Veteran couple feeling secure outside their new Texas home.

VA Loans in Texas: Bypassing a Low Credit Score

Q: What is the minimum credit score required for a VA loan?

A lender's seasoning period is a mandatory waiting time after you purchase or refinance a property before you can access the full after-repair value (ARV) for a cash-out refinance. Most DSCR lenders require a seasoning period of 6 to 12 months. Refinancing before the seasoning period concludes typically means the lender will base the loan amount on your original purchase price plus rehab costs, which severely limits the amount of equity you can cash out. Waiting until after the period allows you to borrow against the full market value you created through your renovations.

Q: Why do lenders have credit score requirements if the VA doesn't?

To justify a higher appraised value, you should provide the appraiser with a detailed and organized renovation packet. This packet removes guesswork and provides concrete evidence of the work performed. It should include: a cover letter summarizing the major upgrades, a detailed scope of work document itemizing all improvements, compelling before-and-after photos showing the property's transformation, copies of paid invoices and receipts for materials and labor, and copies of any official building permits that were issued for the work.

Q: How can a VA loan be approved despite major credit issues like bankruptcy or foreclosure?

No, LTV limits for cash-out refinances vary significantly among different DSCR lenders, as each has its own guidelines and risk tolerance. While purchase loans may reach 80% LTV, cash-out refinances are often capped at 70% or 75% LTV. The specific LTV offered to an investor is influenced by several factors, including: Credit Score (higher scores typically qualify for higher LTVs), DSCR Ratio (a stronger income-to-debt ratio may result in a better LTV offer), Property Type (a single-family home might receive a higher LTV than a multi-unit property), and Loan Amount (some lenders may offer different terms based on the size of the loan).

Q: What are compensating factors and how do they help with VA loan approval?

Your property's monthly rental income is the foundation of a DSCR loan approval. The formula is: DSCR = Gross Rental Income / Total Monthly Housing Payment. A higher rent results in a higher DSCR. This proves to the lender that the property can comfortably support a larger loan payment, which in turn allows you to qualify for a larger loan amount and maximize your cash-out.

Q: Will shopping with multiple lenders for a VA loan hurt my credit score?

Yes, it is often possible to pay for closing costs with the proceeds from your new loan, meaning you don't need to bring cash to closing. However, these costs are not added on top of your loan limit. Instead, the closing costs are subtracted from the total cash-out funds available to you after your existing mortgage is paid off. The total loan amount, including these costs, cannot exceed the lender's maximum LTV limit based on the property's appraised value.

Q: How do lenders in military communities analyze a service member's credit report?

Investors can make several avoidable errors that reduce their available cash-out funds. The most common mistakes include: Poor Documentation (failing to provide an appraiser with a thorough renovation packet can lead to a conservative and lower valuation), Refinancing Too Soon (not waiting for the lender's seasoning period to expire is a costly mistake that forces the loan to be based on cost rather than value), Lacking a Tenant (attempting to refinance a vacant property is less favorable, as lenders prefer the security of a signed lease over estimated market rents), and Ignoring Lender Differences (accepting the first loan offer without comparing options can mean missing out on better LTV limits or shorter seasoning requirements from other lenders).

Q: How long does the VA loan closing process typically take?

The ideal time to begin the refinance process is 30 to 45 days before your lender's seasoning period expires. This allows you to gather all necessary documentation, secure an appraisal, and complete underwriting so that you can close immediately once the seasoning requirement is met. Crucially, by this time, the property should also be 'stabilized,' which means you have a qualified tenant in place with a signed lease and have collected at least the first month's rent.

February 27, 2026

Specialized In Jumbo Loans, Investor Loans, DSCR Loans, Non-QM Financing, Commercial Mortgages, and Tax-Informed Lending Strategies

Published By

David Ghazaryan

Owner / Broker / Banker

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(702) 766-3744

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TL;DR

This overview explains how VA loan qualifications work, especially for applicants with lower credit scores. Key takeaways include:

No Official VA Minimum Score: The Department of Veterans Affairs does not set a minimum credit score for its home loans. However, private lenders who fund the loans typically require a score between 580 and 620 as part of their own risk management guidelines.
Military-Focused Underwriting: Lenders familiar with military life often analyze credit reports with more context. They understand that issues like late payments can occur during deployments or relocations (PCS moves) and may be overlooked with a proper explanation.
The Role of Compensating Factors: A lower credit score can be offset by strengths in other areas of your financial profile. Underwriters look for positive elements such as strong residual income (money left after all bills), significant cash reserves, stable employment history, and a low debt-to-income ratio to approve a loan.

