How To Get A VA Loan If You Have Bad Credit

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How To Get A VA Loan If You Have Bad Credit

If you have bad or poor credit, it doesn’t automatically disqualify you from using the VA benefit to be a homeowner.

Today we will discuss options using which you can obtain VA loans even if you have poor credit scores.

Is it possible to obtain a VA Loan with bad credit?

Bad credit does make securing a efficient VA home loan difficult, however, it doesn’t mean it’s impossible. While considering your eligibility, lenders also review your assets, debts, income, payment history, and employment history. Your credit score does matter, but it isn’t the only deciding factor.

What are the VA’s Credit Score Requirements?

No minimum credit score has been advised by the Department of Veterans Affairs (VA). However, the VA isn’t a lender. It just backs the loan in case the home buyer defaults later.

VA lenders mostly prefer a minimum of 620 FICO score, but the cutoff varies by the lender, the loan type, and other factors.

You can get a loan even if your credit score is less than 620, but you might need to pay a higher interest rate.

Credit Ranges for a VA Mortgage

FICO credit score ranges from 300 to 850. The ideal loan eligibility benchmark is 620. 

These scores are categorized into different ranges (Excellent, Good, Fair, and Subprime) with some distinction in credit score categorization based on lender preferences.

  • Excellent credit – Anything between 720 to 750 is considered an excellent credit score.
  • Good credit is usually in the low 700s range
  • Fair credit is ordinarily around mid to upper 600s.
  • Subprime credit is below 620.

Veterans and military members who have “Fair” credit may be eligible for a VA loan.

Important Tip: It’s vital to know that lenders often see varying credit scores than what consumers see. Mortgage lenders have access to industry-specific scores. Consumers on the other hand use credit-monitoring tools which reflects a basic educational score.

It’s advised to closely examine your credit reports before you begin your home buying journey. 

What Happens if You’ve had a Previous Bankruptcy or Foreclosure?

Bankruptcy and foreclosure are adverse factors on a VA loan file, but even if you have encountered one of these processes, you may still pass for a VA loan – even with the result being poor or bad credit.

There are two basic conditions:

  1. In cases where Chapter 13 bankruptcy has been filed, a service member or a veteran is required by the VA to have given on-time payments towards that bankruptcy for at least 12 months before they can apply for a VA home loan.
  2. In the case of Chapter 7 bankruptcies and foreclosures, service members and veterans will need to wait for two years following the bankruptcy’s release or the foreclosure. The wait can be extended if the default occurred on an FHA loan.

Remember, too, that your credit score can take a hit after negative events like bankruptcy or foreclosure. Sometimes it takes years to fully recover.

Even if you’re beyond those bankruptcy and foreclosure waiting periods, you would still need to fit a lender’s credit score benchmark to move forward with a VA loan.

Check your VA Loan eligibility for a $0 Down Loan

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