Bad Credit – How to Qualify For a VA Loan

By Bob Jones Jul 1, 2022

bad credit va loan

If you have bad credit, you may not know that you can get a VA home loan if you have a low credit score. But it’s possible, with a little extra work. Read on to find out how. A VA loan is not available to those with bankruptcy, but it is possible to get one with some extra work. In this article, we’ll look at a few ways to qualify for a bad credit loan.

No minimum credit score requirement

A VA home loan with a low credit score is not impossible. Private lenders are willing to be flexible in their credit score requirements for veterans, especially if they know the borrower is a veteran. The VA also considers factors like income and a large down payment, as well as low debt-to-income ratios. If you have a bad credit score but are willing to put up a large down payment, you may be able to qualify for a VA home loan with a low credit score.

The minimum FICO score to qualify for a VA loan is 620. However, lenders set their own overlays on these scores. The average credit score for VA loans is 620, but lenders can also accept scores as low as 580 if the borrower is making a down payment of 10% or more. If the borrower is a married couple, they should have two incomes to increase purchasing power.

No down payment requirement

Getting a VA home loan with no down payment requirement is not impossible, even if your credit history is not stellar. Fortunately, there are many ways to improve your credit and improve your chances of approval. You should work with your lender to find the right loan for your situation. If you are in a bind and your credit score is below 620, you should do the following to improve it. Make smart financial decisions and reduce your debt to avoid negative effects on your credit score. For instance, avoiding making purchases that will lower your credit score, like buying a new car, opening a credit card, or transferring a balance to another account, can help you to raise your score.

In addition to the no down payment requirement for bad credit VA loan, veterans often don’t have enough payment history to qualify for a conventional mortgage. Because of this, VA lenders often consider alternative payment histories. A veteran may have free cash left over at the end of the month after subtracting all monthly expenses, including the cost of home maintenance. This is called residual income, and if you have extra cash that can be put towards the monthly loan, you may qualify for a bad credit VA loan.

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No waiting period after bankruptcy

VA loans for people with bankruptcy are available to people who have completed Chapter 13 or Chapter 7 bankruptcy. Foreclosure and bankruptcy typically go hand in hand. Chapter 7 bankruptcy, for example, requires you to wait two years after your discharge. This time is dependent on your specific circumstances. If you filed for bankruptcy primarily due to financial hardship, you can usually qualify for a VA loan immediately. Foreclosure and bankruptcy go hand in hand, but there are ways to apply for a VA loan without a waiting period.

Fortunately, there is no waiting period after bankruptcy for bad credit VA loans. Although conventional lenders usually require a minimum of a two-year waiting period, VA borrowers do not have to wait that long. If you improve your credit history and demonstrate financial solvency, you can still qualify for a VA loan. If you have at least 20% equity in your home, you can eliminate the private mortgage insurance.

Getting a loan with a low debt-to-income ratio

If you are in need of a VA loan but are concerned about your debt-to-income ratio, there are some things that you can do. First, you need to know your credit score and the status of all your accounts. In addition, you need to know if your credit report is accurate, because most online services don’t display the true score. Finally, if you can’t afford a down payment, you may need to pay a higher interest rate than usual.

If your debt-to-income ratio is higher than 41 percent, you may be eligible to apply for a VA loan. Your income and expenses must be comparable to your debt. The VA considers debt-to-income ratios as powerful indicators of your financial health and credit worthiness. If you can show stability in your income, you should be able to qualify for a VA loan, no matter how bad your credit history is.

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