June 19, 2017
The term “bad credit” is a relative one but in the eyes of a
mortgage company, bad credit is associated with a three-digit credit score. A
credit score can range from 300 to 850 with a higher score representing better
credit. Borrowers who are VA eligible might be surprised to learn that the VA
doesn’t require a certain minimum credit score whatsoever but instead lenders
must make a reasonable determination as to the creditworthiness of the
applicant. However, even though the VA doesn’t require a minimum most VA
lenders do and that score is 620. It doesn’t mean that a score below that won’t
get approved, it’s just the likelihood is lower. In fact, recent changes with
the VA home loan program issued by the VA allows for an approval with a score
as low as 500. But again, that doesn’t guarantee an approval for someone with
If an applicant is turned down because of bad credit, there
should be a conversation with the loan officer who can point out why the
approval system rated the scores below what’s needed for an approval. Most
often it’s due to one of two of the five most important scoring factors…payment
history and available credit. If borrowers can return to timely payment
patterns and eliminate payments made more than 30 days past the due date,
scores will recover rather quickly, as in within a couple of months. If loan
balances are kept around one-third of available credit, scores will also heal.
These two factors make up nearly two-thirds of the entire score.
When refinancing however there is another path to get a VA
loan with bad credit. If refinancing an existing VA loan with another VA loan,
it’s called a streamline refinance. With a streamline there is no need to
verify income. Nor is there any need for an appraisal and other time and money
saving features. With the VA streamline, there is no credit report pulled so no
credit scores are reviewed. The only credit guideline the VA requires is that
there be no more than one payment made within the previous 12 months made more
than 30 days past the due date and no such late payments within the previous
If you’re VA eligible but think you can’t get an approval
because of your credit, don’t make the decision not to apply for a mortgage to
buy a home or refinance on your own. You might very well be surprised and even
if you can’t be approved right now your loan officer can provide you a road map
for an approval.
For more information or questions about mortgage loans, please call (855) 757-8748.
Questions or concerns? Click below to chat with a home loan expert now!