VA Loan with Bad Credit – Scores 500-620
VA loans are available with no down payment requirement for veterans, active military and their spouses without a credit score minimum. It is one of the better mortgage programs available and a great benefit to our deserving veterans.
VA eligible home buyers may be surprised to hear that you can purchase a home with low credit scores. Favorable compensating factors will help secure a mortgage approval so you can purchase your dream home.
We will provide you with everything you need to get approved with low credit while covering the following topics:
- The minimum credit score for VA loans
- VA loan requirements
- Why some lenders do not accept low credit scores
- Video discussing the low credit score VA approval process
- An explanation of lender overlays and how it impacts your ability to get approved
- Qualifying for a VA loan with a bankruptcy
- Tips for securing a VA mortgage approval
We have 25+ years of experience in helping veterans to finance their home with poor credit. Once you have completed reading our guide, we encourage you to contact us here to discuss your specific scenario. We are also available at 732-761-9041
Minimum Credit Score for VA Loans
Most people do not realize that VA loan guidelines do not specify a minimum credit score requirement. VA loans have just a few mandatory requirements that will be discussed in the next section.
When it comes to credit scores, you will find that other lenders have a “credit score overlay” which is why they may tell you that your scores are too low. This simply means they are not willing to work with your credit scores. We will talk more about VA loan overlays later in this guide.
Feel comfortable knowing that if you work with us, your score itself will not be a barrier preventing you from being approved. Our minimum credit score requirement is 500 and most VA eligible home buyers have scores that would meet the requirement.
VA Loan Requirements with Bad Credit
The requirements for VA loans are more flexible than any other loan program available. Here are the basic requirements:
- Eligible applicants must be a veteran, active military or spouse with available home loan entitlement
- You must occupy the property as your primary residence
- Two-year work history and/or active duty
- No down payment needed
- Typical credit score requirement of 620 or more from most lenders. We allow scores down to 500.
- No specific DTI requirement
- No maximum purchase price
These happen to be the basic VA loan requirements and can be applied where the applicant also has poor credit.
Why Some VA Lenders do Not Accept Poor Credit Scores
VA lenders are protected from part of the loss in the event of a foreclosure or default. The amount they are insured for by the VA based upon your entitlement calculation so it is not a 100% coverage or guarantee by the VA.
The coverage against loss is good for the lenders but they are still not covered 100%. They are also in the business of making money and if the borrower is not making the mortgage payments, then the lender still has some risk.
Finally, if too many of the lender’s loans end up in default, they could lose their abiilty to offer VA loans to their clients. It is for these reasons why lenders have their own credit score minimums, or overlays.
VA Loan Credit Overlays
What most borrowers do not realize is virtually every lender has overlays of some kind. An VA lender overlay is the implementation of a particular VA loan requirement that is “tighter” or more strict than what the basic VA loan guidelines call for.
Lenders have the autonomy to tighten the rules, but not loosen them. Some examples of VA loan overlays may be lower DTI requirement, additional reserves, credit score overlays, bankruptcy seasoning, time working at current job, and even asking for a down payment.
Lenders who offer lower credit scores many have overlays in exchange for accepting those lower credit scores.
We have the ability to offer VA loans with to those with lower credit scores without many overlays. Click to speak with us.
VA loan with a Bankruptcy or Foreclosure
Even with past bankruptcy or foreclosure, VA loans are often still available after specific waiting periods.
Most VA lenders will require a two year seasoning after a bankruptcy or foreclosure before applying for a VA loan. However, exceptions can be made depending upon your circumstances so let us review your scenario to see if we have a lender who can help.
Waiting Periods:
Chapter 7 Bankruptcy – 2 years from discharge date, but we may get that reduced depending upon your situation.
Chapter 13 Bankruptcy – we can help with a VA loan after you have made at least 12 on time bankruptcy payments
Foreclosure – This requires a two year waiting period. Not after the foreclosure has occurred, but two years after the lender has sold the property.
We have consistently been able to work with people with a recent bankruptcy or foreclosure.
Tips to Securing a VA Loan Approval with Bad Credit
When you have bad credit, we may approve your loan if you meet all of the other VA loan requirements. However, if you have compensating factors that are in your favor, it helps your case when the underwriter is reviewing your loan file.
Some compensating factors may include some of the following:
- Low debt-to-income (DTI) ratio (typically under 41%)
- Sufficient residual income over and above what is needed.
- No late credit related payments in the past 12 months
- Steady employment or income history
- Cash reserves after closing
- A history of on-time rent or utility payments
If your credit scores are low, then you likely have not been making on time payments and/or you are using too much of your consumer debt credit lines. If you can show that you can comfortably make the payments and have reserves equal to or greater than a few months’ mortgage payments after closing, then you will imprpve your chances for an approval.
Contact us today to have a conversation about your ability to qualify for a VA loan with bad credit.
VA Loan With Bad Credit FAQ
What is the lowest credit score for a VA loan?
There are no credit score minimums set by the VA but the lowest score that we accept right now is 500.
Why do veterans have poor credit?
Veterans are not much different than any other American when it comes to their credit situation. You will have people who have excellent credit and those who do not. The good news is there is help for veterans who have poor credit.
Will a co-borrower with good credit help to qualify for a VA loan?
You can add a co-borrower but the person must also live in the home. Lenders will also use the credit score for the borrower who has the lowest credit. So, adding a co-borrower will not help with credit.
Can You Qualify Without a Credit Score?
Yes you can with a manual underwrite of your loan application. The underwriter will look into your utility bill history, rent payments, and other consistent financial obligations.
What VA Loan Options are Available if You Have Poor Credit?
VA Purchase Loans, the IRRRL (Interest Rate Reduction Refinance Loan, and the Cash-Out Refinance which Usually requires better credit and equity.
Related Articles
VA Loan Requirements – See what the standard loan requirements are for a VA loan
Veterans United Pros and Cons – See our full review of this popular VA lender
VA vs Conventional Loans – If you have the funds for a down payment, you may want to see the differences between a VA loan and conventional loan
Bad Credit Lenders – There are lenders who offer mortgage programs for people with bad credit even if it is not a VA loan
Department of Veterans Affairs Benefits Department