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While there is no minimum requirement, most lenders prefer a credit score of 620 or above.
A VA home loan is a mortgage backed by the Department of Veterans Affairs (VA) for service members, veterans, and their families. The purpose of VA loans is to help veterans purchase homes with lower interest rates and better terms. While VA loans are typically easier to get approval for than conventional loans, private lenders still have certain requirements you must meet. One of these requirements is typically a good credit score.
However, the demands and sacrifices of military service can make maintaining a strong credit score a challenge. Read on to learn how to get a VA loan with bad credit.
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The VA doesn’t set a minimum credit score requirement because the organization doesn’t provide home loans. However, the lenders that issue the loans will often have credit standards prospective borrowers must meet. VA lenders generally look for a minimum credit score of 620. For comparison, conventional lenders also typically require a 620 credit score.
This requirement is flexible, and some VA lenders may approve borrowers with scores as low as 580.
Since there isn’t a minimum credit score requirement, other factors may help you secure a loan—even if your credit score is less than stellar. Known as compensating factors, these are financial strengths that counteract weaknesses in your application. According to the VA, compensating factors include the following:
In addition to your credit score, lenders typically have other financial requirements that help them determine if a borrower can qualify for a loan. Here’s an overview:
These requirements are set by lenders, not the VA, so they may be flexible.
You can still qualify for a VA loan even after filing for bankruptcy or foreclosure, though you may be subject to a waiting period before you’re eligible. Here’s an overview of how to get a loan after foreclosure or bankruptcy.
To qualify for a VA loan, you must meet the eligibility requirements from the Department of Veterans Affairs (VA). Below are the minimum active-duty requirements:
Note that those who have been dishonorably discharged are not eligible for VA loans. Check out the VA’s eligibility requirements for more information or to see if you qualify. If you meet the requirements, you can request a Certificate of Eligibility (COE) from the VA.
VA loans provide many benefits you would not get with other loan types. These advantages include:
There are different VA loan types to consider depending on your needs. Here’s an overview of each option to help you decide which loan type is right.
You can use a VA purchase loan to improve, buy, or build a home. While no down payment is required, putting money up front might help your chances of approval if you have low credit. Keep in mind that poor credit will likely result in a higher interest rate.
The Native American Direct Loan (NADL) is available to Native American veterans or non-Native American veterans who have a Native American spouse. You can use these loans to improve, buy, or build a home on federal trust land.
An interest rate reduction refinance loan (IRRRL) allows you to refinance your existing loan to get a lower interest rate and, therefore, reduce your monthly payments. This is a good option for borrowers with low credit scores since it doesn’t require a credit check. Instead, lenders will look at the payment history for your existing loan to determine approval.
A VA cash-out refinance loan allows you to tap into your home’s equity to receive cash. Most lenders require a 620 score or above to qualify. You may need to pay a VA funding fee on a refinance.
Even with a credit score under 620, eligible veterans can still get a VA loan. With a little time and dedication, you can improve your credit and put your VA benefits to use. Below are a few steps you can take to begin raising your credit:
By checking your credit score, you can gauge your chances of getting approved for a VA loan. Get your free credit score today to see where you stand.
December 13, 2023
Mortgages