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VA Loan With a 500 Credit Score
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The VA sets no minimum credit score — but at 500, most lenders will not take the file. The automated underwriting system returns Refer on virtually every file below 600, and the handful of lenders that review files at this score band require compensating factors that are not optional but mandatory. For most borrowers at 500, the honest path is a focused 60–90 day rebuild to 580, then apply with a lender equipped to handle manual underwriting.
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\n \n Next step:\n Check Your VA Loan Eligibility\n \n
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Check VA Loan Eligibility With a 500 Credit Score
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This tool maps your numbers against the approval factors lenders weigh at the lowest score bands. Enter your DTI, residual income, and recent payment history to see where your file stands — and whether rebuilding to 580 before applying changes the math.
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The Reality at 500
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- VA policy: The VA sets no minimum credit score — VA Pamphlet 26-7 requires lenders to evaluate creditworthiness but publishes no numeric floor.
- AUS finding: At 500, the automated underwriting system returns Refer on every file — only manual underwriting is available.
- Lender landscape: Most VA lenders floor at 580–620. Very few accept files at 500, and those that do require strong compensating factors on every front.
- Honest assessment: A 500-score file can close, but the realistic path for most borrowers starts with a 60–90 day rebuild to reach 580.
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Your Two Paths
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- Path 1 — Apply now: Find a specialty lender that reviews files below 580 and demonstrate overwhelming compensating factors: residual income well above the VA guideline, zero lates in 12 months, and liquid reserves.
- Path 2 — Rebuild first: Pay down revolving balances, dispute errors, stabilize payments for 60–90 days, then apply at 580 where lender options multiply.
- Which path fits: If your score is low because of high utilization on one or two cards, the rebuild may take weeks. If the damage is from recent lates or open collections, it takes longer.
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The 500-to-580 Bridge
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- Utilization paydown: Paying revolving balances below 30% of limits can add 20–50 points within one billing cycle.
- Dispute errors: Removing an inaccurate collection through the bureaus can add 25–60 points in 30–45 days.
- Rapid rescore: A lender-initiated rescore reflects paid balances in 3–5 business days instead of waiting for the next statement cycle.
- Timeline: If utilization is the primary drag, 580 may be reachable in 30–60 days. If recent lates or open collections are the issue, expect 3–6 months.
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FHA at 500 vs VA
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- FHA down payment: HUD Handbook 4000.1 requires 10% down for scores between 500 and 579 — no 3.5% option at this band.
- VA down payment: Zero down regardless of score — the VA imposes no score-based down payment requirement.
- FHA insurance: 1.75% upfront MIP plus 0.55% annual MIP for the life of the loan on terms over 15 years with less than 10% equity.
- VA insurance: One-time funding fee (2.15% first use, exempt for disabled veterans). No monthly mortgage insurance at any score.
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Top questions before you dig in
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Can I get a VA loan with a 500 credit score?
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The VA sets no minimum, so the program does not disqualify you. The barrier is lender overlays. Most VA lenders floor at 580 or 620. A small number of specialty lenders review files at 500 when compensating factors are strong — residual income well above the VA regional guideline, zero lates in 12 months, and verified reserves. For most borrowers at this score, a 60–90 day rebuild to 580 opens significantly more lender options.
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Should I apply now or rebuild my credit first?
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It depends on what is dragging the score down. If high credit card utilization is the main factor, paying balances below 30% of limits can gain 20–50 points in one billing cycle — reaching 580 may take weeks, not months. If the score reflects recent late payments or open collections, rebuilding takes longer and applying now with a specialty lender may be the better path if your income and reserves are strong.
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Which lenders work with 500-score VA files?
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VA-specialty lenders and mortgage brokers with access to multiple wholesale channels are the most likely to review files below 580. Large retail banks typically hold overlays at 620 or higher. The lender minimum comparison table lists published minimums across major VA lenders — start there and filter for lenders that accept scores below 580.
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For most borrowers sitting at 500, the highest-ROI move is a focused rebuild to 580 before applying. That 80-point gap sounds large, but credit scores at this level are often depressed by one or two fixable factors — a maxed credit card, a collection that should not be there, or a period of missed payments that has since stabilized. Addressing the right factor first can close part of that gap within a single billing cycle. The bad-credit VA loan guide covers the full landscape of approval paths, compensating factors, and rebuild timelines for borrowers below 620.
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If you are at 500 and cannot wait, this page explains what the lender landscape actually looks like at this band, what the underwriter needs to see, and when FHA with 10% down might be the faster path. If your score can reach 580 within 60–90 days, the 580 credit score VA loan guide covers the approval path, lender selection, and pricing at that band.
