VA Loans With Low Credit Scores

If you’re a veteran or active-duty service member with a low credit score, you may be wondering if you can still buy a home. The good news is VA loans with low credit scores are not only possible they’re one of the most flexible mortgage options available in 2025. This updated guide breaks down everything you need to know about VA loans with low credit scores, including minimum credit requirements, how VA underwriting works, tips for getting approved, and how Gustan Cho Associates can help you get approved when other lenders say no.

What Is a VA Loan?

VA loan is a type of mortgage that is supported by the U.S. Department of Veterans Affairs. It’s designed to help eligible veterans, active-duty service members, and some surviving spouses buy, build, or refinance a home.

Key Benefits of VA Loans

VA loans offer key benefits that make homeownership more accessible for eligible veterans, active-duty service members, and certain military spouses. One of the biggest advantages is it has no down payment, allowing borrowers to finance 100% of the home’s value. VA loans also don’t require private mortgage insurance (PMI), helping keep monthly payments lower. They also provide low interest rates, lenient credit requirements, and reduced closing costs. VA loans are recognized as one of the most affordable and beneficial home financing options for those who qualify combined with no prepayment penalties and strong protections for borrowers.

Disadvantages of VA Loans

While VA loans offer many benefits, there are a few drawbacks to consider. One of the main disadvantages of VA loans is the VA funding fee, which can add a big amount to the cost of the loan, although it can be rolled into the loan amount. VA loans also require the property to pass strict appraisal and condition guidelines, which can limit choices and options for buyers looking at fixer-uppers or unconventional homes. Also, VA loans are restricted to primary residences, so they cannot be used to buy second homes or investment properties. Some sellers may also view VA offers less favorably due to delays or additional requirements, which can make competing in a hot housing market more challenging.

Minimum Credit Score for VA Loans

Officially, the VA does not require a minimum credit score. However, most banks and mortgage lenders impose their own lender overlays which are additional requirements above what the VA itself requires. Common credit score overlays by lenders are very few will go below 600, some lenders require 640+, and most banks require 620 or higher. At Gustan Cho Associates, we approve VA loans with credit scores as low as 500, as long as the borrower meets the VA’s residual income and manual underwriting guidelines.

What Is The Lowest Credit Score You Can Have For a VA Loan?

One of the most significant benefits a Veteran of the United States Armed Services can get from bravely serving our country is to be eligible for a VA mortgage home Loan. The VA Loan Program was launched in 1944 to give thanks to our Veterans for their service in the military. Many veterans coming home from the Second World War benefited from the newly created VA home mortgage Loans. It made homeownership affordable and very easy. It meant that Veterans could be approved For VA Loan With less than ideal credit.

How Do VA Loans Work?

VA loans are a powerful mortgage option backed by the U.S. Department of Veterans Affairs to help eligible veterans, active-duty service members, and certain military spouses buy, build, or refinance a home. Unlike traditional loans, VA loans are partially guaranteed by the government, which grants approved lenders to offer no down payment and no private mortgage insurance (PMI). Borrowers must meet VA eligibility requirements and obtain a Certificate of Eligibility (COE), but the loan itself is issued by private lenders, not the VA. Borrowers can use the loan to finance a primary residence once it is approved. VA loans also have more forgiving credit and debt-to-income (DTI) guidelines, making them accessible to borrowers who might not qualify for conventional financing.

Mortgage Guidelines on VA Loans With Low Credit Scores

VA loans are one of the most flexible mortgage programs available, especially when it comes to credit score requirements. Not like conventional loans, the Department of Veterans Affairs does not set a required minimum credit score for VA loans. Instead, the VA leaves it up to individual lenders to establish their own credit score requirements known as lender overlays. Most VA lenders typically require a minimum credit score of 580 to 620, but some require as low as 500. Approval with lower credit scores typically requires manual underwriting, where the lender conducts a more detailed review of the borrower’s full financial profile such as income stability, residual income, debt-to-income (DTI) ratio, and recent payment history.

Key Guidelines for VA Loans With Low Credit Scores:

• Minimum Credit Score: No official VA minimum, but lender overlays usually apply
• Manual Underwriting: Required for scores under 620 or if AUS (Automated Underwriting System) gives a Refer
• Recent Payment History: A clean 12-month history of rent, utilities, and other obligations is often required
• Debt-to-Income Ratio: While there’s no hard limit, most lenders prefer a DTI below 41% unless there are strong compensating factors
• Compensating Factors: Steady employment, residual income, cash reserves, or a history of managing similar housing expenses can strengthen approval chances
• No Down Payment Required: Even with low credit, VA loans still offer 100% financing
• No PMI: Borrowers won’t have to pay private mortgage insurance, helping keep monthly payments lower

VA loans with low credit scores can still be approved if the borrower demonstrates the ability to repay the loan responsibly. The VA’s focus on residual income and overall financial health rather than just credit scores makes it an ideal option for veterans and active-duty service members working to rebuild or improve their credit.

