Can I Get a VA Loan with a 500 Credit Score?
VA loans are a popular option for veteran and active-duty service home buyers for many reasons. They are also preferred by lenders because a portion of the loan is guaranteed through federal backing via the U.S. Department of Veterans Affairs.
That said, your lender will still need to check that certain financial requirements are met when determining whether or not to approve the loan, and one major factor is the home buyer’s credit score. Here we’ll take a look at the minimum requirements of that score and other contributing factors that may be able to help balance things out if the homebuyer is missing the mark.
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Where Does a Score of 500 Fall on the Credit Spectrum?
For lenders, lower credit scores are a reflection of one’s financial trustworthiness. Simply put, they will be more hesitant to issue a loan for someone with poor credit. A score ranging from 300-579 is considered “very poor” according to FICO ®. This is because roughly 62% of consumers with credit scores under 579 are likely to become seriously delinquent, meaning they will go more than 90 days past due on a debt payment in the future. However, looking at a score of 500 as 200 points away from being a “good” credit score and 140 points from being “fair” are a couple of good benchmarks to set.
To reach those benchmarks, home buyers should aim to make up missed payments resulting in delinquency or default. If you have experienced a repossession or foreclosure, making your way back to the top will be a slow burn of rebuilding your credit reputation by establishing a pattern of on-time payments on any loans or lines of credit you have open.
For those who have declared bankruptcy, rebuilding your credit score will also require some leg work. Making consistent payments here again is the best way to regain your financial footing. When the timing is right, open a secured credit card line to allow the recovery process to begin. Although the road to financial recovery may be an arduous journey in some cases, it can be accomplished step by step.
What Kind of Credit Score is Required to Qualify for a VA Loan?
The VA itself does not set a credit score minimum to qualify for a loan. Ideally, on a VA loan, home buyers will want to have achieved a credit score of 580 or higher, although this varies from lender to lender. VA loans don’t have risk-based pricing adjustments, which means a creditor will not set the price or other credit terms based on the home buyer’s risk of nonpayment. Home buyers with poor credit histories generally qualify for less favorable credit terms compared to home buyers with strong credit histories — this is to help compensate for the higher risk of default. Applicants with low scores can get rates similar to those for high-credit borrowers.
Is There Anything I Can Do to Mitigate a Low Credit Score When Applying for a VA Loan?
Veteran home buyers should work with their lenders to create a financial plan of action if having a less than ideal credit score could potentially be a disqualifying factor from a loan application approval. Take the following tips into consideration when you are looking to boost your loan application attractiveness:
- Show them the money. It is possible that the right combination of income and a more significant down payment can offset and overcome the risks associated with bad credit.
- Raise your credit score. This is one of the most direct methods to resolve your low credit score dilemma. Request a credit report that outlines a financial recovery starting point to raise your credit score.
- Get a co-signer. A co-signer comes in handy when they have better financial credentials that will qualify for a loan application. A co-signer ensures a lender that they have the ability to repay the mortgage loan if the primary borrower defaults. Keep in mind that on a VA loan, the VA requires the co-signer to be a spouse or another eligible military service member.
- Work on your debt-to-income ratio (DTI). Your DTI is an indicator that your lender uses to measure your ability to manage repaying your monthly payments. Aim for a DTI of 43% to gain your lender’s approval on a loan application.
Lastly, if you are a VA or military-service affiliate looking to buy a home and your loan application gets rejected, your lender will provide you with an adverse action notice. This notice outlines any financial deficit that may be preventing you from qualifying for a loan.
This tool is also a valuable asset, tiered to provide you with a way to climb out of financial delinquency. In some cases, it can be used to dispute the accuracy or completeness of any information provided by the credit reporting agency that may be preventing you from qualifying for a loan. Clearly, if you have a low credit score, keep calm and take control of your situation by creating a financial plan of action.
How Can Hero Loan Help You?
Our veterans, military service members, and their families deserve a lending service provider who will meet them with the same level of passion and dedication they showed in their willingness to serve this country.
Hero Loan was created to provide veteran home buyers, and their families with a quick, painless and personalized lending service that would help them qualify for a loan to purchase the home of their dreams. We are proud to support veterans in a lending capacity as well as showing our appreciation by supporting veteran-owned businesses and events. We are also proud to give back through the efforts of the Fisher House Foundation, a project that gives back to veterans, and their families by providing complimentary housing for veterans or active-service military members undergoing medical treatments.
Our team of friendly lending experts use a face-to-face approach to work with our clients and find a financial solution that suits their home buying needs. Hero Loan’s professional and efficient services can help our clients qualify for a loan in less than five minutes*, with closing periods in as little as 14 days. We are able to streamline the underwriting process in-house which gives you the home buyer an expedited loan application processing time. It also allows us to take on paperwork that can feel overwhelming.
Call us today at (866) 222-0219 to speak with a VA loan representative who will meet you at your financial location based on your current credit score and other influential monetary records. You can also reach out to one of our lending experts, through our live chat option to get an idea of your VA home loan eligibility today.