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- The VA sets no minimum credit score — every floor you encounter is a lender overlay, not a program rule. [VA rule — Ch. 4 Topic 1a]
- At 500, the automated underwriting system returns Refer — manual underwriting by a human reviewer is the only approval path.
- Most VA lenders set overlays at 580–620. Very few review files below 580, and those that do require strong compensating factors across multiple dimensions. [Common lender overlay]
- The fastest path from 500 to 580 starts with revolving credit utilization — paying balances below 30% of limits can produce 20–50 points within one billing cycle.
- FHA is the primary alternative at this score band, but HUD Handbook 4000.1 requires 10% down for scores between 500 and 579 — not the 3.5% minimum available at 580.
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What a Lender Sees at 500
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At 500, AUS returns Refer on every file regardless of how strong the other factors are. Refer is not a denial — it routes the file to a human underwriter for manual review. The practical problem is that most lenders will not review the file at all. A lender with a 620 overlay rejects the application before it reaches an underwriter. A 580-overlay lender does the same. The file only moves forward if the lender’s guidelines reach your score band.
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What the manual reviewer evaluates at 500 is the same set of factors they review at 580 — residual income, payment history, reserves, DTI — but the burden of proof is higher. At 580, strong compensating factors are helpful offsets. At 500, they are table stakes.
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| Factor | At 500 | At 580 |
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| AUS finding | Refer — always | Refer — on nearly all files |
| Lender availability | Very few specialty lenders | VA-specialty lenders and some brokers |
| Compensating factors | Mandatory across all dimensions | Strong but some flexibility |
| 12-month payment history | Must be clean — no exceptions | Clean history expected, minor blemishes possible with offsets |
| Residual income | Should exceed VA guideline significantly | 120%+ of guideline is strong offset |
| Reserves | Multiple months of PITI expected | 2–3 months of PITI is strong |
| Rate pricing | Highest pricing adjustments | Below-640 pricing adjustments apply |
| Down payment | $0 — still zero down | $0 — still zero down |
| Monthly mortgage insurance | $0 — VA carries no PMI | $0 |
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Approval Watchpoint
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A 500-score file with recent late payments in the past 12 months is not a manual-underwrite candidate — it is a rebuild candidate. Manual reviewers at this score band need to see clean recent behavior to justify the approval. If the last 12 months are not clean, no amount of income or reserves moves the file forward. Stabilize payments first, then assess whether to apply or continue rebuilding.
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What Kind of Lender Reviews a 500-Score File
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Large retail banks will not review a file at 500. Their overlays typically start at 620 and their systems reject applications below that floor automatically. The lenders who consider files at this score band fall into three categories.
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VA-specialty lenders focus primarily on VA lending and some maintain published minimums below 580. Not all do — many floor at 580 — but the lenders that accept 500-range files are concentrated in this category.
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Mortgage brokers submit files to multiple wholesale lenders through a single application. One wholesale channel may floor at 600 while another accepts 500 with documented compensating factors. The broker’s value at this score band is access to the subset of wholesale lenders whose guidelines reach below 580.
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Select credit unions with Military-focused programs occasionally apply relationship-based underwriting that weighs member history alongside the score. This path depends on the specific institution and is not available broadly.
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The lender minimum comparison table lists published minimums across major VA lenders. Start there to identify which lenders accept scores at or below your current level. Then ask three screening questions before applying:
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- What is your minimum credit score for VA purchase loans?
- Do you review files that receive a Refer finding from AUS?
- What compensating factors do you require on files below 580?
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Those three answers filter the field faster than rate shopping. A lender who cannot answer the third question clearly has not closed files at this band and is unlikely to start with yours.
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The most common reason an approvable low-score file gets declined is not the overlay — it is loan officer inexperience. A loan officer unfamiliar with Refer files may decline the application rather than submit it for manual review. If one lender declines at 500, that does not mean the file is unapproved — it means that lender will not fund it. Get the decline reason in writing and compare at least one lender whose published guidelines reach your score band.
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The 500-to-580 Bridge: A Step-by-Step Rebuild
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The gap between 500 and 580 is 80 points. That sounds like a long road, but credit scores at the low end are often suppressed by a small number of high-impact factors. Fixing the right factor first produces the largest gain in the shortest time. This is not a generic credit improvement guide — it is the specific sequence that moves a 500 toward VA eligibility at 580.
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Step 1: Identify what is dragging the score down. Pull your credit reports from all three bureaus at AnnualCreditReport.com (free, federally mandated). Look for three things in this order: revolving credit utilization above 30%, inaccurate items (wrong balances, accounts that are not yours, duplicate collections), and recent late payments.
