What is the Lowest Credit Score You Can Have for a VA Loan?

Homebuyers with prior credit issues and lower credit scores can qualify for VA loans with bad credit.  A borrower’s credit score is what determines whether they can even qualify for a mortgage loan. In this blog, we will focus our topic on VA loans with bad credit. VA home loan with bad credit are the best mortgage loan program in the nation. However, only active and/or retired members of the U.S. Military with a certificate of eligibility (COE) are eligible to qualify for VA loans.  Eligible borrowers with less than perfect credit and/or bad credit and higher debt to income ratios can qualify for VA loans.

Mortgage Options For Borrowers With Bad Credit

The team at Capital Lending Network, Inc. (CLN) are experts in helping home buyers qualify for VA loans with bad credit.

The team at Capital Lending Network, Inc. (CLN) are experts in helping home buyers qualify for VA loans with bad credit. There are no minimum credit score requirements and no maximum debt to income ratio requirements on VA loans as long as they can get an approve/eligible per automated underwriting system (AUS). However, it is difficult to get an AUS approval on VA loans if the borrower had late payments in the past 12 months.  We also have other mortgage options for borrowers with bad credit if they do not qualify for VA loans. CLN Mortgage is an expert in originating bad credit mortgages and has no overlays are government and conventional loans. We are also experts on non-QM loans.

Va Loan With 500 Credit Score?

Non-QM loans are alternative financing programs with no waiting period after a housing event such as foreclosure, deed in lieu of foreclosure, short sale. If credit scores do not meet the minimum required, the mortgage application process cannot start. Lenders view anyone who has credit scores under 620 as having bad credit or poor credit scores.

The chances with borrowers with credit scores of 620 or under, most lenders such as banks, and credit unions will not qualify borrowers for a mortgage. This is because they do not deal with bad credit borrowers. Just because borrowers are told they do not qualify for a mortgage because they have bad credit by these lenders does not mean they do not qualify for a mortgage with a lender with no overlays.

VA Lenders For Bad Credit Borrowers
VA Lenders For Bad Credit Borrowers

Homebuyers with a certificate of eligibility can qualify for VA loans with bad credit. There may be some obstacles that they need to go through. With a creative, hard-working, bad credit mortgage loan officer borrowers will get a VA loan with bad credit.

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VA Loans With late Payments In The Past 12 Months

Getting a VA bad credit mortgage loan does not mean that borrowers will be paying ridiculous high mortgage rates. In the event, if the borrowers cannot get an approve/eligible per automated underwriting system (AUS) due to late payments on VA loans, they can try to qualify for an FHA loan. FHA loans are more lenient with late payments in the past 12 months versus VA loans with a larger down payment.

FHA Versus VA Loans For Bad Credit

Homebuyers who cannot get an AUS approval on VA loans due to late payments in the past 12 months may try to qualify for an FHA loan with a larger down payment.  We received phone calls from people who are asking if they can you get a va loan with a 550 credit score. the answers is simple: VA does not require any down payment on home purchases. FHA requires a 3.5% down payment with a 580 credit score and a 10% down payment for borrowers with under 580 FICO and down to a 500 credit score.

 

Mortgage Rates On VA Loans With Bad Credit

There are rules and regulations on how high or a mortgage rate lenders can charge. Mortgage rates for borrowers with credit scores under 600 will be higher than borrowers with higher credit scores. Depending on the lender borrowers with bad credit normally get charged a 0.50% to 1.5% higher mortgage rate than those with a higher credit score. Borrowers have the choice of waiting to get a better rate by going through a credit repair program. Or purchase a new home with a higher mortgage rate and refinance a home after closing on it and after you have better credit. The choice is up to consumers.

VA Loan Credit Score Requirements 2021

The team at Capital Lending Network, Inc. consists of full-service mortgage brokers and our business model are helping borrowers with less than perfect credit and credit and debt to income ratio issues so can get an easy va loans with bad credit:

  • All of our loan officers specialize and are experts in bad credit mortgages
  • Borrowers with bad credit contact us so we can help

VA Mortgage Lenders For Bad Credit

The type of mortgage lenders borrowers want to consult is a mortgage lender that does not have any lender overlays.

