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Having bad or less than perfect credit doesn’t automatically disqualify you from utilizing your hard-earned VA benefits to become a homeowner.
Here we discuss what lenders typically require and how that affects your loan chances. We’ll also take a look at topics like:
While bad credit can make the process of securing a VA home loan more difficult, it doesn’t mean it’s impossible. Beyond credit score, lenders typically review things like payment history, assets, debts, income and employment history – meaning credit score isn’t the only factor.
The Department of Veterans Affairs (VA) doesn’t set a minimum credit score requirement on the VA loan. However, the VA isn’t actually lending the money; only backing the mortgage if the homebuyer later defaults.
Because of this, many VA lenders want to see at least a 640 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 640, but you might encounter less favorable interest rates.
| Loan Type | Minimum Credit Score | Minimum Down Payment |
|---|---|---|
| VA Loan | No minimum though most lenders require a 640 | $0 |
| FHA Loan (with 10% down) | 500 | 10% |
| FHA Loan (with 3.5% down) | 580 | 3.5% |
| USDA | 640 for automated underwriting | $0 |
| Conventional | Varies, though mid-700s is typically preferred | Typically 5% |
It’s important to put that common 640 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.
That means veterans and military members with just “Fair” credit may still be able to get a VA loan.
Important Tip: 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 home buying 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.
Bankruptcy and foreclosure are negative factors on a VA loan file, but even if you have undergone one of these processes, you may still qualify for a VA loan - even with the result being bad or poor credit.
There are two typical situations:
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.
