Securing a VA loan with bad credit isn't impossible, but it is common for many lenders to have a more stringent credit requirements.
Veterans and service members can have what's considered poor or bad credit and still ultimately land a VA loan. What's important to understand is that the VA doesn't set credit score requirements. In fact, the VA doesn't mandate a minimum credit score at all.
But the VA also doesn't make these loans. They're made by banks and lenders like Veterans United, which will almost always have a credit score minimum that buyers need in order to qualify.
The short answer is: Yes, you might be able to get a VA loan even if you have bad credit. But what exactly does "bad credit" mean?
The first issue is tackling unclear phrases like "bad", "poor" or "less than perfect." We use that kind of language because it can be so tough to discern what constitutes "good" credit, or at least a credit score that can get prospective buyers closer to the dream of homeownership.
Credit scoring firm FICO defines "Fair" credit as scores from 669 to 580, with anything below designated as "Poor" credit. But one lender's definition of bad or subprime credit can be very different than another's.
The reality is there isn't one credit score or credit scoring model. The same is true for mortgage lenders and their credit score minimum's.
Across the spectrum of VA lending, a 620 FICO score is a common credit score minimum. But that benchmark can be higher or lower depending on the lender, the economic environment, how much you're hoping to borrow and more.
Some VA lenders might be fine with a 580 FICO score. Others will want to see something higher.
The key is understanding this isn't a one-score-fits-all kind of thing. Veterans without great credit might still be able to buy with a VA loan. But it can take some homework and digging to find a lender that can work with your credit profile. And also some patience if you're ultimately unable to move forward in the short term.
Veterans United has a 620 FICO score minimum in most cases. Veterans who aren't quite ready score-wise can work with one of our credit consultants to develop a plan to boost their credit and get on the path to loan preapproval. This is a complimentary, no-obligation service. Our credit consultants have helped tens of thousands of Veterans strengthen their finances and go on to close on a home.
Veterans who've experienced a bankruptcy, foreclosure or short sale might face unique homebuying challenges beyond the hit to their credit score (which can be substantial).
These negative credit events usually come with required waiting periods, also known as seasoning periods, during which the Veteran will likely be unable to close on a home loan. The length of these waiting periods can vary depending on the event (bankruptcy, foreclosure, short sale) and the type of loan you're hoping to get.
Generally, the waiting periods for VA loans are shorter than the ones for conventional mortgages. But much like credit score minimums, guidelines on seasoning periods can vary by lender.
Broadly, though, one of the benefits of VA loans is that they allow Veterans to bounce back faster into homeownership after one or more of these big credit hits.
In today's lending climate, a 620 FICO score is a common cutoff among some VA lenders. If your spouse will be obligated on the loan, he or she will need to hit the same benchmark.
While it isn't exactly novel (or always easy), one of the best ways to improve your credit score is simply to pay your bills on time. Your payment history is the single biggest factor (35%) in creating your credit score, according to FICO. The second-biggest factor is how much you owe (30%), so strive to keep your credit balances at or below 30% of your total credit limit.
For example, if you have a $1,000 credit limit, aim to keep your balance at or below $300.
Credit monitoring software can help you identify errors on your report and keep closer tabs on your basic scores. Just know that the scores you see from apps and tools are different than the ones mortgage lenders use. Their scores are weighted specifically for mortgage lending.
You can also get free copies of your credit report from AnnualCreditReport.com.
One thing to be leery of is paying for credit repair. Veterans and service members can find plenty of resources and credit education online.
Your credit score can have an impact on the interest rate that lenders quote. Generally, though, the impact of credit scores on rate is more pronounced with conventional mortgages than with VA loans. Like credit score minimums, rates will differ among lenders.
Some lenders might market themselves as options for "bad credit" loans or "VA lenders for bad credit." Take a closer look at costs, fees and the fine print in these cases. Veterans might wind up paying more -- maybe a lot more -- in some cases. Whether that's worth the ability to move forward today versus waiting to build your credit is up to the individual. Veterans United's credit consulting team can help Veterans work on building their credit.
Generally, yes, this may be possible. Credit score minimums will vary by lender and other factors.
This depends on what kind of shape you're credit is in, what kinds of negative events are impacting your score and other factors. Some Veterans who work with our credit consulting team get their score within qualifying range within a matter of weeks. For others, it might take a few months. We've even worked with some Veterans for years to build up their credit.
VA loans allow Veterans to have a co-borrower on the loan. Here we break down co-borrower requirements and provide common scenarios around co-borrowing and joint VA loans.
Your Certificate of Eligibility (COE) verifies you meet the military service requirements for a VA loan. However, not everyone knows there are multiple ways to obtain your COE – some easier than others.