VA Loan With Poor Credit

VA Loan With Poor Credit Mortgage Approval

Gustan Cho Associates are mortgage brokers licensed in 48 states

One common question regarding VA loans is whether securing approval with poor credit is possible. The crucial factor in qualifying for a VA loan with poor credit lies in finding a VA lender with no overlay. Indeed, it is possible.

VA loans can be obtained with credit scores as low as 500 FICO. Veterans have the opportunity to qualify for VA loans despite poor credit.

The U.S. Veterans Administration has implemented lenient agency mortgage guidelines specifically for VA loans, surpassing those of other loan programs. This initiative aims to facilitate homeownership for eligible active and retired U.S. military members possessing a certificate of eligibility (COE).

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What Are VA Loans

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VA loans, government-backed home mortgage loans, offer 100% financing without needing mortgage insurance, thanks to the government guarantee. As of January 1, 2020, VA loans have no maximum limit.

There are no minimum credit score requirements when approved through the automated underwriting system (AUS).

At Gustan Cho Associates, our team has assisted numerous borrowers in securing VA loans, even with credit scores as low as 500 FICO. We impose no lender overlays on credit scores for VA loans. This article will delve into VA loan with poor credit and high debt-to-income (DTI) ratios.

VA Loan Requirements on Debt-to-Income Ratios

VA loans have no maximum debt-to-income ratio caps with an approve/eligible per AUS. Borrowers with high DTI with residual income can often get an AUS Approval even with debt-to-income ratios higher than 65% DTI. Most lenders will have lender overlays on debt-to-income ratios as part of their lender overlays at 41% to 50% DTI, even though there are no maximum DTI caps.

Most lenders will have minimum credit score requirements on VA loans at 620 to 680 FICO. This holds even though the VA has no minimum credit score requirements.

What is the lowest credit score for a VA loan?

The VA doesn’t set a minimum credit score requirement for VA loans. Instead, individual lenders determine their thresholds. While some lenders may require higher credit scores, others, like Gustan Cho Associates, have successfully closed VA loans for borrowers with credit scores as low as 500 FICO.

What credit bureau does Veterans United use?

As part of the loan application process, Veterans United Home Loans usually requests credit reports from three main credit bureaus: Equifax, Experian, and TransUnion. This gives them a comprehensive view of the borrower’s credit history and scores. However, it’s always a good idea to check directly with Veterans United for the most current information regarding their credit reporting practices.

VA Guidelines Versus Mortgage Overlays

Lender overlays refer to extra guidelines that individual lenders apply beyond the basic requirements set by the VA Agency. At Gustan Cho Associates, we don’t add any extra requirements for government and conventional loans.

A significant portion of our mortgage applications involves VA loans. At Gustan Cho Associates, we don’t add any extra requirements for VA loans.

We rely solely on the findings of the automated underwriting system without any additional conditions. Since lender overlays are set by lenders and not by the Veterans Administration, different lenders may have different criteria for VA loans. Many veterans, especially those who served overseas during wartime, need more credit history. Statistics indicate that more veterans have poor credit compared to civilians.

VA Loan Requirements After Bankruptcy

VA loan with poor credit offers more flexible mortgage guidelines following a housing event than other loan programs. While most loans mandate three to seven years after such an event, the Veterans Administration requires only a two-year period following foreclosure, deed-in-lieu of foreclosure, or a short sale. In contrast, the FHA stipulates a waiting period of three years.

VA Loan Guidelines During Chapter 13 Bankruptcy Repayment Plan

Borrowers can qualify for VA mortgages in a Chapter 13 Bankruptcy repayment plan after being in the repayment plan for at least one year. The VA requires borrowers to have made 12 timely payments to the Chapter 13 Trustee. Chapter 13 Bankruptcy does not need to be discharged. It needs to be a manual underwrite, and manual underwriting guidelines apply.

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VA Loan Requirements After Chapter 13 Bankruptcy Discharge Date

VA Loan With Poor Credit

There are no waiting period requirements after the Chapter 13 bankruptcy discharge date. If Chapter 13 bankruptcy has not been seasoned for at least two years after the discharge date, it must be manually underwritten. Gustan Cho Associates are experts in VA and FHA manual underwriting. The following paragraphs will discuss VA loans with low and bad credit scores.

VA Loan With Poor Credit Down To 500 FICO

VA does not require a credit score. Lenders, not VA, set the minimum credit score requirement. Most lenders will have a minimum credit score requirement on VA loans as part of their lender overlays. This holds true even though VA agency guidelines state no minimum credit score requirements exist. Lender overlays are mortgage lending guidelines above and beyond the minimum agency guidelines set by the VA. Gustan Cho Associates is a national mortgage company licensed in multiple states with no lender overlays on VA loans.