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Step 2: Pay down revolving utilization. Balances above 30% of a card’s limit are the single largest drag on low scores and the fastest to fix. Paying a maxed card below 30% can produce a 20–50 point gain in one billing cycle; below 10% produces the maximum FICO boost. Target the card with the highest utilization percentage first — the percentage matters more than the dollar amount. Utilization accounts for roughly 30% of your FICO score (source: myFICO).
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Step 3: Dispute inaccurate items. Under the Fair Credit Reporting Act, bureaus must investigate disputes within 30 days. If a collection is not yours or a balance is reported incorrectly, dispute it directly with each bureau showing the error. A removed collection can produce a 25–60 point gain. File disputes before applying — open disputes during underwriting can delay the approval.
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Step 4: Stop all new damage. No new credit applications, no late payments, no rising balances for 60–90 days. A single new 30-day late at this score level can drop the score by 60 or more points.
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Step 5: Let one billing cycle pass, then get a lender pull. After paydowns and disputes, wait for the next statement cycle so the bureaus update. Then ask a lender for a tri-merge pull to see where your mortgage mid-score lands. If it passes 580, you enter the 580-score approval lane where lender options expand and manual underwriting becomes standard rather than exceptional.
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| Action | Typical Gain | Timeline |
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| Pay revolving balances below 30% utilization | +20 to +50 pts | 1 billing cycle |
| Pay below 10% utilization | +30 to +60 pts | 1 billing cycle |
| Remove inaccurate collection via dispute | +25 to +60 pts | 30–45 days |
| Rapid rescore after paydown | Same gain, faster | 3–5 business days |
| 12 months on-time payments after a late | +40 to +80 pts | 12 months |
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Moving from 500 to 580 changes the entire approval and pricing equation. At 500, lender options are limited to a handful of specialty shops. At 580, multiple VA-specialty lenders and brokers review files. At 620, most VA lenders approve through AUS without manual review. Each threshold you cross expands the field and reduces pricing adjustments. If utilization paydown alone can push you past 580 within 30–60 days, the delay is almost certainly worth it.
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FHA at 500: The 10% Down Tradeoff
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If no VA lender will take the file at 500 and the rebuild timeline is longer than you can wait, FHA is the primary alternative. FHA accepts scores as low as 500 — but the terms change significantly at this band.
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HUD Handbook 4000.1 requires a minimum 10% down payment for borrowers with credit scores between 500 and 579. The 3.5% down payment option is only available at 580 and above. On a $300,000 purchase, that means $30,000 down instead of $10,500 — and instead of the $0 down a VA loan requires.
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FHA also charges an upfront mortgage insurance premium of 1.75% and an annual premium of 0.55% divided into monthly payments for the life of the loan on most terms. VA charges a one-time funding fee (2.15% for first use) and no monthly mortgage insurance at any score.
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A two-step strategy can work: buy with FHA using 10% down now, rebuild credit in the home, then refinance into VA once your score supports it. The VA refinance eliminates the monthly MIP and may lower the rate. The VA vs FHA cost comparison on the 580 guide breaks down the math at that score band.
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| Factor | VA Loan | FHA Loan |
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| Down payment required | $0 | $30,000 (10% per HUD 4000.1 for scores 500–579) |
| Upfront fee | $6,450 (2.15% funding fee, first use) | $4,725 (1.75% of $270,000 base loan) |
| Monthly mortgage insurance | $0 | ~$124/month (0.55% annual on $270,000) |
| Cash needed at closing | Closing costs only | $30,000 + closing costs |
| Lender availability at 500 | Very few | Limited but more than VA at this score |
| MIP duration | N/A — no monthly insurance | Life of loan (30-year term, less than 10% equity at origination) |
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Approval Watchpoint
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FHA at 500 with 10% down is not automatic either. FHA lenders apply their own overlays, and many will not go below 580 regardless of HUD guidelines. The search for an FHA lender at 500 is similar to the VA search — you need a lender whose published minimum matches your score. Additionally, FHA requires manual underwriting at this band, the same process VA uses for Refer files.
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When “Rebuild First” Is the Right Answer
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Not every 500-score borrower should apply now. The rebuild-first path is right when any of these conditions apply:
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- Recent late payments in the last 12 months. No manual reviewer approves a 500-score file with fresh delinquencies. Stabilize payments and let 12 clean months accumulate before applying.
- Open collections or charge-offs. Lenders at this band typically require all collections to be paid, in a payment plan, or demonstrably inaccurate. Resolve or dispute them before applying.
- Utilization above 50% on revolving accounts. If paying down two cards below 30% could gain 40–60 points, waiting 30–60 days is the stronger move compared to applying at 500.
- No verifiable income or employment gaps. Manual underwriting requires stable income documentation. Active-duty service counts as continuous employment, but a recently separated Veteran may need to establish civilian income first.
- DTI above 50%. Paying down installment or revolving debt before applying improves both the DTI math and the credit score simultaneously.
