Can You Get a VA Home Loan With a Bad Credit Score? Here’s What You Need to Know

Getting a VA home loan when you have bad credit may seem daunting, but it is possible for many borrowers. As a leading VA lender, I want to provide clear guidance on VA loan requirements, how your credit score factors in, and ways to strengthen your application.

What Credit Score is Considered Bad for VA Loans?

There is no universal definition of what constitutes “bad credit” for VA loans. The VA itself does not set minimum credit score requirements. Rather, individual lenders establish their own credit standards borrowers must meet. At my company, we generally look for a minimum credit score of 620. Anything below 580 is widely viewed as poor credit.

Scores between 500-619 are generally considered subprime VA loans are often more flexible than conventional loans in considering applicants with bad credit. But just meeting the minimum score threshold does not guarantee approval

Can You Get a VA Loan with a 500 Credit Score?

A credit score of 500 is on the very low end of the range, but we have helped borrowers with scores in the 500s get approved. While not impossible, it can be challenging. Along with your score, factors like your debt-to-income ratio, employment history, assets, and previous housing payment record come into play.

Offering compensating factors that offset your poor credit can boost your chances. For example, if you have minimal existing debt obligations, strong job stability or significant retirement savings, it may improve your application’s strength.

Tips for Improving Your Credit Score for a VA Loan

While getting approved for a VA loan with bad credit does happen, taking steps to improve your score can make a difference. Here are some tips:

• Review your credit reports – Make sure there are no errors negatively impacting your score. Dispute any inaccuracies.

• Pay down balances – Try to keep balances below 30% of your credit limit on cards. Pay off collection accounts if possible.

• Pay on time – Your payment history is a major factor in your score. Set up reminders to pay bills early or autopay.

• Limit new accounts – Opening multiple new accounts can lower your score temporarily. Wait to apply for new credit until after closing.

• Monitor your score – Check your score monthly to see real-time impacts of credit habits. Avoid sudden large purchases before applying.

With diligence and smart credit management, an improved score can reflect reduced risk to lenders.

VA Loan Credit Requirements: Minimum Standards

As noted, the VA does not impose credit score rules, but lenders have general guidelines. Many lenders stick to a 620 minimum score. Requirements loosen or tighten based on current market conditions.

Beyond your score, VA loan underwriters will review factors like:

• Your debt-to-income ratio (DTI)
• Revolving credit utilization
• Payment history
• Number and type of accounts
• Public records like bankruptcies, judgments, collections
• Recent credit inquiries

While your credit is important, remember that VA loans are underwritten looking at your whole financial picture

Can I Get a VA Loan After Bankruptcy or Foreclosure?

Yes in many cases you can qualify for a VA loan even after a bankruptcy, foreclosure short sale or other major credit event. The VA requires a minimum two year waiting period after a bankruptcy or foreclosure.

Lenders’ seasoning period guidelines can extend beyond the VA’s. Documentation showing you reestablished positive credit since the credit event will be important. We have helped applicants get home financing post-foreclosure or bankruptcy when they exhibit financial responsibility.

How Do VA Loan Rates & Fees Work for Bad Credit?

Obviously, worse credit equals greater lending risk. This risk translates into higher interest rates and stricter approval terms frequently. However, VA loan rates often prove lower and have smaller rate spreads for those with poor credit compared to conventional loans.

Depending on your credit, you may pay a higher VA funding fee. This one-time fee helps offset potential VA losses. With bad credit, expect lenders to scrutinize income/employment, assets and your budget closely. Coming up with a larger down payment can help counteract poor credit too.

Should I Talk to a VA Lender About My Bad Credit?

Yes, connecting with a knowledgeable lender that does high volumes of VA loans is wise. They can explore all your options, answer questions, and see if you meet their particular requirements.

I always recommend being upfront about your unique situation and financial history. We routinely help Veterans and service members with less-than-stellar credit realize their goal of VA home financing.

While poor credit poses challenges, a VA home loan remains feasible for many. Diligence in bettering your credit, saving for a down payment and providing full disclosure to your lender can go far in making homeownership a reality, even with bad credit.

Here are some key takeaways on getting a VA loan with bad credit:

• VA has no minimum score; lender standards vary
• Many lenders require 620 FICO score
• Compensating factors can help offset low scores
• Improving credit before applying is beneficial
• VA may be more flexible than conventional loans
• Bankruptcy/Foreclosure requires 2 year waiting period
• Expect higher rates and stricter approval terms
• Speak openly with lender about your credit history