Can I get a VA Loan with Bad Credit?

By Sari R. Updated on 7/19/2017

A VA loan is a loan guaranteed by the Department of Veteran Affairs. Somewhat of a misnomer, VA loans are not issued by Veteran Affairs but by VA-approved lenders. These loans provide financial assistance to veterans and active duty service persons in various ways. 

One of the major advantages to securing a VA loan is the lack of credit score requirements necessary to qualify. While VA credit scores may still matter in the loan application process, VA mortgages provide relief for eligible borrowers with bad credit.

VA Loan Background

Under the original Servicemen’s Readjustment Act, the VA loan program was initiated in 1944 as one of the most significant benefits granted to eligible veterans. 

This new loan option allowed veterans to secure the funds necessary to purchase a home while including provisions that ameliorated the bad credit caused by military-related relocations. Since its creation, the VA loan program has insured 18 million home loans and continues to be an incredibly helpful program to this day.

VA Loans and Bad Credit

To make these loans more accessible to veterans, the Department of Veteran Affairs does not include any restrictions or requirements for borrower credit scores. As such, applicants with bad credit scores (who may not qualify for conventional or FHA loans) can still acquire a loan. 

In fact, according to data gathered during the U.S. Census, approximately 80% of all VA loan borrowers would not be able to qualify for a conventional loan. Consequently, VA loans provide veterans and active duty persons with the means to purchase a home, regardless of credit history.

Despite the leniency of Veteran Affairs regarding acquiring a VA loan with bad credit, a borrower’s credit score still matters in the application process.

 For instance, although more than half of VA borrowers typically choose a VA loan due to the ability to avoid a down payment, however, borrowers must have a credit score of 580 to qualify for 100% financing. As a result, borrowers with credit scores below 580 should consider raising this rating before applying for VA benefits.

Also, while VA loans carry no specific requirements for credit scores, each lender has a different credit standard when issuing a loan and may instill guidelines and minimums on acceptable credit scores. 

Though a borrower may acquire a VA-insured loan with credit score of 620, most mortgage lenders typically require a score of at least 640 to qualify. Thus, the credit score can still significantly influences a borrower’s ability to secure a VA loan.