICO score is a common credit score minimum. But that benchmark can be higher or lower depending on the lender, the economic environment, how much youre hoping to borrow and more.
Does a lower credit score affect your VA loan interest rate?
A lower credit score can have an impact on the interest rate lenders quote. Lenders typically view higher credit scores as indicative of lower risk, often leading to more favorable interest rates. Therefore, lower scores may result in higher rates. Generally, the impact of your credit score on your rate is more pronounced with conventional mortgages than VA loans.
Can I Qualify For a VA Loan With Bad Credit? (VA Mortgage Updates and First Time Home Buyer Advice)
Who can get a VA loan with a 550 credit score?
Why Freedom Mortgage stands out: People with credit scores as low as 550 may qualify for a VA loan with Freedom Mortgage. The lender offers VA purchase, VA streamline refinance (also called interest rate reduction refinance, or IRRRL), and VA cash-out refinance loans.
What credit score do you need for a VA loan?
At Freedom Mortgage, the minimum credit score we require depends on the purpose of the VA loan. Here are our current minimum credit scores: When you want to buy a home with a VA loan, we can often accept a minimum credit score as low as 550. When you want to refinance a home with an VA loan, we can often offer an easy credit score qualification.
Does the VA set a minimum credit score?
No. The VA does not set a minimum credit score for the VA loans it guarantees. Instead, it asks lenders to look at the full loan profile of the person applying for a VA loan. However, lenders can establish their own minimum credit scores for VA loans, which is why you might see that various lenders require different scores.
Can you get a VA loan with a low credit score?
Generally, yes, this may be possible. Typically, VA lenders look for a credit score of around 620, but a lower score may be approved with compensating factors. The VA does not set a minimum credit score to qualify for a loan, so credit score minimums will vary by lender and other factors. Does a lower credit score affect your VA loan interest rate?