Can You Get a VA Loan with Bad Credit?
Military borrowers can qualify for a VA loan with bad credit. The U.S. Department of Veterans Affairs (VA) doesn’t set a minimum credit score requirement, meaning it’s up to your chosen lender. Learn more about getting a VA loan — even if your credit isn’t in tip-top shape.
Key takeaways
- Minimum credit score requirements vary by VA lender.
- You may qualify for a VA loan even if you’ve had a previous bankruptcy or foreclosure.
- Having a sizable down payment and low outstanding debt may help boost your approval odds.
Is it possible to get a VA loan with bad credit?
Yes, you can get a VA home loan with bad credit. The VA itself doesn’t set a minimum credit score, so credit requirements are set by each lender.
The VA recognizes that service members face financial challenges that civilians don’t, so most VA loan requirements are fairly flexible. However, the VA does insist that lenders scrutinize the last 12 months of payment history listed on your credit report.
What is the minimum credit score for a VA loan?
Many lenders set a 620 minimum, but if your score is in the 500s, don’t despair — you can shop around for a lender that’s willing to meet you where you are.
Rocket Mortgage, LendingTree’s pick for the best overall VA lender, accepts scores as low as 580. But of all the VA loan lenders we reviewed, the one willing to go the lowest was Carrington Mortgage Services, which only requires a 500 credit score.
Interested in more VA mortgage lender reviews? View all of our top picks for the best VA mortgage lenders.
Can you get a VA loan with no credit?
Yes. Many veterans returning from deployment don’t have enough payment history for a traditional credit score. In those cases, VA lenders can use rent, utility, car insurance and other payment histories to make an approval decision. In fact, VA underwriters consider your housing payment history to be one of the best indicators of whether you’ll be responsible with a new mortgage.
How a VA home loan for bad credit stacks up against other programs
The table below compares VA credit standards with other popular home loan programs including conventional loans, FHA loans (insured by the Federal Housing Administration) and USDA loans (guaranteed by the U.S. Department of Agriculture).
| Loan type | Minimum credit score | Waiting period after Chapter 7 bankruptcy | Waiting period after foreclosure |
|---|---|---|---|
| VA | No minimum score requirement | 2 years | 2 years |
| FHA |
| 2 years | 3 years |
| Conventional | 620 | 4 years | 7 years |
| USDA | 640 | 3 years | 3 years |
Getting a VA loan after bankruptcy or foreclosure
After bankruptcy or foreclosure, most lenders enforce a waiting period before you can get another loan. This is also true for VA loans, but the mandatory waiting periods can be far shorter than you’ll find with most other loan programs.
Getting a VA loan after bankruptcy:
- Two-year waiting period after a Chapter 7 bankruptcy. The VA is sensitive to service-related issues that may lead to bankruptcy filings. Military borrowers have to wait just two years after their bankruptcy discharge date to apply for a new VA loan (compared with four years for a conventional loan).
- 12 months of payments after a Chapter 13 bankruptcy. VA borrowers who’ve made 12 on-time monthly payments as part of a Chapter 13 bankruptcy or credit counseling program may qualify for a new VA loan.
Getting a VA loan after foreclosure:
- Two-year waiting period after a foreclosure. Military borrowers who lost a home to foreclosure are eligible for a VA loan two years after the foreclosure is finalized.
- VA foreclosure flexibility. VA borrowers can take out a new VA loan, even with a foreclosed VA loan on their certificate of eligibility (COE). If you have enough VA loan entitlement remaining, you may be able to buy a new home with no down payment.
VA loans and outstanding federal debts
You may have a hard time getting approved for a VA mortgage if you have outstanding federal debts. For instance, VA, FHA or USDA loans or federal student loans.
When you apply for a VA loan, lenders use the Credit Alert Interactive Verification Reporting System (CAIVRS) to check whether you’ve ever defaulted on federal debt in the past. CAIVRS will also show if you’ve failed to pay child support or other court-ordered payments. These types of debt often won’t show up on a credit report, which is why the VA requires a CAIVRS check.
However, even if your CAIVRS history isn’t clear, you aren’t automatically disqualified. VA lenders can make an exception if a delinquent account has been brought current, or you’ve made on-time payments as part of a repayment arrangement.
Key VA loan requirements: Which are flexible?
- Credit score: No set minimum FlexibleAs we covered above, VA loans have built-in flexibility that allows you to compensate for factors like a lower credit score, no credit score, bankruptcy or foreclosure with alternative documentation or compensating factors. You may qualify for a VA home loan with bad credit if you have enough extra room in your budget each month.
- Debt-to-income ratio: 41% maximum FlexibleYour debt-to-income (DTI) ratio expresses what percentage of your gross monthly income goes toward debts, including the home loan you’re applying for. If your DTI ratio exceeds 41%, you can still get a VA loan as long as:
- Your DTI ratio is high because you have significant tax-free income.