Manual Underwriting for VA Loans With Low Credit Scores

If your credit score is below the threshold for automated underwriting approval, you may still qualify through manual underwriting. What is manual underwriting? Manual underwriting means a real person an underwriter reviews your full file to make an approval decision, instead of relying on an automated underwriting system (AUS).

Key factors to consider:

• Timely rent and housing payments over the last 12 months
• Residual income based on family size and location
• No recent late payments on major accounts
• Compensating factors such as strong savings, low DTI, or stable employment

Manual underwriting is a powerful option for borrowers seeking VA loans with low credit scores.

Requirements for VA Loans With Low Credit Scores

VA loans have more lenient credit requirements as opposed to most other loan programs, making them a great option for veterans and active-duty service members with low credit scores. Although the VA does not establish a specific minimum credit score requirement, most lenders prefer at least a 580 to 620 score. However, some VA-approved lenders could approve borrowers with credit scores as low as 500. To qualify, applicants still need to meet basic VA loan eligibility, have stable income, manageable debt-to-income (DTI) ratios, and a clean 12-month payment history especially if going through manual underwriting. Even with low credit, strong compensating factors such as job stability, residual income, and no recent major derogatory events can help borrowers get approved.

The Role of the Veterans Administration 

The Veterans Administration (VA) plays a very important role in helping eligible veterans, active-duty service members, and certain surviving spouses achieve homeownership. Though VA does not lend money directly, it guarantees a portion of the loan made by private lenders.

This government guarantee reduce the risk for lenders, enabling them to provide more favorable loan terms such as no down payment, no PMI or private mortgage insurance, and competitive interest rates.

The VA also sets the basic eligibility guidelines for the program and provides the Certificate of Eligibility (COE) that confirms a borrower’s entitlement to the benefit. Additionally, the VA oversees lender compliance, It protects borrowers through foreclosure avoidance programs, and ensures that veterans receive fair and respectful treatment throughout the mortgage process.

How To Qualify For VA Loans With Low Credit Scores?

Borrowers possessing a Certificate of Eligibility have the potential to be approved for VA loans with low credit scores. In general, VA guidelines is more lenient than other government and conventional mortgage loan programs. Veterans can qualify for VA loans with less than great Credit. Outstanding collections and charged-off accounts do not have to be paid to qualify for VA loans. Mortgage lenders want to see payments made on time within the past 12 months. Periods of bad credit are acceptable, but lenders want to see re-established glory.

VA Debt-To-Income Ratio Guidelines

VA loans don’t impose a strict maximum DTI ratio, but generally, lenders are guided by a back-end DTI limit of 41%. If your DTI exceeds 41%, your application isn’t automatically denied instead, lenders apply more scrutiny, often requiring strong compensating factors such as solid residual income, excellent credit, or significant cash reserves.

In fact, VA policy permits up to 150% of required residual income or approval even with DTIs as high as 70% or more when offset by strong borrower strengths.

VA lenders look strictly at back-end DTI, which includes all recurring monthly debts plus the new mortgage while front-end (housing only) ratios aren’t used. Ultimately, although 41% serves as a standard benchmark, loan approvals with higher DTI are achievable when accompanied by adequate residual income and compensating factors.

Tips to Get Approved for VA Loans With Low Credit Scores

• Show on-time rent payments – Prove 12 months of timely housing payments through canceled checks or VOR (Verification of Rent).
• Reduce your debt-to-income (DTI) ratio – Pay down credit cards or installment debt to strengthen your file.
• Explain credit issues – Write a clear letter of explanation for any past derogatory credit events.
• Avoid new credit inquiries – Avoid applying for new loans or credit cards before or during the home loan process.
• Work with a no-overlay lender – Many denials come from lenders imposing credit score overlays, not from VA guidelines themselves.

Residual Income: The Secret to Low Credit VA Approvals

The VA doesn’t rely solely on your DTI ratio. Instead, it uses a residual income test to determine how much money you have left each month after all major expenses are paid. This makes VA loans with low credit scores more accessible, especially if you live in an area with a low cost of living or have limited monthly debt obligations.

