Can You Still Get Approved for a VA Loan with a Low Credit Score? What You Need to Know

Getting approved for a mortgage can be challenging, especially if you have a low credit score. However, VA loans are a unique mortgage program that offers more flexible credit standards than conventional loans. So if you have less-than-perfect credit, you may still be able to qualify for a VA mortgage and achieve your dream of homeownership.

In this article, we’ll dive into everything you need to know about getting a VA loan with a low credit score.

What is Considered a Low Credit Score?

First let’s clarify what is meant by a “low” credit score. The most commonly used credit score model is the FICO score which ranges from 300 to 850. In general

• A FICO score below 580 is considered very poor
• 580-669 is considered fair to good
• 670 and above is considered good to excellent

So for the purposes of VA loan eligibility, a “low” credit score is typically in the fair to good range, or 580-669.

VA Loan Credit Score Requirements

The Department of Veterans Affairs actually doesn’t impose a minimum credit score requirement for eligibility. Instead individual lenders set their own credit policies.

That said, most lenders do require a minimum FICO score of 580-620. The following are examples of published minimum scores from several top VA lenders:

• Veterans United – 620
• Navy Federal Credit Union – 620
• Fairway Independent Mortgage – 600
• Movement Mortgage – 580

So while each lender may differ slightly, you can expect to need at least a 580-620 FICO score for a good chance at VA loan approval.

Benefits of VA Loans for Low Credit Borrowers

VA loans offer two key advantages that make them more accessible for low credit borrowers compared to conventional mortgages:

1. No Minimum Down Payment

Unlike conventional loans which require at least 3-5% down, VA loans allow for 0% down on the purchase of a primary residence. This removes a major hurdle for low credit borrowers who may not have a lot of cash saved up for a down payment.

2. More Flexible Credit Guidelines

In addition to lower down payments, VA loan underwriting guidelines are more flexible when it comes to credit scores, income ratios, and overall debt-to-income assessments. Lenders can take a more holistic look at your financial profile.

These advantages allow lenders to approve borrowers with low credit scores that wouldn’t qualify for conventional mortgages.

Tips for Getting Approved with a Low Credit Score

While VA loans offer more flexible credit standards, approval is never guaranteed. Here are some tips to boost your chances if your credit score is on the lower end:

• Shop with multiple lenders – Compare quotes from several lenders, as credit score requirements may vary.
• Bring a co-signer – Adding a co-signer with stronger credit may help you meet a lender’s credit standards.
• Lower your DTI – Keep other monthly debts low so your overall debt-to-income ratio remains in a more acceptable range.
• Make a larger down payment – If possible, putting down 5-10% instead of 0% can help offset a lower credit score.
• Explain past credit issues – Being able to demonstrate past credit problems were from unique circumstances that have since been resolved can help your case.

While improving your credit score is ideal, it’s possible to get a VA loan approval even if your credit is less than stellar. Focus on compensating where you can with the tips above.

VA Loan Credit Requirements: The Details

Now that we’ve covered the basics, let’s take a deeper look at what goes into a VA lender’s credit evaluation when underwriting a low credit score borrower:

Credit Score Minimums

As mentioned previously, most lenders require a minimum FICO score of 580-620 for automatic approval. If your score is below that threshold, some lenders may still approve you, but it will require a manual underwriting review.

Credit Report Details

In addition to your score, lenders will closely evaluate the specifics of your credit report:

• Payment history – The severity of any late payments, collections, or charge-offs. Patterns matter.
• Age/type of credit – Mix of new and old accounts, and types (credit cards, auto loans, mortgages, etc).
• Inquiries – Too many “hard inquiries” from applying for multiple new credit accounts can be seen negatively.
• Total debt – Overall amount owed across all accounts relative to available credit limits.

Secondary Factors

Finally, lenders will take into account other aspects of your financial profile that can offset credit weaknesses:

• Down payment amount – More down payment lowers a lender’s risk.
• Cash reserves – Solid savings and assets make you better equipped to handle financial hardships.
• Debt-to-income – Your total monthly debts relative to monthly income. VA loans allow for higher DTI ratios than conventional loans.
• Compensating factors – Such as clean recent 12 months of payments, solid employment history, etc.

How to Improve Your Credit Score Quickly

Ideally, you’ll want to give yourself at least 3-6 months before applying for a mortgage to implement changes and improve your credit score. Some effective strategies include:

• Pay all bills on time – Obvious but vital! Set reminders if needed.
• Pay down credit card balances – Reducing overall utilization substantially helps.
• Limit hard credit inquiries – Each application can cause a small, temporary drop. Only apply for accounts you need.
• Review reports for errors – Dispute any incorrect negative items dragging your score down.
• Add positive information – Become an authorized user on a spouse or family member’s old, paid-off account.

With diligence and smart credit management, you can often increase your FICO score 50-100 points within six months for mortgage approval.

Alternatives if You Can’t Get a VA Loan

For borrowers with credit scores below 580, it will be very difficult to get approved for a VA loan. In that case, here are some alternative mortgage programs to consider:

• FHA loans – Offer low down payments and more flexible credit requirements than conventional loans. Minimum 500 credit score.
• USDA loans – 100% financing available in rural areas. No official minimum credit score but often around 640.
• Subprime lenders – Specialize in higher risk loans. Often require at least 500 credit score.
• FHA 203(k) rehab loan – Finance a home purchase and renovations. Minimum 500 credit score.
• Family mortgage – Explore a private mortgage from family. No credit requirements.

The good news is there are still options out there if your credit just isn’t ready for a VA loan. Talk to an experienced mortgage broker to learn more about these alternative programs.

The Bottom Line

A VA loan with a low credit score is possible, but approval is not guaranteed. Requirements vary depending on the lender, but you can expect most to require at least a 580-620 FICO score and look closely at your overall credit profile. Improving your score and financial health will always help your chances. But ultimately, shopping with multiple lenders and leveraging the benefits of VA loans is key to getting approved with less than perfect credit.