What is the Lowest Credit Score Accepted for a VA Loan?

One of the most persistent myths about home loans is that you need nearly perfect credit to qualify. For active-duty military and veterans using their VA loan benefit, this is simply not true. The Department of Veterans Affairs, which guarantees the loan, does not impose a minimum credit score requirement. This official flexibility is a cornerstone of the VA loan program, designed to make homeownership accessible to those who serve.

However, it's crucial to understand the difference between the VA's rules and the lender's rules. Because the VA only guarantees a portion of the loan, private lenders who fund the mortgage still assume some risk. To manage that risk, they implement their own internal guidelines called 'lender overlays'. These overlays often include a minimum credit score.

For most lenders, this minimum FICO score is typically between 580 and 620. (The data, information, or policy mentioned here may vary over time.) A borrower with a score above 620 will likely have a straightforward approval process, assuming they meet other criteria. A borrower with a score between 580 and 619 may require a manual underwrite, where an underwriter personally reviews the entire loan file to assess its strength. Below 580, options become more limited, but approval is still possible with lenders who specialize in these scenarios, provided strong compensating factors are present.

How Lenders in Killeen View Credit Differently for Military Members

Lenders in military-centric communities like Killeen, Texas, home to Fort Cavazos, often approach credit reports with a more nuanced perspective. They are familiar with the financial realities of military life, such as Permanent Change of Station (PCS) moves, deployments, and the unique pay structure (including BAH and BAS). This understanding translates into a more forgiving underwriting process compared to conventional loans.

An underwriter for a conventional loan might see a 60-day late payment from two years ago as a simple red flag. A VA-savvy underwriter in Killeen might see that it occurred during a deployment to a combat zone where mail access was limited. With a proper Letter of Explanation (LOX), this blemish can be contextualized and potentially overlooked.

Military family discussing their VA loan options with a lender

This 'military lens' means they focus more on the overall credit pattern rather than isolated incidents. They want to see that you are responsible with your finances. A history of consistent rent and utility payments, even if they aren't reported to credit bureaus, can be used as supporting evidence in a manually underwritten loan.

Can Recent Credit Problems Be Overlooked for a VA Loan Approval?

While VA guidelines are flexible, they are not a free pass for recent, significant credit issues. The VA has specific waiting periods for major derogatory events:

Chapter 7 Bankruptcy: Typically requires a two-year waiting period from the discharge date.
Chapter 13 Bankruptcy: Can be considered after 12 months of on-time payments within the bankruptcy plan, with court permission.
Foreclosure: A two-year waiting period is standard.

For minor issues like late payments, collections, or charge-offs, the focus is on the last 12 months. The underwriter's goal is to determine if the credit issue was a temporary setback or a pattern of financial mismanagement. If you had a 30-day late payment on a credit card six months ago but have been perfect since, a strong LOX explaining the situation is essential. For example, you might explain that the late payment was due to a banking error during a PCS move from one duty station to another.

The key is demonstrating recovery. If your credit report shows you've taken steps to resolve issues and have maintained a clean payment history for at least a year, an underwriter is more likely to view the past problems favorably.

What Compensating Factors Help With Low Credit Scores on Home Loans?

Compensating factors are positive elements in your financial profile that help offset the risk associated with a low credit score. For a VA loan, these factors can be the deciding element between a denial and an approval, especially in a competitive market like San Antonio. A strong file with multiple compensating factors gives the underwriter the confidence to approve the loan.

Strong Residual Income

This is the most critical factor for VA loans. Residual income is the amount of money left over each month after paying all major expenses, including your new mortgage payment (PITI), taxes, other debts, and a VA-mandated amount for family living expenses. The VA sets a minimum residual income guideline based on your family size and region. For instance, a family of four in Texas might need to have at least $1,158 left over each month. (The data, information, or policy mentioned here may vary over time.) If your household has $1,500 in residual income, exceeding the guideline significantly, this is a powerful compensating factor that shows you can comfortably handle your financial obligations.