The type of mortgage lenders borrowers want to consult is a mortgage lender that does not have any lender overlays. Lender overlays are additional guidelines set by the individual mortgage lender on top of the minimum mortgage lending guidelines set by, VA,  HUD, USDA,  and/or Fannie Mae and/or Freddie Mac.

If a mortgage lender tells borrowers they do not qualify, ask them why. Is it because of their lender overlay?  Is it because of federal guidelines?  If it is because of federal guidelines, there might be an issue. Federal lending guidelines require a 3.5% down payment on FHA loans with a minimum of a 580 credit score.

VA Guidelines on Collections and Charged-Off Accounts

Open collections are fine and old collection accounts do not have to be paid off. However, federal lending guidelines do require borrowers have been timely on payments for the past 12 months. There are guidelines with regards to debt to income ratios too.

What Is Bad Credit And How Bad Can My Credit Be To Qualify For A VA Loan?

Bad credit mortgage lenders do not qualify and approve everyone with bad credit. Can have had prior bad credit. But need re-established credit after a period of bad credit. Everyone can have had a streak of bad credit history due to a loss of job, medical issues, loss of business, death of a spouse, or other extenuating circumstances. When a bad credit lender reviews the credit report, the underwriter will look at the overall credit history and see the periods of bad credit report reflects.

VA is not as credit-sensitive when it comes to credit scores as conventional loans:

  • For example, whether the credit score is 680 or 700, borrowers will get the same VA mortgage rate
  • However, the mortgage rate will be higher on VA loans if credit scores go below 620
  • The mortgage rate will even be higher if credit scores fall below 600

How Do Underwriters Analyze Borrowers Credit History On VA Loans?

Here is a case scenario:

    • had good credit for five years
    • had a two year period of bad credit due to the loss of a job
    • have re-established credit after regaining employment
    • then borrowers are an ideal candidate for a bad credit mortgage

However, if borrowers had a ten-year credit history:

  • all of those ten years had late payment history, collection accounts, charge offs, judgments, and other derogatory credit items and you were fully employed
  • then there is an issue with this type of borrowers
  • If this is the case, the underwriter will come to the conclusion that they have total disregard for credit and the chances of you getting a loan approval will not be good

Most mortgage lenders will want to see timely payment history for at least 12 months and do not want to see any late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale.

VA Versus Other Mortgage Options For Low Credit Scores
VA Versus Other Mortgage Options For Low Credit Scores

 Mortgage With Low Credit Scores And Bad Credit Guidelines:

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Credit scores and income are two of the most important factors in qualifying for a mortgage. Borrowers can qualify for Mortgage With Low Credit Scores and bad credit. Consumers can have low credit scores and qualify for a home loan. However, borrowers need to meet the minimum Agency Mortgage Guidelines. For example, to qualify for a 3.5% down payment FHA loan, the borrower needs a 580 credit score. However, most lenders will require a higher credit score such as a 640 to 680 FICO for borrowers to qualify for an FHA loan. This higher credit score requirement by lenders is called lender overlays on credit scores.

Mortgages For Credit Scores Down To 500 FICO

Borrowers can qualify for an FHA loan with under 580 credit scores and down to a 500 FICO. However, HUD, the parent of FHA, requires a 10% down payment requirement on all borrowers with under 580 credit scores to qualify for an FHA loan. The U.S. Veterans Administration (VA) does not have a minimum credit score requirement on VA loans as long as the borrower can get an automated approval on AUS.

Understanding Basic Mortgage Guidelines For Borrowers with Bad Credit

It is highly recommended borrowers study the basic minimum agency mortgage guidelines on government and conventional loans when shopping for a loan officer and lender. This way, you will understand when a lender says you do not qualify that you do qualify but not with the particular lender that says that you do not qualify. Outstanding collections and charged-off accounts do not have to be paid to qualify for government and primary owner-occupant conventional loans.

VA Loans With Collection Accounts

Again, many lenders will require you to pay outstanding collections and charged-off accounts due to their lender overlays. Capital Lending Network, Inc. has no lender overlays on government and conventional loans. We just go off the findings of the automated underwriting system (AUS) and have zero lender overlays.

