Is it possible to get a VA loan with bad credit?
It’s absolutely possible to get a VA loan with bad credit. It’s even possible to do a VA-backed streamline refinance or cash-out refinance too. Depending on your situation, it may even make sense to do so with bad credit to get you out of a hole and reduce the stress that comes along with debt.
Getting a VA Loan with Bad Credit: Here's What You Need to Know
Despite having a low credit score, veterans and active-duty military personnel may still be eligible for VA home loans. These loans offer substantial benefits, including more lenient credit score standards compared to other types of loans. Let’s delve into the details.
The Minimum Credit Score for VA Loans in 2023
In 2023, our minimum credit score requirements for VA loans vary based on whether you aim to buy or refinance a home.
- A minimum credit score of 620 may be accepted for purchasing a home.
- A credit score as low as 620 might be permissible for cash-out refinancing using a VA loan.
- For simple refinancing, we can potentially offer straightforward credit score qualifications.
Keep in mind, however, that you must satisfy additional credit, income, and financial prerequisites to gain loan approval. To decide your eligibility, we’ll evaluate your credit history, income, assets, employment background, and other loan commitments.
Refinancing a VA Loan with Poor Credit: Is it Possible?
Yes, it is. With a VA cash-out refinance, you can tap into your home’s equity even with a subpar credit score. The VA IRRRL streamline program, on the other hand, allows you to refinance your VA loan with minimal paperwork and a swift closing process. However, other credit, income, and financial requirements must also be met.
VA Loans and Financial Hardship: The Reality
Experiencing financial hardship, bankruptcy, or foreclosure doesn’t automatically disqualify you from a VA loan. Despite having a low credit score due to such difficulties, other qualifying criteria must be fulfilled, but we may still qualify you.
How Does a Lower Credit Score Impact Your VA Loan?
Your credit score has a significant bearing on the VA loan interest rate you receive. Lower credit scores may lead to higher rates, while superior scores might earn you lower rates. Nevertheless, VA loans frequently boast competitive interest rates, courtesy of backing from the Department of Veterans Affairs. Don’t hesitate to inquire about the interest rate we might be able to offer you, even with less than stellar credit!
Your credit score may also influence your closing costs if you choose to purchase discount points, which can lower your VA loan rate. The costs of these points can be rolled into your loan or paid in cash at closing.
How to Improve Your Credit Score for a VA Loan
To increase your chances of securing a VA loan, consider these methods:
- Obtain your free credit report from www.annualcreditreport.com or contact the major credit bureaus (Experian, Equifax, and TransUnion).
- Rectify errors. If you spot any inaccuracies in your credit report, work on getting them rectified.
- Keep your credit utilization low. Aim to pay off as much credit card debt as possible.
- Stay on top of your bills. Ensure they are paid in full and on time to boost your credit score.
- Also, CreditKarma.com is convenient, but the scores you see there are just estimates. However, they make it easy to dispute incorrect information with credit bureaus.
VA Loans vs. Conventional Loans: Credit Requirements
While veterans also have the option of conventional loans for home purchases or refinances, these usually come with higher credit scores and down payment requirements. Private mortgage insurance (PMI) is also necessary if your home equity or down payment is less than 20%. However, VA loans lack mortgage insurance but include a VA funding fee. The VA funding fee was also reduced in 2023, which you can read more about here.
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Founder and President at West Coast Veterans
Hi, I’m Tim Barlow, the Founder and President of West Coast Veterans, a licensed mortgage brokerage specializing in veteran-focused lending. We’ve been serving the needs of active- duty and veteran homeowners for decades, helping them to maximize their VA loan benefits.
Whether you’re a first-time home buyer using your VA loan eligibility or this is your second time making use of your VA loan benefits, we can help you sort out all the complexities, allowing you to be stress-free during the loan process.