- You can compensate for a high DTI with around 20% more residual income than is normally required.
- Residual income: Required FlexibleThe VA uses a metric it calls residual income to assess how much free cash you have each month after subtracting your monthly expenses, including home maintenance. Residual income requirements are based on your location and family size. If you can’t meet the required residual income minimum, you might be able to work around this by:
- Getting a family member excluded from your residual income calculation.
- Proving that you receive significant benefits based on your military service status.
When VA loan requirements may be flexible
The VA encourages lenders to evaluate each borrower’s situation individually, which means most VA loan requirements are flexible.
One way you can help your case is by presenting what are called compensating factors. These are strong aspects of your financial situation that help counterbalance any weak points in your application and include:
- Excellent credit history
- Conservative use of consumer credit
- Minimal consumer debt
- Long-term employment
- Significant liquid assets
- Sizable down payment
- High residual income
- Low DTI ratio
- Holding home equity (for refinance loans)
- Little or no increase in housing-related expenses over time
- Receipt of military benefits
- Receipt of child care tax credits
- Receipt of homeownership tax benefits
When VA loan requirements aren’t flexible: VA closing costs and bad credit
Imagine your credit score and your mortgage interest rate sitting on either end of a seesaw: as your credit score goes down, your interest rate goes up. In cases where a borrower needs a way to push down their rate a little, they may opt to buy mortgage points.
And, if you have a low credit score or high DTI ratio, some lenders may only be willing to make you a loan offer that includes discount points.
However, this can present special problems when you’re applying for a VA loan and you have bad credit. Here’s why:
→ Lender closing costs are capped at 1% of your loan amount. The VA sets a 1% limit on total lender fees and the cost of points can push you over the limit. If a lender isn’t willing to make you a loan offer with fewer points, you may not qualify for VA financing.
→ VA refinance loans require you to break even on closing costs within three years. When you’re applying for a VA refinance, your lender must prove you’ll reach your break-even point (i.e. recoup your closing costs) within 36 months. If your break-even point takes longer than three years because your lender requires discount points, you may not be eligible for a VA refinance.
How to improve your credit score for a VA loan
One of the best ways to improve your credit score — and boost your chances of VA loan approval — is to follow the five credit factors as closely as possible. By understanding and being mindful of these factors, you can take steps toward building better credit. The five factors include:
- Payment history (35%): Paying your bills on time has the biggest impact on your credit score, and missing even one credit card or loan payment can significantly drop your score.
- Amounts owed (30%): Also known as your credit utilization ratio, this is the amount you owe compared to your overall credit limit.
- Length of credit history (15%): How long you’ve had an established credit profile also impacts your score. When you open a new credit card or loan, it shortens your overall credit history and may ding your score.
- New credit (10%): It’s best to limit the amount of new credit you apply for at once — multiple hard inquiries can drop your score.
- Credit mix (10%): While not a major factor, credit mix, or having a variety of account types, can show lenders you can manage different types of credit responsibly.
It’s important to monitor your credit to quickly catch any errors or fraudulent activity. This can keep your score safe from unnecessary harm.
Don’t know your credit score? Check your credit score for free on LendingTree Spring today.
Types of VA loans you can get with bad credit
VA purchase loans
VA borrowers buying a house with bad credit may be eligible for no down payment and no mortgage insurance. If you have low credit scores, lenders will pay close attention to how you’ve paid your rent and other bills over the past 12 months.
VA cash-out refinance loans
Homeowners can use a VA cash-out refinance loan to convert their home equity into cash for home improvements, debt consolidation or any other purpose.
VA interest rate reduction refinance loans (IRRRLs)
Borrowers with a current VA loan whose mortgage is not more than 30 days past-due are eligible for a VA IRRRL and won’t have to submit any credit information. But, even if you were 30 days (or more) late on a recent mortgage payment, your lender may still approve an IRRRL by submitting your loan directly to the VA for approval. You’re not required to get a home appraisal or provide income documentation, and can also roll your closing costs into the loan amount.
Frequently asked questions
It’s difficult to know how fast you can raise your credit score since it depends on your overall credit history. It’s possible to see positive changes 30 to 45 days after you’ve taken steps to improve your score, according to Equifax.
It’s possible to get a VA loan with a 500 credit score, but it can be more challenging. The VA doesn’t set a minimum credit score, so the requirements vary by lender. Some VA lenders may approve you for a loan with a score as low as 500, especially if other aspects of your finances are strong, such as your employment history and liquid assets.
Having bad credit can affect your VA loan rate. Borrowers with low credit scores typically receive higher mortgage rates, since lenders view them as a higher risk than borrowers with good credit scores.