Understanding Agency Guidelines Versus Lender Overlays

The Veterans Administration does not have a maximum debt to income ratio cap on VA loans. This holds true as long as the borrower can get an approve/eligible per automated underwriting system (AUS). Fannie Mae and Freddie Mac require a minimum of a 620 credit score on conventional loans.

Government Versus Conforming Loans

FHA, VA, USDA are government-backed home mortgages. You cannot qualify for second homes and investment property mortgages with government loans. Fannie Mae allows for primary owner-occupant home mortgages, second homes, and investment property conventional loans. Not all lenders have the same lending requirements on government and conventional loans. Most lenders have lender overlays on government and conventional loans. Lender overlays are additional lending guidelines of the individual lenders that are above and beyond FHA, VA, USDA, Fannie Mae, and Freddie Mac

VA Lenders For Bad Credit With No Lender Overlays

Over 75% of our borrowers at Capital Lending Network, Inc. are folks that could not qualify at other lenders due to that mortgage companies’ lender overlays. CLN Mortgage just goes off the automated findings of the automated underwriting system (AUS) and has no other lender overlays on FHA, VA, USDA, and Conventional loans. Capital Lending Network, Inc, is one of the very few national mortgage companies licensed in multiple states with no lender overlays on government and conventional loans.

Qualified Income For Mortgage With Low Credit Scores And Bad Credit
Qualified Income For Mortgage With Low Credit Scores And Bad Credit

Borrowers can qualify for a home mortgage as long as they can document qualified income.  However, consumers can have the highest credit scores possible but without documented income, they will not be able to qualify for a mortgage. Income documentation is the most important factor for a home buyer to be able to qualify for a residential mortgage. Credit scores, credit, and credit history is extremely important factor as well.

What Is The Minimum Credit Score To Qualify For Bad Credit Mortgages?

There are minimum credit scores required in order to qualify for particular mortgage loan programs. To qualify for a 3.5% down payment home purchase FHA Loan borrower needs at least a 580 Credit Score. To get an approve/eligible per automated underwriting system (AUS) borrowers need timely payment history for the past 12 months. There are no minimum credit score requirements to qualify for VA Loans with Capital Lending Network, Inc. Borrowers can qualify for Mortgage With Low Credit Scores. Many lenders may require higher credit scores due to their lender overlays. For Conventional Loans, 620 credit scores are required.

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FHA Loans For Bad Credit As An Option For Borrowers of VA Loans

As mentioned earlier, it is difficult to get an approve/eligible per AUS with recent late payments on VA loans including with large down payment on the home purchase. However, FHA loans have more of a lenient approach to getting an automated underwriting system approval with larger down payments such as a 10% to 20% down payment with recent late payments. FHA loans can be an option for borrowers who cannot get qualify for a VA loan with bad credit.

FHA Loan Requirements For Bad Credit 

The United States Department of Housing and Urban Development, commonly referred to as HUD, is the parent of the Federal Housing Administration, often referred to as FHA. FHA is a government agency that insures lenders if homeowners default on their FHA Loans. Lenders need to follow FHA lending guidelines for HUD to insure FHA Loans.

FHA Minimum Credit Score Requirements

Part of FHA lending guidelines is minimum credit scores, DTI, and other guidelines borrowers need to meet. FHA requires a minimum of 580 credit scores with a 3.5% down payment. For home buyers seeking to purchase a home who have credit scores under 580, a 10% down payment is required. The minimum credit score required to be eligible for an FHA-insured mortgage loan is 500.

Borrowers With Credit Scores Down To 500 FICO

VA and FHA orrowers who have credit scores between 500 and 579 mortgage underwriters will require compensating factors

VA and FHA borrowers who have credit scores between 500 and 579 mortgage underwriters will require compensating factors such as the following:

  • reserves
  • verification of rent
  • a longer-term on the job
  • other positive factors

Qualifying For Mortgage With Low Credit Scores is very simple. Credit scores often fluctuate and an experienced loan officer has ways of manipulating credit scores to benefit borrowers and maximize them.