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The rebuild target is not perfection — it is 580, where lender options multiply. At 580, VA-specialty lenders review Refer files routinely, manual underwriting is a standard process with closing costs that stay competitive, and compensating factors work as offsets rather than absolute requirements. If utilization paydown alone can push you from 500 to 560–580 within one to two billing cycles, the rebuild is measured in weeks, not months.
\n\n\nA VA loan at 500 is the hardest version of the VA loan to close. The VA sets no minimum — the barrier is the lender overlay, and very few lenders reach this band. Manual underwriting is the only path, and compensating factors are not optional: clean 12-month payment history, residual income well above the VA regional guideline, and verified reserves.\n\n
For most borrowers at 500, the best next step is a targeted 60–90 day rebuild focused on the one or two factors dragging the score down. If utilization paydown can push you past 580, the delay costs weeks and gains access to a wider lender field. If the damage takes 6–12 months to repair, consider FHA with 10% down as a bridge while rebuilding toward a VA refinance. Then compare VA loan offers from lenders whose guidelines fit your credit profile.
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Frequently Asked Questions
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Is 500 too low for a VA loan?
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The VA publishes no minimum (VA Pamphlet 26-7, Chapter 4). Most lenders set overlays at 580 or 620 and will not review a file at 500. A small number of specialty lenders accept files at this score with strong compensating factors. For most borrowers, rebuilding to 580 opens significantly more options.
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How long does it take to go from 500 to 580?
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If high revolving utilization is the main factor, paying cards below 30% of limits can gain 20–50 points in one billing cycle — reaching 580 may take 30–60 days. If recent late payments or unpaid collections are the issue, expect 3–6 months before the score moves meaningfully.
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Does my credit score affect the VA funding fee?
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No. The funding fee is determined by loan type, down payment percentage, and first vs subsequent use — not by credit score. A borrower at 500 pays the same fee as a borrower at 740. Borrowers receiving VA disability compensation, Purple Heart recipients on active duty, and certain surviving spouses are exempt.
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Can I get an FHA loan at 500 instead?
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Yes, but with 10% down. HUD Handbook 4000.1 requires 10% down for scores 500–579 (the 3.5% option requires 580+). FHA also charges 1.75% upfront MIP and 0.55% annual MIP for the life of the loan. More lenders offer FHA at 500 than VA at 500, but the cash requirement and ongoing MIP make it more expensive long-term.
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What if I had a bankruptcy and my score is 500?
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VA allows applications two years after a Chapter 7 discharge and after 12 months of on-time Chapter 13 plan payments with Trustee or Bankruptcy Judge approval (full bankruptcy waiting-period guide). A 500 score after bankruptcy is common — focus the rebuild on utilization, disputes, and payment consistency while the waiting period runs.
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What is the difference between my Credit Karma score and my mortgage score?
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VA lenders use mortgage-specific FICO models (FICO 2, 4, and 5) and take the middle of three bureau scores. Credit Karma uses VantageScore, which weighs factors differently. The gap averages 20–40 points and can exceed 80. If Credit Karma shows 530, your mortgage mid-score may be 490–510. Ask a lender for a tri-merge pull before making decisions.
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Can I use a rapid rescore to jump from 500 to 580?
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A rapid rescore accelerates how fast bureaus reflect changes already made — it does not create score gains by itself. If a paydown would add 50 points, a rescore makes that visible in 3–5 business days instead of 30. If the gain is large enough to cross 580, a rescore compresses the rebuild from a month to under a week. Your lender initiates it — you cannot request one directly.
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Will I pay a higher interest rate at 500 than at 580 or 620?
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Yes. Lenders apply pricing adjustments below 640 that increase the rate, and a 500-score file sits in the highest tier. [Common lender overlay] The exact spread varies by lender. Credit score does not affect the VA funding fee, but it directly affects the interest rate. Moving from 500 to 620 typically eliminates the worst pricing adjustments.
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How We Researched This Page
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This guide was built from a line-by-line review of VA Pamphlet 26-7 Chapter 4 (credit underwriting), HUD Handbook 4000.1 (FHA minimum-score rules), and FICO’s published score-factor methodology. Lender overlay ranges reflect published minimums across VA-specialty lenders and broker channels. No lender names are used in the body; the lender comparison table lists them separately.
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VA guideline review: September 2026
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Resources Used
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- VA Pamphlet 26-7, Chapter 4: Credit Underwriting
- VA.gov — VA-Backed Home Loan Programs
- 38 CFR Part 36 — Loan Guaranty (eCFR)
- HUD Handbook 4000.1 — FHA Single Family Housing Policy
- CFPB — How to Dispute Credit Report Errors
- myFICO — What’s in Your FICO Score
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