Can You Get a VA Loan With a 500 Credit Score?

Yes, you can. VA doesn't have a minimum credit score, and at Independence Home Loans I can do VA purchases and refinances down to a 500 score. Your score is only one piece of the file. Here's what else I look at.

Why other lenders told you no

VA guarantees part of each loan, but it lets each lender set its own minimum score. A lot of lenders pick 580 or 620, sometimes higher. Those are the lender's own rules (people in the industry call them overlays), not VA's. That's why one lender can turn you down and another can approve the exact same file.

At Independence, I can do VA loans down to a 500 score, and that includes IRRRLs and cash-out refinances. FHA goes down to 500 too. Every file still has to meet VA and underwriting guidelines.

What matters besides the score

When your score is low, everything else in your file counts for more. This is what underwriters look at closest:

Recent payment history

The last 12 months matter most. Picture two borrowers with a 540 score. One hasn't missed a payment in a year, and the other was late last month. Underwriters see those two very differently. Rent, car payments and your current mortgage carry the most weight.

Residual income

VA checks residual income. That's what you have left each month after your house payment, debts, taxes and estimated living costs. The amount you need depends on your family size and where you live. Having plenty left over is one of the best ways to make up for a low score.

Debt-to-income ratio

At Independence, VA loans can go up to 70% debt-to-income with an automated underwriting approval, and 65%/65% on manual underwrites. Even so, the lower your debts, the easier the approval.

Stable income and reserves

Underwriters like to see two years of steady work (changing jobs in the same field is fine) and some savings left after closing.

Explanations

I see a lot of collections that came from a hospital stay, a divorce or a deployment. A short letter saying what happened and what's different now can make a real difference.

Automated vs. manual underwriting

Most VA files go through an automated system first. With a lower score, it might approve you, or it might send the file to a person to review. That's called a manual underwrite, and it isn't a denial. An underwriter goes through your file by hand. The DTI limits are usually tighter, and they look harder at your recent history and residual income. It takes a little longer, but plenty of my low-score files close this way.

What it means for your rate

I won't sugarcoat it. A lower score usually means a somewhat higher rate or cost than someone with great credit. Every lender works that way. What helps is that VA loans don't have monthly mortgage insurance that goes up with a low score, the way some other loans do. And once your credit improves, a VA IRRRL is an easy way to refinance to a better rate.

What to do in the next 30 to 90 days

• Pay everything on time from today forward. Recent history matters most.
• Lower your credit card balances. Getting your balances under 30% of your limits, or lower, can raise your score fast.
• Don't open new accounts or close old ones during the process.
• Dispute real errors with the credit bureaus. Get your free reports at AnnualCreditReport.com.
• Don't pay off old collections before talking to me. Sometimes it doesn't help your score, and you'd be better off keeping that money in savings.
• Gather documents early: your COE, pay stubs, W-2s and bank statements.

Things that can still block a VA loan

A low score usually isn't what kills a VA loan. These things can:

• Delinquent federal debt, such as defaulted student loans or a past-due tax debt, until it's resolved or on a repayment plan.
• A recent bankruptcy or foreclosure still inside its waiting period. See VA loans after bankruptcy or foreclosure.
• Recent late mortgage or rent payments.
• Not enough residual income for your family size.

If another lender turned you down because of your score, let me take a look. Send me a message and I'll tell you where you stand and what would help most. There's more in my VA loan FAQ.

Frequently asked questions

This article is general education, not financial, legal or tax advice, and it is not a commitment to lend. Program rules change; all loans are subject to credit approval, underwriting and program eligibility, and not all borrowers will qualify.