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- The Department of Veterans Affairs does not set a minimum credit score for VA loans, but lenders generally do.
- Rocket Mortgage, New American Funding, and Carrington Mortgage Services are a few VA lenders that accept lower scores.
- The VA disability award can be increased, potentially improving your chances of approval even if you have a lower score.
VA loans have many benefits, especially for those with a service-related disability. Veterans with disabilities can receive a mortgage with a 0% down payment and a low interest rate, as well as home improvement grants to make their home more accessible. Veterans who receive or are eligible to receive VA disability compensation are also exempt from paying VA funding fees.
VA loan borrowers must meet the minimum service requirements set by the VA, as well as the minimum credit requirements set by their lender. If you have a bad credit rating, it can make it harder to get a mortgage. But it is not necessarily impossible.
Can I get a VA loan with bad credit?
It’s possible to get a VA loan even if your credit isn’t great, but you may have a harder time finding a lender willing to work with you.
The Department of Veterans Affairs does not set a minimum credit score for the loans it guarantees, but individual mortgage lenders are allowed to set their own standards, and many require credit scores of at least 620 for VA loans. .
But there are also plenty of lenders who accept borrowers with lower scores – sometimes even as low as 500. There are also lenders who will work with borrowers who have recently gone bankrupt or foreclosed, and those who will work with borrowers who have no credit score at all. You will just need to do some additional research to find the right lender for you.
“VA loans have some of the lowest interest rates of any loan program on the market, even with low FICO,” says Ben Davis, loan manager for Northstar Mortgage in the Pacific Northwest. “I’ve had clients with a lot of derogatory credit, who were still able to qualify for a home.”
VA lenders who accept low credit scores
When preparing to apply for a mortgage, look for lenders who have minimum credit score requirements or who are willing to work with borrowers who have difficult credit histories. Some may be willing to look at non-traditional credit like your rent payment history or consider explanations for a poor score, like temporarily losing your source of income or having to pay a large medical debt.
Many lenders disclose their minimum credit requirements online. If you’re unsure of a lender’s requirements, you can usually call and speak to a loan officer or even connect with someone via chat on the lender’s website.
A few of our favorite lenders that accept lower scores on their VA loans include Rocket Mortgage, which allows scores up to 580, New American Funding, which also has a minimum of 580, and Carrington Mortgage Services, which will approve borrowers. with scores as low as 500 on his VA loans.
Movement Mortgage is another solid choice that requires a score of 580, and Freedom Mortgage will go down to 550.
Veterans United, our top choice of VA lender, has a 620 minimum, but it offers free credit counseling for borrowers who don’t yet meet its requirements.
If you currently have no credit score, you may be able to use non-traditional credit from some lenders to prove your creditworthiness. Guild Mortgage, for example, will allow you to use your rent, utility, or car insurance payment history to build a credit profile.
When shopping for the right lender, keep track of lenders with lower or more flexible credit requirements. When you’re ready, apply for pre-approval with three or four lenders you think might be willing to work with you. This way, you can compare what each lender offers in terms of rates, fees, customer service, and additional perks like fast closing times or digital document upload capabilities.
If you’re having trouble finding a lender that accepts a low score, you might want to consider working with a mortgage broker, who will do the shopping for you.
“Mortgage brokers, unlike mortgage banks, tend to have the largest selection of lenders and will generally be able to sift through those lenders to find those that are the most flexible,” Davis said.
How to Increase Your Chances of Getting Approved for a VA Loan
If you can, improving your credit and other areas of your application can increase your chances of approval and even help you get a better interest rate.
When considering a mortgage applicant, lenders look at their credit score, income, debts and savings. If one part of that financial picture is a little weaker, strengthening the other parts can help you appear more creditworthy to the lender.
Paying off debt will help lower your debt-to-equity ratio, which is one of the key factors lenders consider when reviewing a borrower’s financial situation. Your DTI tells the lender how much you can afford to spend each month on your debts and other financial obligations compared to your income. If you can afford to pay off or pay off a credit card, for example, it may give you more room in your budget to take on a monthly mortgage payment.
Lowering your credit card balances will also lower your credit utilization rate, which can increase your credit score.
Although VA loans do not require a down payment, bringing some of your own money into the transaction can also increase your chances of approval, as you will be considered less risky in the eyes of the lender.
If you are receiving disability compensation from the VA, make sure your lender knows about it. Disability income can be used to qualify for a mortgage. Also, because this income is not taxed, lenders can “gross up” disability income by 25%, which means it considers your income to be 25% higher than what you actually receive, because you don’t pay tax on it. This can make it easier for you to qualify for a mortgage.
The better your overall credit profile, the more likely you are to be approved, and at a lower rate. But even if you are approved with a relatively high rate, VA loans have an advantage that makes it extremely easy to refinance at a lower rate. This type of refinance is called an interest rate reduction refinance loan (IRRRL).
“The VA offers one of the easiest and fastest streamlined refinances on the market,” Davis said. “This allows veterans to improve their interest rate with very little paperwork if their credit score improves significantly or if rates in general go down.”
Alternatives to a VA Loan
If you can’t find a lender who will qualify you for a VA loan, you may still have other options for getting into a home.
FHA loans are for borrowers with weak credit and generally require a minimum score of 580. If you can deposit at least 10%, you may be able to get an FHA loan with a score as low as 500. But if your score is at least 580, you can deposit as little as 3.5%.
If you are dealing with a local credit union, you may also want to see if they would be willing to work with you. Sometimes credit unions can provide flexibility that regular banks cannot.
Getting a mortgage with bad credit can be difficult, but many lenders are willing to work with those with lower scores. If you’re still having trouble qualifying, take the time to work on building a strong credit history by making payments on time and keeping your usage low before reapplying.
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