How to Get a VA Loan with Bad Credit in 2025

Can I get a VA loan with bad credit?
Yes, you absolutely can - and in this guide, I'll walk you through how it works, what you'll need, and what lenders look for when your credit score is below 620. We'll talk about manual underwriting, residual income, rent history, and how even small improvements to your credit can save you thousands over time.

I'm Alex Ramirez, a VA loan specialist and proud supporter of military families across the country. I've helped veterans and service members close on homes even with scores in the 500s. So hit the like button, subscribe for weekly VA loan tips, and let's make your dream of homeownership a reality - even with bad credit.

You're not alone. Book your free 15-minute call using the link in the description, or call/text me at 805-857-3708 - I personally answer every message.

What Is Considered Bad Credit?

Here's how lenders generally view credit scores:

740+ - Excellent
700 - 739 - Good
620 - 699 - Fair
580 - 619 - Poor
Below 580 - Very Poor

The VA doesn't set a minimum credit score, but most lenders draw the line at 620. That said, you still have options. Some lenders specialize in VA loans for lower scores using manual underwriting, which gives you another path to qualify.

Why VA Loans Are So Powerful

VA loans offer:

Zero down payment
No PMI (Private Mortgage Insurance)
Competitive interest rates
Flexible guidelines

The VA focuses on whether you can afford the home safely, not just your score.

What Is Manual Underwriting?

Normally, applications go through an automated system (AUS). But if it returns a "refer" or "ineligible," your file can be manually underwritten - meaning a real person reviews your situation line by line.

They'll look at:

Employment history and job stability
Rent payment history
Bank balances and spending habits
Full credit report details

Manual underwriting gives you the chance to explain your story and show you're ready for homeownership.

When Is Manual Underwriting Needed?

You may need it if:

Your credit score is below 620
You've had bankruptcy, foreclosure, or collections
Your debt-to-income ratio (DTI) is above 41%
You use nontraditional credit (like rent or utilities)
The automated system doesn't have enough data

Manual underwriting isn't bad - it's a second look, and it's often the key to getting approved.

What You'll Need to Get Approved

To succeed with a manual underwrite, you'll need a complete file:

VA Certificate of Eligibility (COE) - confirms your service and entitlement
Income docs - 30 days of pay stubs, last two years of W-2s/tax returns
Benefit income - VA disability, Social Security, or pension
Bank statements - last two months, all pages, with large deposits explained
Credit report - full report, not just your score

Your lender will also verify your DTI and calculate your residual income (the money left after paying monthly expenses).

Residual Income - The VA's Secret Weapon

Residual income is what's left each month after you've paid your bills. The VA sets minimum amounts based on your family size and region.

If you exceed that minimum, you can often get approved even with a low score or higher DTI. Lenders often value strong residual income more than a credit score.

Compensating Factors That Help You Qualify

Compensating factors show financial stability even if your score is low:

Two or more years in the same job or career field
Savings or cash reserves
12 months of on-time rent payments
No recent late payments or derogatory marks
Low additional debt

Think of these as your financial strengths - they help build trust with the lender.

Letter of Explanation

If your report shows lates, collections, bankruptcy, or foreclosure, you'll write a Letter of Explanation.

Be honest and brief
Explain what happened (job loss, divorce, medical issue, etc.)
Show that it was temporary and your finances have recovered

This reassures the lender that you're now stable and ready to buy.

Why Improving Credit Still Matters

Even though VA loans don't require a specific score, better credit means:

Lower interest rates
Lower monthly payments
More refinance options later

Tips to improve credit:

Pay all bills on time
Keep credit card balances under 30%
Avoid new accounts during the process
Consider secured cards to build credit after closing

Better credit = better financial freedom.

Final Thoughts

Whether your score is 619 or 519, there's a path forward. Once your file is complete - COE, income, rent history, explanations - your lender can submit for manual underwriting.

Many veterans are approved after being turned away elsewhere. The key is a clear file and working with a lender who understands VA guidelines.

If you're ready to take action, book a free consultation, email me, or call/text 805-857-3708.
Let's get you into your new home.