How To Get AUS Approval on a VA Loan With Poor Credit and Low FICO

Gustan Cho Associates go off the automated findings of the automated underwriting system (AUS) and do not have any other overlays on VA loans. We like to see veterans have credit scores of at least 580.  Veterans can still qualify for VA loans with a FICO under 580.

The only co-borrowers allowed with VA loans are spouses of veterans. Non-occupant co-borrowers are not allowed, like FHA loans.

VA loans are for primary owner-occupant homes only. Second homes and investment properties are not eligible. VA allows for deferred student loans that have been deferred for longer than 12 months to be exempt from debt-to-income ratio calculations.

VA Guidelines on Judgments and Tax Liens

Borrowers seeking VA loan with poor credit, including judgments and tax liens, can still qualify under certain conditions. They must have established written payment agreements with the judgment creditor and have been consistently paying for at least three months.

Similarly, for those with IRS outstanding debts and tax liens, a written payment agreement with the IRS is necessary, with a minimum of 12 months of timely payments.

Additionally, to proceed with the VA loan, the IRS must agree to subordinate the tax lien, allowing the lender to hold the primary position. Loan officers are adept at managing this process, ensuring a smooth transaction. The IRS also collaborates with homeowners to subordinate tax liens, prioritizing the lender’s position in the loan agreement.

Documents Required To Process VA Loan

Borrowers need to provide mortgage docs, including:

History of Veterans Administration and VA Loans

In 1944, the VA Loan Program was created and launched to reward our veterans who had served in the U.S. Military and returned from active duty overseas after World War II. Most military personnel did not have the best credit or down payment to purchase a home after serving our country.

So, the VA Guarantee was created. This allowed veterans to qualify for an affordable home purchase. The Department of Veteran Affairs ensured veterans qualified for VA loan with poor credit. Most veterans had poor credit since they served in the military during World War II. Pre-Qualify for an VA Loan, Click here

Role and Mission of The U.S. Veterans Administration on VA Loans

The major purpose of creating VA loans was to give veterans a chance to become homeowners. VA loans are hands-down the best home mortgage loan program in the nation. This was accomplished with a preference for obtaining home loans with less than the credit required on other loan programs.

The mission of the Department of Veterans Affairs was no down payment, low or no closing costs, lower interest rates, and other hassles and stress non-veteran home buyers go through.

For example, many lenders require credit tradelines as part of their lender overlays. Some even require a two-year seasoning on how long the borrower needs to have a particular credit tradeline. This holds even though the VA does not require any credit tradeline requirements.

Why Military Has Lower Credit Profiles Versus Civilians

VA loan with poor credit offers more flexible agency mortgage guidelines following a housing event than other loan programs. While most loans are mandated three to seven years after such an event, the Veterans Administration only requires two years following foreclosure, deed-in-lieu of foreclosure, or short sale. In contrast, the FHA necessitates a waiting period of three years.

Mortgage Requirements For VA Loan With Poor Credit Mortgage Approval

Veterans can qualify for VA loans with poor credit and low credit scores.  However, veterans need to prove that they have re-established their payment patterns. It needs to have been timely for the past 12 months. Borrowers can qualify for VA home loans with outstanding collections and charged-off accounts without having to pay them off.

Why VA Loans Is The Best Loan Program

VA loans are probably the best mortgage loan program available today. However, it is only limited to veterans with a certificate of eligibility. Borrowers can have poor credit and outstanding collections and charge-off accounts. They do not have to pay them to qualify for VA loans.

VA is not a lender but a government entity that insures private lenders that originate and fund VA loans if the veteran borrower defaults on their mortgage loan. The government agency does have VA Residual Income Requirements.

VA Credit Score and Debt-to-Income Ratio Guidelines on VA Loans

Veterans Affairs does not have minimum credit score requirements or debt-to-income ratio requirements. Veteran borrowers can have an approve/eligible per Automated Underwriting System on a VA loan with lower scores and a 60% debt-to-income ratio. This holds as long as they have sufficient disposable income, referred to as Veterans Affairs Residual Income Requirements.  

The individual lender sets credit score requirements and debt-to-income requirements on VA loans.

