How To Get a VA Home Loan With Bad Credit

By Bill Lyons | Published on September 15, 2022

Wondering if you can get a VA home loan with bad credit? The answer is Yes.

The VA can even guarantee mortgages for borrowers who have been through bankruptcy, foreclosure, and other credit blemishes. In this article, we will tell you what to expect and what to do to get a VA home loan approved with bad credit.

What is a VA home loan?

A VA—or Veterans Affairs—home loan is a loan from a private lender to a servicemember, veteran, or eligible surviving spouse. What sets these loans apart from others, besides the eligibility requirements, is that the Department of Veterans Affairs guarantees part of the loan. Because of this action, lenders are able to give more favorable terms to applicants.

Benefits of a VA home loan vs. conventional loan

A VA-backed purchase loan offers significant advantages over a traditional mortgage loan.

To start, you usually won’t have to make a down payment. The only exceptions to this rule occur when the appraised value of your new home is less than the amount you need to borrow, or you have a very high loan amount.

You’ll get a better interest rate than you can get at most banks, credit unions, and private mortgage lenders. This means lower monthly payments or the possibility of paying off your loan in just 15 years with a payment you can afford.

You will be able to borrow up to the Fannie Mae or Freddie Mac conforming limit for your new home even if you don’t make a down payment—and you will be able to borrow more than the Fannie Mae or Freddie Mac limit in some high-cost counties. In 2024 most of the US, you can borrow up to $766,550 for a new home. But in some places, you can borrow up to $1,149,825 for a single-family home. Jumbo VA loans are available for loan amounts over the county limits but they could in some cases require a small down payment.

You won’t need to get private mortgage insurance (PMI), and you won’t need to pay mortgage insurance premiums. Lenders sometimes require mortgage insurance when they offer mortgages with low down payments, less than 20% of the value of the loan. This is to make sure they get their money back if you default on the loan. But since the VA loan program ensures the loan will be paid back, you don’t need to shell out additional money for PMI. Similarly, the VA loan program takes care of MIP (mortgage insurance program) fees required for FHA loans.

You will have lower closing costs, which may be paid by the seller. And you won’t face any penalty if you decide to pay off your mortgage early.

Who can qualify for a VA home loan?

The qualifications for a VA home loan vary based on your service. You may qualify for a VA home loan if you meet the minimum service requirements and you did not get a dishonorable discharge. Or, if you are currently serving in the military, you meet the minimum service requirement if you have 90 days of continuous service without a break.

If you are an honorably discharged veteran, your eligibility depends on when you served.

If you served between 2 August 1990 and now (that is, if you were a vet during the first Gulf War or at any time since then), your requirements are:

• 24 months of continuous service;
• the full period you were called to active duty, which must have been at least 90 days;
• at least 90 days if you were discharged on account of hardship or a reduction in force; or
• less than 90 days if the reason for your discharge was a service-related disability.

If you were in any branch of the armed services between 8 September 1980 and 1 August 1990, your requirements are:

• 24 months of continuous duty;
• the full period for which you were called to active duty (at least 181 days);
• at least 181 days if you were discharged for a hardship or due to a reduction in force; or
• less than 181 days if you were discharged because of a service-related disability.

If you were in the National Guard, and you served at least 90 days on active duty since 2 August 1990, you meet the service requirement for a VA home loan. The same rules apply for service in the Reserves since 2 August 1990.

Generally speaking, if you served for at least 90 days during World War II, the Korean War, or the Vietnam War, you meet service qualifications for VA mortgage financing. Vets who served before 1980 at times other than during those three conflicts generally must have served at least 181 days. Any vet who was discharged because of a service-related disability, however, meets the service requirement.

There are also exceptions to the service requirement for military who got an “early out” or who were discharged for the convenience of the government and for vets who were honorably discharged because of certain medical conditions.

If you are ineligible because of a dishonorable discharge, it is still possible to apply for a discharge upgrade. If you suffer from PTSD or traumatic brain injury or you were the victim of a sexual assault, you may get your discharge reconsidered, or it may be possible to reclassify your discharge as “honorable for VA purposes.”

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What is the lowest credit score you can have to get a VA home loan?

Search VA forums and you will find posts asking “Can you get a VA home loan with a 550 credit score?” and “Can I get a VA home loan with a 530 credit score.”

There is no minimum score for getting a VA home loan.

However, it may be harder to find a lender (remember, the VA is guaranteeing the loan, not lending the money) if your credit score is under 620.

Let’s say you have a credit score of 550. Most lenders won’t make loans to you. But there will be a few who will. What will they be looking for?

• Improvement in your credit scores over the last two years.
• A perfect record of making your rent or existing mortgage payments on time and in full over the last 12 months.
• You have residual income large enough to cover your mortgage payment. Residual income is what’s left over after you pay all your other bills. High residual income helps to compensate for bad credit.

If the reason you have bad credit is a Chapter 7 bankruptcy, there is good news for you. Conventional lenders will make you wait four years after filing Chapter 7 to apply for a new home loan. With VA mortgage financing, the wait is just two years. If you filed Chapter 13, you only need to show 12 months of timely payments.

Lost a home in foreclosure? You can use the rest of your VA entitlement (the lifetime total the VA will pay out if you default on your mortgages) to buy a new home after two years. And if you don’t have a credit score because you don’t have a credit history, some lenders will look at rent and auto payments and how you handle other bills.

VA home loan FAQs

If you want a VA home loan, how do you apply?

You will need three things to prove that you are eligible for a VA home loan. First, you will need your Certificate of Eligibility. Most lenders will be able to pull it off a VA database, WebLGY.

Then, you will need proof of income. Most lenders will want to see copies of all of your bank and investment account statements.

Finally, you will need to pass a Credit Alert Verification Reporting System (also known as CAIVRS) check. This confirms that you have not defaulted on any government-guaranteed debt in the past. CAIVRS looks at student loans, FHA mortgages, and other direct loans from the federal government. Your lender has access to this report from the FHA.

Where can I find current VA home loan rates?

There are numerous online resources for tracking current VA home loan rates. You will find different rates for different percentage down payment as well as for 15- and 30-year mortgages.

What is a VA streamline refinance loan?

A VA streamline refinance loan, also known as an IRRRL, is a way to refinance your mortgage so you will have lower monthly payments. Usually this involves refinancing your mortgage at a lower rate made possible by improvements in your credit history and credit score.

What kinds of properties can you buy with a VA home loan?

Vets can use VA financing to buy single-family homes, duplexes, triplexes, fourplexes, existing construction, new construction, mobile homes, manufactured homes, stick built homes, and condos. Vets can’t use VA loans to buy vacant land unless it is for a new home they plan to have built right away; farms unless it is for the house sitting on the land; second homes; vacation homes; co-ops; or properties outside the United States. VA home loans cannot be used for business purposes.

What’s the catch with VA home loans?

Closings are can be more complicated and slower when you buy a property with a VA loan. Some sellers don’t understand how the closing costs work. You will have less equity in your home at first, but that is only because you don’t (in most cases) have a down payment.

What can you do if you are turned down for a VA home loan?

You may need to work on your credit before you apply again, but often all you need is a second opinion to get your VA-backed home loan approved. Don’t let one denial derail your dreams of home ownership.

Griffin Funding can help you understand your options. Call (855) 394-8288 to speak with a loan officer today.

Bill Lyons

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.