By Bill Lyons | Published on March 29, 2023
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    The United States Department of Veterans Affairs provides a valuable home loan benefit to current service members, veterans, and eligible surviving spouses. VA loans are often easier to secure because the approval criteria and lending qualifications tend to be less restrictive than other available types of mortgage loans.

    The VA offers, through a network of approved private lenders, guarantees on mortgage loans that create a number of valuable benefits for eligible borrowers. With a VA loan, borrowers don’t have to make a down payment or pay PMI and often qualify for good interest rates and loan terms. 

    While the Department of Veterans Affairs oversees the program and guarantees portions of the mortgage loan in the event of a default, the reality is that the lender and their VA-approved underwriter have the authority to make a final credit decision on any VA-based mortgage application.

    One of the most important things to consider before applying for a VA loan is your credit score. A high credit score can lead to a low interest rate, while a poor credit score can lead to higher interest rates or even the rejection of your application. Read on to learn what the minimum credit score is for a VA loan and explore other VA loan qualification requirements. 

    What Is the Minimum Credit Score You Need for a VA Loan?

    Because each mortgage lender approved by the VA has the authority to set a minimum VA loan credit score for its VA mortgages, the minimum credit score for VA loan options will vary.

    Griffin Funding’s minimum credit score for VA loan borrowers is generally 580. However, under certain circumstances, there may be instances where Griffin Funding accepts a minimum credit score for a VA loan as low as 500.

    Can You Qualify for a VA Home Loan With Bad Credit?

    As noted above, approved VA lenders have the authority to set their own credit score and underwriting benchmarks for VA mortgage loan approvals. In fact, because of this flexibility, eligible VA home loan borrowers can secure financing where there was once no other option. This is because the VA home financing program is designed to accommodate as many potential military buyers as possible.

    At the same time, if you’re eligible for VA financing and have a higher credit score, you will likely be eligible to secure a mortgage with improved rates and terms. When seeking specific financial guidance regarding VA home loans, it is best to speak with a mortgage specialist who can evaluate your loan scenario.

    How to Improve Your Credit Score for a VA Loan

    Your credit score is a numerical value that represents your creditworthiness—or, in other words, the likelihood that you will pay back your debts. Your credit score is calculated by analyzing a variety of factors, such as how often you pay back debts on time and how many lines of credit you have open.

    But, because the information on a credit report is updated regularly, your corresponding score will change, usually as a function of changing patterns over time. As a result, you should view your credit score as something that is dynamic or fluid, with the potential to change based on your behavior and finances.

    Before applying for a VA home loan—or any type of mortgage—you should try to get your credit score as high as possible. Raising your credit score may take time, but it’s worth it in the end. A higher credit score will allow you to access better VA loan rates, higher loan amounts, and more advantageous loan terms. 

    Consider these proven techniques to improve your credit score:

    • Any open credit line should be managed with caution. Try to keep balances below 30% of the credit line’s limit, as this optimizes what is known as your credit utilization rate.
    • Get in the habit of making payments when the payments are due.
    • Avoid agreeing to cosign a loan. While the sentiment of helping someone may be from the right place, you leave yourself vulnerable to the actions of someone other than yourself. You essentially relinquish control of your credit profile, which can negatively impact your future interest rates and credit opportunities.
    • Minimize the number of new credit accounts and related inquiries. Inquiries are hard credit checks done by third parties that temporarily reduce your credit score. If you are in the process of applying for a mortgage, wait until the mortgage closes to open a new line of credit. 
    • Be proactive in managing your financial world. Review your credit report annually. The Consumer Financial Protection Bureau encourages consumers to request their free credit report (from each of the three main bureaus) once per year or any time their credit report triggers a declination in a request for credit. Take the time to challenge and fix erroneous data that may be dragging down your score needlessly.

    As you prepare to apply for financing, try using the above methods to raise your credit score for a VA loan. A credit score of 740 and above can have a significant impact on the interest rate and loan terms you qualify for. 

    Who Qualifies for a VA Loan?

    There are a few requirements one needs to meet in order to qualify for a VA loan. Some of the main requirements are as follows:

    • A borrower must meet minimum service requirements for the VA loan program.
    • A borrower must live in the property as an owner-occupied property. Investment properties are not eligible.
    • A borrower must meet the VA-approved lender’s underwriting requirements.

    The Certificate of Eligibility (COE)

    Potential borrowers must obtain a Certificate Of Eligibility (COE) from the VA to qualify for a VA-backed loan. While there are several VA-backed loan eligibility requirements, the biggest hurdle is the minimum service requirement that must be met. To obtain a COE, you must meet the following service requirements: 

    • A borrower has completed a minimum of 90 days of active-duty service.
    • A borrower has at least six years of service in the Reserves or National Guard.
    • A borrower has served at least 181 days of active-duty service during peacetime.
    • A borrower has 90 days of service accumulated under Title 10 or Title 32. With regard to Title 32 service, a minimum of the 30 required days must be consecutive.

    In 2020, the Department of Veterans Affairs no longer imposed loan caps or limits for those borrowers who otherwise qualified for a mortgage. This was the first time VA-qualified borrowers had the option to apply for any size loan with zero down. Of course, borrowers must meet the VA’s typical underwriting qualifications with regard to affordability.

    Why Apply for a VA Loan?

    VA loans are an excellent option for veterans and other eligible borrowers, especially those with low credit scores. In fact, when compared to other loan types, VA loans tend to have the lowest minimum credit score criteria, along with a variety of other benefits for borrowers.

    The main benefits of a VA loan include the following:

    • No down payment required. Note that lenders may adjust their underwriting guidelines in certain lending instances to require a down payment, but this is not mandated by the VA.
    • Mortgage interest rates are competitive within the larger marketplace.
    • Reduced closing costs and the option for the lender, seller, or third party to pay closing fees.
    • The elimination of the need for private mortgage insurance (PMI).
    • The VA loan benefit is reusable and can be used many times throughout your life.
    • With full entitlement benefits, there are no loan lending limits.
    • No prepayment penalty or fee.

    If you are eligible for a VA home loan, this potential funding can be used to:

    • Buy a single-family home or townhouse.
    • Buy a multi-family home with up to 4 units.
    • Buy a condo in a VA-approved condominium project.
    • Buy a home and improve or renovate the property.
    • Buy a manufactured home and the lot on which it sits.
    • Build a new home.
    • Make changes or add new features to make the home more energy efficient.

    You can also:

    • Re-use your VA loan benefit if you sell or refinance the home initially bought with a VA-guaranteed home loan.
    • Assume an existing VA-backed home loan, which essentially means that you, as a buyer, take over the existing VA loan from the seller, as long as you secure the VA’s approval.

    See if You Qualify for a VA Home Loan

    If eligible, a VA loan is an excellent option for any home buyer who may want to purchase a home without a down payment. Also, buyers can meet VA loan requirements with a credit score that’s less than perfect. To learn more about your VA home loan options based on your credit score, reach out to a mortgage expert at Griffin Funding online or call us at 855-698-1230.

    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 21 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 important with changes in the industry to deliver the most value to Griffin's clients.