The Importance of The Automated Underwriting System Approval

Gustan Cho Associates only cares about an approve/eligible per AUS FINDINGS on VA loans. Most lenders have overlays on VA loans. To get an AUS automated findings approval, the automated system wants to see the following:

  • No minimum credit score requirements.
  • Twenty-four months of consistent employment history and stable income.
  • No late payments in the past 12 months.
  • No late payments after bankruptcy or foreclosure.
  • AUS may request VOR if the borrower is applying for a VA loan with poor credit score.
  • There are no overlays as long as the borrower can get AUS approval.
  • There is a two-year waiting period after bankruptcy, foreclosure, and a short sale.
  • Deferred student loans over 12 months are exempt from DTI calculations.

Veterans can qualify for a VA loan one year into Chapter 13 and have no waiting period after the discharge date of Chapter 13.

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VA Loans For Bad Credit

Per AUS, late payments in the past 12 months will not automatically trigger a denial. VA loans are one of the simplest and easiest loan programs available. Veterans can qualify for VA loan with poor or bad credit.

The Veterans Administration wants to see that the veteran borrower has recovered and re-established themselves and likes to see timely payments in the past 12 months.

There is no down payment requirement on VA loans. 100% Loan To Value on cash-out VA refinance mortgages—no annual mortgage insurance premium on VA loans. VA does require a one-time funding fee, which can be added to the balance of the VA loan. VA allows up to 4% in seller concessions from sellers to contribute to borrowers’ closing costs.

Qualifying for a VA Loan With Low Credit Scores and Bad Credit

At Gustan Cho Associates, our team assists individuals seeking VA loan with poor credit. VA loans, renowned as the premier loan program nationwide, benefit from a government guarantee through the Veterans Administration. To qualify for VA loans, members of the U.S. Armed Services who are either active-duty or retired need to have a certificate of eligibility (COE).

This guarantee allows lenders to extend VA loans. These loans offer advantages such as zero down payment, 100% financing, and competitive mortgage rates. VA loans impose no minimum credit score prerequisite or maximum debt-to-income ratio limitations.

VA Loans Debt to Income Ratio Guidelines

Gustan Cho Associates has closed VA loans for borrowers with up to a 65% debt-to-income ratio with an approve/eligible per automated underwriting system. The VA has no maximum loan limit on VA loans. There is no mortgage insurance requirement on VA loans. Gustan Cho Associates is one of the few national mortgage companies with no lender overlays on VA loans. In this article, we will discuss and cover VA loans with low credit scores and bad-credit mortgage guidelines.

Qualifying For VA Loans With Low Credit Scores And Bad Credit

Gustan Cho Associates receives numerous daily inquiries from borrowers who have been given conflicting information about credit score requirements. Some lenders state that the minimum credit score needed is 660 FICO, while others claim 640. Additionally, some borrowers are informed they need a 680 credit score to qualify for VA loans.

VA doesn’t impose a minimum credit score requirement. However, many borrowers who meet the minimum guidelines set by the VA are turned away by lenders who enforce their own stricter requirements, known as lender overlays.

These borrowers, who might otherwise qualify based on VA guidelines, are often told they need to meet the criteria for VA loans due to these lender overlays. This is particularly frustrating for those seeking a VA loan with poor credit.

However, there are national mortgage companies licensed in multiple states that do not impose lender overlays on government and conventional loans. Choosing such a company significantly increases the chances of approval. Over 80% of our clients who couldn’t qualify elsewhere have succeeded with us. Pre-Qualify for an VA Loan with Bad Credit

Best Lenders For Bad Credit For VA Loans

Veterans are often informed that they do not qualify for a loan with certain lenders despite meeting all VA Agency Guidelines. However, there are options for veterans seeking a VA loan with poor credit. Gustan Cho Associates, a mortgage company licensed in 48 states, offers VA loans without any lender overlays, ensuring that borrowers are not subjected to additional requirements beyond the VA Agency Guidelines.

Lenders typically impose their lending requirements, known as lender overlays, which may exceed the minimum VA Agency Guidelines.

While it is legal for lenders to implement overlays, borrowers should know these additional criteria. For instance, although there is no official minimum credit score requirement for VA loans, most lenders set their thresholds, such as 680, 660, 640, or 620 credit scores. Similarly, VA loans have no debt-to-income ratio caps, but individual lenders may establish their own limits.

Do Lenders Have Different Guidelines on VA Loans

Again, lenders can impose a maximum DTI cap on VA loans. This holds even though the VA does not have a maximum DTI requirement. Therefore, loan officers who get approve/eligible per automated underwriting system findings on a borrower need to manually double-check and qualify the borrower to see if the borrower meets the lender’s overlays.

