Can I Get a VA Loan With a 500 Credit Score in 2024? What You Need to Know

Having a credit score of 500 or below can make getting approved for any type of mortgage difficult But when it comes to VA loans, the rules are a bit different The Department of Veterans Affairs doesn’t actually set a minimum credit score requirement for eligibility. This leaves it up to lenders to decide if your credit profile meets their standards.

So can you get a VA loan with a 500 credit score? The short answer is – it depends. While it is possible, having a score in the poor range will limit your options. You’ll likely need to find a lender willing to manually underwrite your loan. But with some effort, Veterans with less-than-stellar credit may still qualify.

In this article, we’ll break down everything you need to know about getting a VA mortgage with a 500 credit score. Here’s what we’ll cover:

• How VA loans work and VA credit requirements
• Whether the VA sets a minimum credit score
• What credit score VA lenders typically look for
• How to qualify for a VA loan with bad credit
• Tips to improve your chances of approval
• Alternative options if you get denied

Let’s dive in!

How Do VA Loans Work?

Before we look at credit requirements, let’s review how VA loans work. VA loans are mortgages issued by private lenders but backed by the Department of Veterans Affairs. This means if the borrower defaults, the VA provides a guarantee that protects the lender from losing money.

Because of this guarantee, VA loans offer several advantages compared to conventional mortgages, including:

• No down payment required – Borrowers can get 100% financing
• No mortgage insurance – Saving borrowers thousands over the life of the loan
• Competitive interest rates – Usually lower than rates for conventional loans
• More flexible credit guidelines – Minimum scores are lower than conventional loans

VA loans are only available to qualifying Veterans, active-duty service members, and surviving spouses.

What Are the VA’s Credit Requirements?

The VA has guidelines lenders must follow when underwriting VA loans. Here are some key facts about the VA’s credit requirements:

• No minimum credit score – The VA itself does not set a minimum score.
• Consider total credit profile – Lenders review your full history, not just your score.
• No maximum debt-to-income ratio – But most lenders want it below 41%.
• Manual underwriting allowed – For borrowers who don’t meet automated requirements.

So while the VA doesn’t mandate a certain credit score, lenders usually have their own overlays with minimums they prefer to see.

What Credit Score Do Most VA Lenders Look For?

Though it varies by lender, here are some common VA loan credit score benchmarks:

• Minimum of 620 – This is the most common minimum required by lenders.
• 640+ preferred – For the best rates and terms, a score in the mid-600s or higher is ideal.
• 580 may work – Some lenders will go below 620 with strong compensating factors.
• 570+ unlikely – Most lenders will not go below 580 except in rare cases.

So while possible with a 500 credit score, you’ll have a very limited pool of lenders to work with. And it will take a strong application otherwise to get approved.

How to Qualify for a VA Loan With Bad Credit

Veterans with credit scores below 620 can qualify for a VA loan. But it will often require jumping through some extra hoops. Here are some tips to boost your chances:

• Shop lenders willing to manually underwrite – An underwriter reviews your full profile instead of just your score.
• Highlight extenuating circumstances – If bad credit was due to unavoidable reasons like medical bills.
• Show improving payment history – On-time payments for 12+ months can offset past issues.
• Reduce debts – Pay down balances and lower credit utilization.
• Add a cosigner – A cosigner with good credit can help you qualify.

In some cases, taking 6-12 months to improve your score before applying can make approval much easier. But talk to a lender first to assess if you may already qualify.

What if My VA Loan Application is Denied?

If your credit is the main reason for denial, here are some options:

• Request an explanation – Ask why you did not meet credit requirements so you can address weaknesses.
• Dispute any errors – Incorrect information dragging down your score can often be fixed.
• Work on credit improvement – On-time payments and lowering debts will raise your score.
• Consider credit counseling – Financial experts can help create a plan to boost your credit.
• Explore alternative financing – An FHA or USDA loan may be easier to qualify for than a VA loan with very bad credit.

With some time and effort, you can often raise your score high enough to meet VA underwriting guidelines.

Tips to Raise Your Credit Score

Here are some proven ways to improve your credit and qualify for a mortgage:

• Pay all bills on time – Set up autopay if needed.
• Pay down credit card balances – Reduce your credit utilization rate.
• Limit new credit inquiries – Too many new accounts can lower your score.
• Negotiate removal of errors – Fix any mistakes on your credit reports.
• Become an authorized user – Ask to be added to a family member or friend’s old account.
• Sign up for credit monitoring – To track progress and spot any suspicious activity.

Raising your score above 580 should open up many more VA loan options. But even a score in the 500s may work with the right lender.

Should I Wait to Apply for a VA Loan?

Trying to qualify for a mortgage with a 500 credit score can be challenging. But waiting too long to apply could also mean missing out on today’s historically low interest rates.

Here are a few key questions to help decide if you should apply now or wait:

• Has your credit recently started trending upward? Lenders like to see improving credit.
• Do you meet all other VA underwriting requirements? Income, assets, etc.
• Are you prepared to put in extra effort finding the right lender? Be ready to shop around.
• Can you get a cosigner with strong credit? This can offset your poor credit.

If you can answer yes to some of these questions, it may be worth at least starting the application process now. That way you can get a sense of your options before rates potentially move higher.

Alternative Loan Options if Denied for a VA Loan

If you ultimately get denied for a VA loan, here are two other programs that may be easier to qualify for:

FHA Loans

• Minimum 500 credit score (with 10% down)
• Required mortgage insurance
• Lower down payment requirements
• May be more fees than a VA loan

USDA Loans

• No minimum credit score
• For rural/suburban areas only
• 100% financing available
• Income limits apply

Conventional loans are also an option but typically require excellent credit and a down payment.

The Bottom Line

While getting a VA loan with a 500 credit score can be challenging, it is possible in many cases. The key is finding lenders willing to overlook bad credit by manually underwriting your full profile. With some effort, Veterans can offset low scores by demonstrating improving payment history and meeting other VA requirements.

Talking to a lender is the best way to assess if your current credit situation may qualify or if taking some time to improve your score first is the better route. With the right approach, homeownership is within reach even with less-than-perfect credit.