Significant Cash Reserves

Cash reserves are funds you have saved after paying your closing costs. These funds are measured in months of the full mortgage payment (PITI). While VA loans famously require no down payment, having savings demonstrates financial discipline. For a borrower with a 600 credit score, showing three to six months of PITI in a savings account is a significant strength. For a proposed $2,500 monthly mortgage payment in a San Antonio suburb, having $7,500 to $15,000 in reserves after closing is a game-changer.

A beautiful new home in a San Antonio suburb, ideal for military families

Stable Employment and Military Service

Longevity and stability in your career are highly valued. For active-duty personnel, continuous service is a powerful sign of reliable income. A service member with eight years of active duty is viewed as a very low-risk borrower. For veterans, showing a consistent two-year history in the same job or industry post-service accomplishes the same goal. This stability assures the lender that the income used to qualify for the loan is likely to continue.

Low Debt-to-Income (DTI) Ratio

Your DTI ratio compares your total monthly debt payments to your gross monthly income. While VA guidelines are generous and can sometimes allow DTI ratios over 50%, having a lower DTI is a major compensating factor. If the underwriter sees a credit score of 590 but a DTI of only 38%, it shows that your income is not over-leveraged, reducing the risk of default.

Will Shopping for VA Loans for Bad Credit Hurt My Score Further?

This is a common fear that prevents many homebuyers from finding the best deal. The credit scoring models are designed to allow for rate shopping. All mortgage-related credit inquiries that occur within a specific time frame, typically 14 to 45 days depending on the scoring model, are combined and treated as a single inquiry. This means you can speak with multiple lenders and get pre-approved without your score dropping with each application. Shopping for the right lender is particularly important when you have a lower credit score, as some lenders have more favorable guidelines and pricing for these scenarios. A small amount of effort can save you thousands over the life of the loan.

How Quickly Can I Close on a Home in San Antonio with a VA Loan?

In a fast-paced market like San Antonio, the ability to close on time is essential. A typical VA loan closes in about 30 to 45 days. (The data, information, or policy mentioned here may vary over time.) This timeline is comparable to most other loan types. Here’s a general breakdown:

Pre-Approval: 1-3 days.
Home Shopping & Contract: Varies.
VA Appraisal & Underwriting: 2-3 weeks. The VA appraisal includes a check for Minimum Property Requirements (MPRs) to ensure the home is safe and sanitary.
Final Approval & Closing: 1 week.

For a borrower with a low credit score, the process might take slightly longer if a manual underwrite is needed. The underwriter may request additional documentation, such as a detailed LOX or proof of rental history. Working with a lender who is an expert in VA loans can help streamline this process, anticipating document requests and ensuring a smooth path to closing.

Are There Lenders Who Specialize in VA Loans for People with Bad Credit?

Yes, and finding them is key to your success. Not all lenders are equipped to handle complex files. Large national banks often have rigid overlays and automated underwriting systems that may automatically decline an application with a score below 620.

To find the right fit, look for:

Mortgage Brokers: Brokers work with dozens of different lenders, including those who specialize in VA loans and have more flexible guidelines for lower credit scores.
Lenders Known for Manual Underwriting: A lender that actively promotes its ability to manually underwrite VA loans is more likely to have the expertise and willingness to review your entire financial picture.
Local, VA-Focused Lenders: Lenders near military installations like those in Killeen or San Antonio often have dedicated teams that focus exclusively on VA loans. They understand the nuances and are better prepared to navigate a file with compensating factors. If you're an active-duty service member or veteran in Texas, understanding your full mortgage eligibility is the first step. A detailed review of your credit and compensating factors can reveal options you might not have known were available to secure a home in communities like San Antonio or Killeen.

If you're ready to take the next step towards homeownership, our team specializes in helping military members and veterans navigate the VA loan process. Discover what you qualify for when you apply for a mortgage.

Author Bio

David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including those recovering from foreclosure or bankruptcy. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for investors and homebuyers alike. Praised for exceptional customer service, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve.