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 loan benefit to become a homeowner. Technically speaking, there is no such thing as specific VA loans for bad credit, but you may be able to find a participating 

 What options for VA loans exist even if you have poor credit scores?

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

Bad credit and “thin credit” (a lack of credit history)  can make home loan approval difficult, whether you need a VA purchase loan or a mortgage with an Energy Efficient Mortgage option.   Your participating VA lender will 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?

The Department of Veterans Affairs does not list a minimum FICO score requirement–that is left to the participating VA lender. The VA does not issue home loans, with one exception–The VA is a direct lender for its’ Native American Direct Loan program, which is limited to those purchasing homes as a Native American Veteran or a non–Native American Veteran married to a Native American. Minimum credit score requirements among VA lenders will vary, which is why it’s a good idea to shop around for a participating lender. You may find that in general, lenders require a minimum of 620 FICO score for the most competitive interest rates and terms, but the cutoff varies by the lender, loan type, and other factors.

A VA mortgage is possible with FICO scores below 620 but your loan will likely be more expensive.credit score is less than 620, but you might need to pay a higher interest rate. Remember, a bad credit VA loan represents an elevated risk to the lender and you may be charged more for that risk.

Credit Ranges for a VA Mortgage

FICO credit score ranges from 300 to 850. The credit reporting agency Experian lists that range in ranked order as follows:

  • Exceptional Credit: FICO scores between 800 and 850
  • Very Good credit – FICO scores between 740 to 799.
  • Good credit is 760 to 739s range
  • Fair credit is between FICO scores 580 and 669 to upper 600s.
  • Poor credit is 300 to 579.

Important Tip: It’s vital to know that mortgage lenders have access to industry-specific scores. Consumers on the other hand use credit-monitoring tools that may not reflect the same information your loan officer sees. 

Low Credit Scores? Start Working On Your Credit Early

If you worry about low credit scores affecting your ability to qualify for a VA mortgage there are steps you can take–we recommend taking these steps at least 12 months in advance (as early as possible is best): this can help reduce your need for home loans for veterans with bad credit and potentially raise your FICO score:

  • Sign up for a credit monitoring service and begin checking your credit on a regular basis.
  • Establish a 12-month or better record of on-time payments on all financial obligations. Your lender will be looking for this.
  • Reduce your credit card balances to well below 50% (30% of your credit limit is ideal).
  • Avoid applying for new credit in the months leading up to your loan application.

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

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Bankruptcy and foreclosure can complicate the home loan approval process, VA loan file, or otherwise VA loan file, but even if you have filed for bankruptcy or have experienced foreclosure it may still be possible to be approved for a VA loan. 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 made on-time payments towards that bankruptcy for at least 12 months before they can apply for a VA home loan. Permission from the Trustee or the Bankruptcy Judge may also be required.
  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 may be extended if the default occurred on an FHA loan.

VA loan rules for foreclosure include the following in the VA Lender’s Handbook:

“​​You may disregard a foreclosure finalized more than 2 years from the date of closing. If the foreclosure was finalized within the last 1 to 2 years from the date of closing, it is probably not possible to determine that the borrower(s) is a satisfactory credit risk” unless certain requirements are met such as the borrower reestablishing good credit since the foreclosure. Loan applications that involve a foreclosure or bankruptcy will be handled on a case-by-case basis.

Remember, too, that your credit score can take a hit after negative events like bankruptcy or foreclosure. Even if you’re beyond those bankruptcy and foreclosure waiting periods, you would still need to fit a lender’s credit score requirements to move forward with a VA loan with bad credit..

Don’t forget that you will need to establish your basic eligibility for a VA home loan with your VA Certificate of Eligibility. Check your VA Loan eligibility for a $0 Down Loan

1 Comment
  • Francisco
    Posted at 00:42h, 15 February Reply

    This post was inspired by VA Loans Insider reader Mary Ann Parker, who asked about securing a VA loan with bad credit. In fact, one of the most common questions we receive is, “Can I get a VA loan with bad credit?”

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