Minimum Credit Scores For Conventional Loans

For homebuyers seeking a conventional mortgage loan, a minimum credit score of 620 is required. Fannie Mae and Freddie Mac are the two giant government-sponsored enterprises that make up the rules and regulations when it comes to conventional loans. Conventional loans are extremely credit score sensitive. The higher the credit scores are the lower the mortgage rates are. To get the best par mortgage rates, borrowers will need a 740 credit score. A home buyer is eligible for a conventional mortgage loan with a 620 credit score. However, their mortgage rates will be on the higher end due to the lower credit score.

Trying To Boost Credit Scores To Qualify For A VA Loan With Bad Credit

There are many factors where a consumer with a lower credit score can boost up their credit scores in a matter of a short time. Those home buyers with low credit scores who do not meet the bare minimum credit score requirements can easily boost up their credit scores with the help of a loan originator. There is the FICO Analyzer where a loan officer will input data from the borrower’s credit report.

How To Raise Your Credit Scores To Get Lower VA Mortgage Rates

It will state what actions the borrower needs to take to boost up their credit. Most time, just paying down credit cards will boost the borrower’s credit scores substantially. Other times may be disputing a medical collection account or paying off an outstanding collection or charge off. Some folks have very low credit scores because they have no active credit tradelines. Can solve this by getting a few secured credit cards with at least a $500 credit limit. Each secured credit card can boost a person’s credit scores by at least 20 or more FICO points.

VA Loans With Recent Late Payments

One recent late payment can plummet a person’s credit scores by at least 50 points or more. Make sure to make all monthly minimum payments on time. Multiple late payments in the past 12 months will plummet one’s credit scores by more than 100 points. A recent late payment on the credit report, contact the creditor and see if they can give one-time forgiveness and take off the late payment. Many times consumers with late payments with perfect payment history, the creditor will do that as a one-time courtesy.

Paying Off Collection Accounts

Do not pay off any old unsatisfied collection accounts with credit balances unless the creditor is willing to delete the derogatory item off the credit report. Negotiating a settlement amount with the collection agency and/or creditor in lieu of them removing the collection account off your credit report is called pay for delete:

  • Negotiate with the collection agency whereby paying off the unpaid collection account balance if they will remove the negative collection account off credit reports
  • If the collection agency is not willing to delete the negative item off a credit report, then leave it alone
  • Can get mortgage approval with unpaid collection accounts with balances
  • Medical collections are normally ignored by mortgage companies

Unpaid collection accounts that are medical accounts are normally exempt and ignored by mortgage underwriters.

High Credit Card Balances And Impact On Credit Scores

Too much debt on revolving accounts is another reason why consumers may have lower credit scores. Consumers with credit cards, make sure not to exceed more than 10% of the available credit limit.  Having a credit balance close to the credit limit will definitely plummet credit scores temporarily until consumers reduce their credit balance.

Can I Qualify For A VA Loan Bad Credit With Low Credit Scores
Can I Qualify For A VA Loan Bad Credit With Low Credit Scores

VA loans are the best mortgage loan program in the nation. Lenders offer 100% financing with no down payment at lower mortgage rates than conventional loans due to the government guarantee. There is no annual mortgage insurance premium on VA loans. As of January 1st, 2020, there is no maximum loan limit cap on VA loans. However, only active and/or retired members of the U.S. Armed Forces with a valid certificate of eligibility (COE) are eligible for VA loans.

About The Veterans Administration

The U.S. Veterans Administration is the federal agency that governs VA Agency Mortgage Guidelines on VA loans. VA loans have the most lenient agency mortgage guidelines than any other home mortgage program. This is because data show members of the U.S. Military have lower credit profiles than our civilian counterparts due to the constant military base transfers and deployment. It is difficult to pay your monthly bills timely during deployment overseas to fight in wartime. Those eligible for VA loans with a valid certificate of eligibility need to meet the minimum VA Agency Mortgage Guidelines. In the next paragraph, we will go over the minimum VA agency mortgage guidelines. We will discuss qualifying for a VA loan bad credit with low credit scores.