Gustan Cho Associates has no lender overlays on VA loans. Gustan Cho Associates is one of the few lenders with no lender overlays on VA loans.

Minimum VA Agency Guidelines

Here are the VA Agency Mortgage Guidelines for individuals seeking a VA loan with poor credit. Borrowers who meet the following guidelines can get approved and close on a VA loan. If you meet the following guidelines and are told by a lender that you do not qualify for a VA loan, don’t hesitate to contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response.

Or email us at gcho@gustancho.com. Gustan Cho Associates is one of the few lenders with no lender overlays on VA loans. Only active and retired U.S. military members with a valid certificate of eligibility (COE) qualify for VA loans—or qualifying spouses of eligible veterans.

VA Loans After Bankruptcy Mortgage Requirements

There is a two-year waiting period after Chapter 7 Bankruptcy, foreclosure, deed-in-lieu of foreclosure, or short sale to qualify for VA loans. VA loans can be manually underwritten. Manual Guidelines Apply. Borrowers in an active Chapter 13 Bankruptcy repayment plan can qualify for a VA loan during the repayment plan without the Chapter 13 Bankruptcy being discharged with Trustee approval. However, it needs to be manually underwritten.

VA Loans After Chapter 13 Bankruptcy Discharged Date

There is no waiting period to qualify for a VA loan after the Chapter 13 Bankruptcy discharge date. Any Chapter 13 Bankruptcy discharge that has not been seasoned for at least two years needs to be manually underwritten. Manual underwritten guidelines apply.

Down Payment and Closing Costs Requirements on VA Loans

The VA allows 100% financing with no down payment required. Most borrowers do not have to worry about closing costs on VA loans. Closing costs are normally covered with a seller’s concession and lender credit. Outstanding collections and charged-off accounts do not have to be paid off to qualify for VA loans. Only spouses of eligible borrowers can become co-borrowers. VA loans do not allow for non-occupant co-borrowers, says John Strange:

Only spouses of the main borrower can become co-borrower on VA loans. Deferred student loans of 12 months or longer are exempt from debt-to-income ratio calculations. You will get approved for a VA loan if you meet the above minimum Agency Guidelines.

If a lender tells you that you don’t, but you meet the above guidelines, don’t hesitate to contact us at Gustan Cho Associates. The team at Gustan Cho Associates is available seven days a week, on evenings, weekends, and holidays. Contact Gustan Cho Associates at 800-900-8569 or text for a faster response with any questions on VA loans with poor credit scores and high debt-to-income ratios. Or email us at gcho@gustancho.com.

FAQ on VA Loan With Poor Credit Mortgage Approval

1. Can I get approved for a VA loan with poor credit? Absolutely. Securing approval for a VA loan with poor credit is indeed possible. The key lies in finding a VA lender without overlays, which are additional requirements beyond the VA’s basic guidelines.

2. What are the minimum credit score requirements for VA loans? The requirement for a specific credit score is not applicable for VA. However, many lenders do. We’ve helped borrowers with a FICO score as low as 500 get VA loans at Gustan Cho Associates.

3. What are the VA loan requirements on debt-to-income (DTI) ratios? VA loans have no maximum debt-to-income ratio caps as long as the automated underwriting system (AUS) approves the application. At Gustan Cho Associates, we’ve secured AUS approvals for borrowers with DTI ratios as high as 65%.

4. How do lender overlays affect VA loan eligibility? Lender overlays are additional guidelines imposed by individual lenders. Despite the VA’s lenient requirements, many lenders set their thresholds for credit scores and DTI ratios. However, Gustan Cho Associates doesn’t add any extra requirements for VA loans.

5. Can veterans qualify for VA loans after bankruptcy or foreclosure? Veterans can qualify for VA loans after a bankruptcy, foreclosure, or short sale. The waiting period is typically two years after such events, and borrowers in an active Chapter 13 bankruptcy repayment plan can also qualify with trustee approval.

6. Are there down payment and closing cost requirements for VA loans? VA loans offer 100% financing with no down payment required. Closing costs are often covered through seller concessions and lender credits. Outstanding collections and charged-off accounts do not necessarily need to be paid off to qualify for VA loans.

7. How can I approve a VA loan with poor credit? Ensure that you meet the VA’s minimum agency guidelines, including having a valid certificate of eligibility (COE) and the basic credit and debt-to-income ratios requirements. If you need clarification or have been turned down by other lenders, don’t hesitate to get in touch with Gustan Cho Associates for assistance.


Get Approved for a VA Loan with Bad Credit

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