A low credit score will not stop you from getting a Veterans Affairs VA loan. There are many different lender programs that can help you get a home mortgage.
Learning that you can get a mortgage loan with low credit is one of the most relieving things to hear as a buyer starts purchasing their first home. Lender conditions and loan application requirements are constantly changing. A lender willing to assist you and work with you where you are to get you from a low credit score to the purchase of your first home is such a gift when it comes to the home-buying journey. Items that will be considered for each type of loan include credit history, assets, payment history, and many other lender-dependent qualifications.
Mortgages can be qualified for with a lender looking at all of the above qualifications and other unlisted items. It is important when a borrower working to use the VA loan with a certificate of eligibility understands all different levels of approval and requirements so they can get through the loan process. Let’s go into some of the ways of overcoming low credit scores and the approaches you can take to still try to get qualified.
How Do Credit Scores Affect VA Loan Approval?
Credit scores affect the VA loan approval process by being one part of the puzzle lenders look at to analyze your full credit history and financial situation. Your credit score is based on your past credit history with loan payments, were they made on time and many other factors? How much do you typically loan, what do you have out on loan currently, and are you paying it back are a few other items that are looked at when a credit score is formulated. The credit score overall for a VA loan is a checkbox because the VA eligibility requirements do not have a minimum requirement. Instead, the VA leaves that up to the lender to determine their own minimum credit scores. This is where, when purchasing, home buyers will want to understand the requirements of the lender. Being transparent about your situation will be very helpful as qualifications for lenders often change.
Why Are VA Loan Requirements For Credit Scores Less Strict?
In theory, VA Loan requirements are less strict because the VA loan is a government-backed loan which makes them less risky for the lender, but they do not excuse the full amount if the buyer defaults or gets foreclosed on. FHA loans are similar. The government agency backing the loan with lack of minimum credit score requirement by the VA is just one step in the lenders’ process, but the lender will have what is called “overlays,” which are rules that further define the lender’s requirements and this is when you typically hear a lender tell you that they have requirements for credit scores and overall loan application results that will allow you to move forward in your new purchase.
What Is The Minimum Credit Score For A VA loan?
The VA does not have a minimum score, but it is important to understand that the VA is not the entity that is funding your loan; the VA loan program allows for veterans and other VA loan-eligible buyers to look more attractive to lenders because the VA will partially back (insure) the loan. This form of insurance is a way of giving the lender a decreased vulnerability, and this increases the attractiveness for a lender to assist the buyer who may have lower credit scores get to a point where they can qualify to buy a home.
Bad credit home loan options
Bad credit is not a show-stopper! Options are out there depending on what your lender can make happen. Remember, as you qualify, you are qualifying for an amount of a loan you can make monthly payments on. This can cause a challenge in high-cost areas because you may not be able to qualify for high-cost areas with lower credit scores and non favorable application indicators. Median household incomes will differ from area to area, so keep this in consideration when it comes to your home-buying process. It would help if you always start early in a full review of your credit. Search for resources out there to see how you can be intentional about getting your score up. You can also consider reaching out to a lender to get advice on what you need to do next, as some lenders have advisors they will recommend. There are also more creative ways, like getting a co-signer. With a co-signer, you can use someone else’s credit to assist you in qualifying for better terms. Feel free to reach into the ADPI blogspot and see more details on that! A co-borrower is also a great option if you are buying with a partner or spouse.
Can You Get A VA Loan With a 580 Credit Score?
Getting a VA loan for your primary residence with a 580 credit score is possible, but there may be more terms than if your credit was above 800! A bad credit score isn’t impossible for lenders to work with. Not everyone has excellent credit scores; first-time home buyer population to the people who have purchased before all have differing financial situations.This can be due to many different factors, not just because they didn’t pay on time or are in a ton of debt. One area that is great to focus on for VA loans is members who are in the early stages of their careers. Some military members join right out of high school and have never even had a bill in their name. This is not a show stopper, but it will be a bit of a hurdle to get over when it comes to qualifying with lenders who have specific requirements that need to be met to ensure you will pay on time and they don’t get you into a loan that is unreasonable to pay. So with that being said, credit scores are not a mandatory requirement for the VA, so if the lender sees you have a low credit score, they will evaluate that along with your overall financial situation and may make you provide more information and or talk to you about your timeline to get the score up so you can jump into your new home!
When going out and trying to qualify for the purchase of a new home or duplex or quadplex remember your credit score matters but lots of people have to make intentional changes to get that score up to reflect a trustworthy borrower. See some steps below to start with to increase your credit score. Also, remember to shop continuously with lenders and lender conditions and approval requirements change often!
How To Repair A 580 Credit Score For A VA Loan
- Make payments on time
- Open a bank account to show your constant spending habits
- Contact a financial advisor to go over intentional ways to boost your credit
- Lower your balances; credit cards are a great place to start
- Make sure that all of the recurring bills that can be on your credit are showing up
- Look into services to go through to get your payments reflected on your credit report
- Avoid any late payments
- Check with the credit bureau to monitor your credit score (different times of credit)
ADPI Pro Tip
- Looking for a professional to assist you in cleaning up your credit with an intentional plan can save you thousands in some cases when you go to qualify and take out a loan to purchase your property. It may cost you a little out of pocket now but save you tons later!