How To Qualify For A VA Loan Bad Credit

Can I Qualify For A VA Loan Bad Credit With Low Credit Scores

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Most of us have heard the old saying the higher the risks, the more the rewards. This is no different for lenders. Lenders view lower credit score borrowers as having a higher risk. The lower the borrower’s credit scores the higher the mortgage rates for the borrower. Lenders have loan level pricing adjustments or pricing hits for risk levels they take on borrowers. This is due to data showing lower credit score borrowers have higher default rates and higher foreclosure rates than higher credit score borrowers. Therefore, depending on the risk level, it is up to each individual lender whether or not to take on the lower credit score borrower or not.

Do All Lenders Have The Same Lending Requirements on VA Loans?

Not all lenders have the same VA lending requirements. All lenders need to meet the minimum agency VA Guidelines. However, lenders can have their own higher lending requirements that are above and beyond the minimum VA Agency Guidelines which are called lender overlays. Most lenders have lender overlays. Capital Lending Network, Inc. does not have lender overlays on VA loans. CLN Mortgage Group just goes off the minimum VA Agency Guidelines. Just because one lender says you do not qualify for a VA loan does not mean you cannot qualify at a different lender.

Understanding Lender Overlays On Government And Conventional Loans

Over 75% of our borrowers at Capital Lending Network, Inc. are folks who could not qualify at other lenders due to their lender overlays. CLN has no lender overlays. Lender overlays are additional lending guidelines that is above and beyond the minimum agency lending guidelines. CLN Mortgage Group are experts in helping borrowers with bad credit and lower credit scores qualify for a VA loan. We are one of the very few national mortgage companies licensed in multiple states with no lender overlays on VA loans. Many borrowers and even mortgage loan officers do not realize a lender like Capital Lending Network, Inc. exists.

Qualification And Pre-Approval Process 

Anyone with over a 700 FICO, low debt to income ratios, and perfect credit can get a mortgage at any mortgage company. However, this is not often the case for borrowers with bad credit and lower credit scores. For example, there is no credit score requirements on VA loans. However, most lenders will impose a minimum credit score requirement of 620 to 680 FICO on VA loans. Most lenders will have lender overlays on VA loans. However, there are lenders like Capital Lending Network, Inc. that has ZERO LENDER OVERLAYS on VA loans. This is why it is so important why borrowers should get familiar with lender overlays and know the basic VA Agency Guidelines that has been outline in this blog.

Understanding Eligibility Guidelines To Qualify For VA Loan Bad Credit With Low Credit Scores

How to qualify for a VA Loan with a low credit score

Below, we will list the minimum VA Agency Mortgage Guidelines by the U.S. Veterans Administration. As long as you meet the agency guidelines below, you will qualify for a VA loan. This holds especially true even though a lender says you do not qualify due to their lender overlays.

Here are the minimum VA Agency Guidelines:

  • VA Loans does not have a minimum credit score requirements with an approve/eligible per automated underwriting system
  • VA Loans does not have a maximum loan limit
  • There is no down payment requirement on VA loans
  • Most borrowers do not have to worry about closing costs
  • Closing costs can be paid with sellers concession and/or lender credit
  • There is no annual mortgage insurance
  • There is a one time upfront VA Funding Fee that can be rolled into the VA loan balance
  • Outstanding collections and charged-off accounts do not have to be paid to qualify for VA loans
  • There is a two-year waiting period requirement after Chapter 7 Bankruptcy, foreclosure, deed in lieu of foreclosure, short sale
  • Manual underwriting is allowed on VA loans
  • Borrowers in Chapter 13 Bankruptcy repayment plan can qualify for VA loans during the repayment period
  • However, you need to be on the repayment plan for at least one year
  • Chapter 13 Bankruptcy does not need to be discharged
  • Timely payments throughout the repayment plan are required
  • Needs to be manual underwriting
  • There is no waiting period after the Chapter 13 Bankruptcy discharged date to qualify for VA loans
  • If Chapter 13 Bankruptcy discharge has not been discharged for at least two years, the file needs to be a manual underwrite

Capital Lending Network, Inc. is one of the very few national mortgage companies with no lender overlays on VA loans. We just go off the minimum agency VA guidelines. We just go off the automated underwriting system findings and have zero lender overlays. Over 75% of our borrowers are folks who could not qualify at other lenders due to their lender overlays Feel free to reach out to us at CLN Mortgage Group by applying here


Peter has 7+ years of experience in residential lending. He is a licensed Realtor in the Chicagoland area.