VA Credit Score Guidelines

Just because the home buyer is a veteran with a valid COE does not automatically mean that they qualify for a VA Loan. Most VA lenders will have their own unique minimum credit score requirement for VA Loans due to overlays. Lenders may also provide debt-to-income ratio requirements even though Veterans Affairs does not have a maximum DTI Cap due to their lender overlays. VA has one of the most lenient credit requirements for all mortgage loan programs.

Is It Possible to Buy a Home With a 500 Credit Score Using a VA Loan?

Yes, you can buy a home with a 500 credit score using a VA loan, but only if you meet the VA eligibility requirements, you have stable employment and income, you pass manual underwriting, and you work with a no-overlay lender like Gustan Cho Associates. Most banks will not allow VA loans under 620, even though the VA does not set that rule.

Is It Possible to Refinance With VA Loans With Low Credit Scores?

Yes! If you have an existing VA loan, you can refinance with a low credit score using the VA IRRRL program (Interest Rate Reduction Refinance Loan). Highlights of VA IRRRL are it is streamlined and has fast process, no credit score requirement, no income verification, and no appraisal required. This is one of the easiest ways to lower your mortgage payment even if your credit has dropped.

Work With Experts Who Approve VA Loans With Low Credit Scores

Many veterans get denied for VA loans by big banks and lenders due to lender overlays, not because they truly don’t qualify. At Gustan Cho Associates, we go strictly by VA guidelines with no overlays and we specialize in helping borrowers get approved even with credit scores under 580, recent late payments, high DTI ratios, and manual underwriting cases. We believe our veterans deserve a second chance at homeownership and we’re here to help make that happen.

Frequently Asked Questions (FAQs): VA Loans With Low Credit Scores

1. Can I get VA loans with low credit scores?

Yes, you can get VA loans with low credit scores. There’s no official minimum credit score required by the VA, though many lenders have their own credit score guidelines. Some lenders, like Gustan Cho Associates, approve VA loans with as low as 500 credit scores.

2. What credit score do most VA lenders look for?

Most lenders prefer at least 580–620 credit score, but some will go lower with strong compensating factors like stable income or low debt.

3. Will I need a bigger down payment with a low credit score?

No. One of the main benefit of VA loans is that they require no down payment even for borrowers with lower credit scores.

4. Will a low credit score increase my interest rate on a VA loan?

Possibly. While VA loans generally offer competitive rates, a lower credit score may lead to a slightly higher rate depending on the lender’s pricing.

5. Can I still get a VA loan with collections or late payments on my credit report?

Yes, but it still depends on how recent and how severe they are. Lenders may ask for letters of explanation or proof that the issues have been resolved.

6. Do I need to pay off my debt to qualify for VA loans with low credit scores?

Not always. Lenders look at your debt-to-income (DTI) ratio. If your income supports your current debts, you may still qualify without paying anything off.

7. Can I get approved for a VA loan while in a Chapter 13 bankruptcy?

Yes, in some cases. If you’ve made 12 on-time payments and have court approval, you may be eligible for a VA loan during an active Chapter 13.

8. What can I do to increase my chances of getting approved to VA loans with low credit scores?

Showing strong income, low DTI, cash reserves, or a clean recent payment history can all improve your chances. Working with a VA-friendly lender helps too.

9. Is manual underwriting available for VA loans with low credit scores?

Yes, manual underwriting available for VA loans with low credit scores. If you don’t get an automated approval, your loan may still be eligible through manual underwriting with additional documentation and compensating factors.

10. Who should I talk to if I’ve been denied VA loans with low credit scores?

Reach out to a lender with no overlays like Gustan Cho Associates. They specialize in helping veterans and service members get approved for VA loans with low credit scores.

Final Thoughts on VA Loans With Low Credit Scores

If you’re a veteran or active-duty military with shaky credit, you can still qualify for a VA loan in 2025. Don’t let banks or call center lenders discourage you. The VA program was created to reward your service not punish you for your credit history. By understanding the guidelines, finding a flexible lender, and preparing the right documents, VA loans with low credit scores are not only possible they’re happening every day.

Ready to Get Pre-Approved for VA Loans with Low Credit Scores?

At Gustan Cho Associates, we approve VA loans with credit scores as low as 500. If other lenders said no, we’re ready to say YES. No overlays, manual underwriting specialists, and fast closings. Gustan Cho Associates is one of the best when it comes to VA Loans with low credit scores. Call us now at (800) 900-8569 or text us for a faster response. You can also email us at alex@gustancho.com. Our expert Loan Officers are available even during weekends and holidays!