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How to Get a VA Loan with Bad Credit

So you’re eligible for a VA home loan, but are concerned that bad credit can keep you from achieving your goal of homeownership?

While bad credit can make the process of securing a VA home loan more difficult, it doesn’t make it impossible.

Let’s take a closer look at how your credit might impact your ability to land a VA loan.

What is Considered Bad Credit with a VA Loan?

One of the first big considerations is: What exactly is bad credit? The answer depends in part on the lender you’re working with.

The VA doesn’t have a certain credit score requirement in order to qualify for their government-backed loan program. But the VA doesn’t actually make these loans, and the lenders that do typically have a minimum credit score requirement.

Many VA lenders want to see at least a 620 FICO score, but the cutoff can vary by the lender, the loan type and other factors.

You may find a lender willing to process your VA loan even if your credit score is less than 620, but you might encounter less favorable interest rates.

Credit Ranges

It’s important to put that common 620 benchmark in perspective. The FICO credit score is used by most mortgage lenders and runs from 300 and 850.

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

Excellent credit according to some financial institutions can be anything over 720, while others consider a credit score over 750 to be excellent.

Good credit is generally in the low 700s range, and fair credit is usually considered to be in the mid to upper 600s. Credit scores below 620 are usually considered subprime.

That means veterans and military members with just “Fair” credit may still be able to get a VA loan.

Last, it’s important to know that lenders often see different credit scores than what consumers see. Mortgage lenders get industry-specific scores, while consumers who use credit-monitoring tools usually see a more basic educational score.

It’s a good idea to closely review your credit reports before even starting the homebuying journey. You can do so for free at AnnualCreditReport.com. You won’t be able to see your mortgage credit scores, but you can look for mistakes or other errors on your reports that could be hurting your scores.

Bad Credit Due to Bankruptcy and Foreclosure

Bankruptcy and foreclosure are negative factors on a VA loan file, but even if you have undergone one of these processes, you can still qualify for a VA loan.

In cases where Chapter 13 bankruptcy has been filed, a veteran or service member is required by the VA to have made on-time payments towards that bankruptcy for a minimum of 12 months before they can be considered for a VA home loan.

When it comes to Chapter 7 bankruptcies and foreclosures, veterans and service members will typically need to wait two years following the bankruptcy’s discharge or the foreclosure. The wait can be longer 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 can take years to recover fully.

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

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