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.
VA home loans offer a valuable path to homeownership for veterans, even those with less-than-perfect credit The VA itself does not set minimum credit requirements, so borrowers with low credit scores may still qualify with the right lender.
In this comprehensive guide we’ll explain how VA loans work for bad credit borrowers factors that help approval odds, and tips to improve your credit. With smart planning, you can use your VA benefits to buy a home despite past financial challenges.
What Credit Score is Considered Bad for VA Loans?
The term “bad credit” lacks a standard definition in mortgage lending. The VA itself does not establish a minimum credit score that borrowers must meet. Rather, individual VA lenders set their own credit policies and requirements.
As a general guideline from credit scoring company FICO:
- Fair credit: 580-669
- Poor credit: Under 580
Many lenders view scores below 640 or 620 as subprime But another VA lender may accept credit scores in the fair range between 580-640 The VA lets lenders evaluate each borrower’s situation holistically.
Can I Get a VA Loan with Bad Credit?
Yes, it is possible to get a VA-backed mortgage with poor credit, but approval is not guaranteed. Given the VA’s flexible guidelines, some lenders are more willing than others to work with lower credit borrowers.
Factors that improve your chances with bad credit include:
- Solid income and employment
- Significant cash reserves
- Low debt-to-income ratio
- History of on-time rent payments
- VA disability pay or other benefits
Making a large down payment can also sway lenders if your credit is lacking. Shop around with different VA lenders to compare mortgage options.
VA Loan Credit Requirements
The VA mandates no universal credit score minimum or requirements. Instead, individual lenders set their own credit policies for VA loans based on risk. Common requirements may include:
- Minimum credit score of 620 or 640
- Total debt ratios below 41%
- Clean credit history with no recent late payments
- No recent bankruptcy or foreclosure
While the VA guarantees loans to borrowers with scores in the 500s, many lenders are hesitant to approve such high-risk applicants. Competition is lower among lenders serving those with poor credit.
Tips for Getting a VA Home Loan with Bad Credit
If your credit score is on the lower side, here are some tips that can help your chances of getting approved:
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Shop with VA lenders that work with bad credit – Compare quotes from lenders known for serving subprime borrowers
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Ask about exceptions or exceptions – Many lenders allow “compensating factors” to offset credit weaknesses
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Make a larger down payment – At least 10% down shows commitment and lowers risk
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Bring down credit utilization – Pay down revolving balances to reduce utilization ratio
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Add a cosigner – A cosigner with good credit can improve your chances
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Explain past issues – Documentation explaining credit problems can help
With the right lender, preparation, and evidence of financial responsibility, VA loan approval is possible even with a low credit score.
VA Loan Options for Bad Credit Borrowers
Veterans with poor credit can apply for any type of VA mortgage their lender offers, including:
- VA Purchase Loans – For buying a home
- VA Cash-Out Refinance – Taking equity out of your current home
- VA Streamline Refinance – Reducing your interest rate and payment
While lenders will consider your complete credit profile, those with very bad credit likely will pay higher interest rates to offset the added risk.
Alternatives if Denied a VA Loan
If you get turned down by multiple lenders, alternative options may include:
- Credit repair – Take 6-12 months to improve your score and reapply
- FHA loan – Government-backed mortgages requiring just 3.5% down
- Subprime lender – Specializes in borrowers with credit challenges
You can also request your loan denial letters to understand why you did not qualify for a mortgage. Fixing any issues outlined can help better prepare you for future applications.
Tips for Improving Your Credit Score Quickly
Here are some steps veterans can take to boost their credit scores:
- Pay all bills early or on time
- Pay down credit card balances
- Limit new credit applications
- Dispute any errors on your credit reports
- Consider credit counseling if needed
Bringing up your credit score can result in better mortgage rates and terms. Aim to improve your score while saving up for a larger down payment.
Work With a VA Specialist Lender
As a Veteran with bad credit, a lender experienced in VA loans for subprime borrowers can make the mortgage process easier. Be sure to ask prospective lenders about their policies regarding credit scores and risk analysis.
At our company, we have flexible VA credit guidelines and loan officers trained to help veterans overcome past financial issues. We offer fair lending solutions tailored to your unique situation.
Contact us today to explore your VA home loan options and get help purchasing a home!
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.
Credit Alert Interactive Verification Reporting System (CAIVRS)
When it comes to your credit report, you’ve probably heard of the big three credit reporting agencies – TransUnion, Equifax and Experian. Now is a good time to familiarize yourself with CAIVRS, which is a government database that tracks liens, judgments, defaults, foreclosures and delinquent federal debt. If you are looking for a government loan – and the VA loan program is one of those – you don’t want to be in the CAIVRS system. It doesn’t technically affect your credit score, but it’s another government mortgage system to be aware of. And while the VA loan system won’t check your credit score, it will check CAIVRS.
VA Home Loans | Bankruptcy, Foreclosure & Bad Credit | theSITREP
FAQ
Can you get a VA loan with a 500 credit score?
Can a veteran with bad credit get a mortgage?
Can you get a VA loan with a credit score of 580?
Is there a credit minimum for VA loan?
Are VA home loans available for 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.
What factors can affect the interest rate charged on a VA loan with bad credit?
Your credit score can have an impact on the interest rate that lenders quote. Generally, though, the impact of credit scores on rate is more pronounced with conventional mortgages than with VA loans. Like credit score minimums, rates will differ among lenders. Are there specific VA lenders for bad credit?
Are there any VA lenders who will accept a FICO score of 580?
Some VA lenders might be fine with a 580 FICO score. Others will want to see something higher. The key is understanding this isn’t a one-score-fits-all kind of thing.
What is the minimum FICO score required for a VA loan?
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 you’re hoping to borrow and more. Some VA lenders might be fine with a 580 FICO score. Others will want to see something higher.