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Can I Have Bad Credit and Still Get a VA Home Loan?

Securing a VA loan with bad credit isn't impossible, but it is common for many lenders to have a more stringent credit requirements.

This post was inspired by VA Loans Insider reader Mary Ann Parker, who asked about securing a VA loan with bad credit. In fact, one of the most common questions we receive is, "Can I get a VA loan with bad credit?"

The short answer is yes, it is possible to get a VA loan with bad credit. For VA loans, borrowers often need a FICO score of at least 620, but the VA doesn’t mandate a minimum credit score requirement and some lenders may be willing to go below that cutoff.

What is Considered Bad Credit?

The first issue is tackling unclear phrases like "bad", "poor" or "less than perfect." We use that kind of language because it can be so tough to discern what constitutes "good" credit, or at least a credit score that can get prospective buyers closer to the dream of homeownership.

The reality is there isn't one credit score. Lenders will look at a range of scores - weighted a bit differently for the mortgage industry - from the different credit reporting agencies and generally focus on the middle ground.

You can read more about what goes into different types of credit here.

Instead of focusing on what is "bad" credit, let's concentrate on what kind of credit score you need right now to move forward with the VA loan approval process.

Current VA Lending Environment

The VA doesn't have a credit score requirement. Instead, the agency simply requires prospective borrowers to be considered a "satisfactory credit risk." It defines the phrase a bit, but it's still rather wide open.

But it's also not the VA lending you money.

The agency basically insures a portion of the mortgage. It's VA-approved lenders who are on the hook for the bulk in the event of default. They want to insulate themselves from risk as much as possible, and one way they do so is by requiring borrowers to hit a specific credit benchmark.

Minimum Credit Score for VA Loans

In today's lending climate, a 620 FICO score is a common cutoff among some VA lenders. If your spouse will be obligated on the loan, he or she will need to hit the same benchmark.

The average FICO score through September of 2019 for VA purchase borrowers is 709, compared to 730 to 750 averages for conventional loans backed by Fannie Mae and Freddie Mac, respectively, according to mortgage software provider Ellie Mae.

VA Loans and Bad Credit?

So what about Mary Ann's question?

It really depends on how you define "bad" or "less than perfect" credit. You can certainly have blemishes on your credit report and maintain at least a 620 score. You can even have a history of bankruptcy or foreclosure and still obtain a VA loan.

If you want to use your VA home loan benefits to unlock the door to your dream home and your credit is standing in the way, Veterans United’s Lighthouse program can help you get on the right track. Lighthouse is a unique part of Veterans United that works with service members to overcome financial challenges and get on the path to loan preapproval.