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- It's possible to buy a house with bad credit, but you may end up with a high mortgage rate.
- If your score is above 580, you can look into FHA loans or other government-backed mortgages.
- If you can't get approved for a mortgage right now, there are ways to increase your credit score.
Having bad credit can make it hard to buy a house. Most mortgage programs have minimum credit score thresholds you need to meet, and on top of that, your credit score influences what interest rate you get, too.
Still, it's not impossible to buy a house with bad credit — it just takes a little more effort and some careful strategizing.
Is your credit less than perfect? Here's how to get a mortgage loan despite it.
Understanding bad credit mortgage options
Even if you have bad credit, there are mortgage options out there. To start, it helps to understand what "bad credit" actually means to lenders.
What is considered bad credit for a mortgage?
Typically, credit scores below 620 are considered bad — or "subprime" as creditors refer to them.
Though some mortgages and lenders allow you to have a score lower than this, they typically come with more hoops to jump through. There may be mortgage insurance tacked on, a higher down payment required, or other extra assurances your lender will need in order to approve your loan.
Available mortgage options
There are four main mortgage options you can explore if your credit score is on the lower side. These include:
- FHA loans: With an FHA loan, you can qualify with a score of 580 and a down payment of 3.5%. If you have at least 10% for a down payment, you could potentially get approved with a score as low as 500.
- VA loans: The US Department of Veterans Affairs doesn't set a minimum credit score for the loans it guarantees, but most lenders set their own minimum requirements (for example Rocket Mortgage requires a 580 score for its VA mortgages, while Freedom Mortgage requires a 550 score.) These also require no down payment, though you do need to be a veteran or military servicemember.
- USDA loans: USDA mortgages also don't have a minimum credit score or down payment requirement either, so it depends on your lender. You must buy a house in an approved rural area to qualify for this type of loan.
- Non-QM loans: Non-QM loans — or "non-qualified mortgage" loans — give lenders more leeway in who they loan money to. They often have looser credit guidelines, but come with higher interest rates.
In general, a 500 credit score is the lowest you can go when getting a mortgage, though even with a score above this, getting a mortgage can be very costly if you have less-than-ideal credit. Having a score in the upper 600s will typically help you get better pricing.
You can also use our guide to the best low credit score mortgage lenders to see which lenders accept borrowers with lower scores.
Tips to improve your chances of approval
If you have a low credit score and are worried about getting a mortgage loan, the below strategies can help.
Improve your credit score
If you can improve your credit score even slightly before applying, it could help you more easily get a mortgage. You can do this by reducing your debts, paying all your bills on time, and avoiding opening new accounts or lines of credit. Disputing errors on your credit report or getting credit counseling may help, too.
Save for a larger down payment
A larger down payment shows the lender that you are more invested in purchasing a home, and that can give them more confidence that you'll make payments on time.
While there are mortgages that accept down payments of 3%, aiming for higher is best — particularly if you have a low credit score.
Reduce your debt-to-income ratio
Your debt-to-income ratio plays a big role in your ability to get a mortgage. A higher DTI means you have a lot of debt, and it could be a challenge for you to make your payments on time.
Take steps to reduce your DTI by paying down your credit card and loan balances or increasing your income. This could mean taking on extra hours at work, doing some freelancing or consulting on the side, or asking for a raise.
Shop around for lenders
Mortgage lenders can have different requirements — even across the same loan products, so it's important to compare several companies before choosing where to apply. You should also get pre-approved by several. This allows you to compare rates, fees, and other costs you'd see as their customer.
Consider a cosigner
Having someone with great credit cosign your loan can make it easier to qualify. It may even get you better terms and a lower interest rate. Just make sure they know what they're getting into. A cosigner is legally responsible for repaying the loan if you can't. If you both fail to make payments, it could hurt your financial options moving forward.
Navigating the mortgage process with bad credit
Once you're ready to buy a house, follow these steps to get a mortgage:
1. Get preapproved
Getting preapproved is a critical first step when taking out a mortgage. It allows you to understand what budget you're working with, what costs you can expect at closing, and compare lender terms and fees.
2. Be prepared for higher interest rates
Bad credit usually translates to higher mortgage rates, so make sure you're ready for that. It will typically mean a lower homebuying budget and higher monthly payments than you may have been anticipating. Be sure to use a mortgage calculator to run the numbers.
3. Know your mortgage insurance costs
Depending on the type of mortgage you're getting, you may need to pay for mortgage insurance. Private mortgage insurance is required on conventional loans if you put down less than 20%, but if you have a lower score, you might not qualify for one of these loans.
FHA loans come with both upfront and annual mortgage insurance premiums. Upfront mortgage insurance will be paid at closing, while equal portions of your annual premium will be included in your monthly mortgage payment.
USDA loans don't technically have mortgage insurance, but they do have a guarantee fee that works similarly to FHA mortgage insurance, with both an upfront and annual fee. VA loans have an upfront fee called a funding fee.
4. Explore down payment assistance programs
Many state and local programs offer down payment assistance to first-time homebuyers or those with low to moderate incomes. Check with your state housing department to see what's available in your area.
Getting a mortgage with bad credit FAQs
In general, it's difficult to get a conventional mortgage with bad credit. The lowest credit score you can usually have on a conventional mortgage is 620. You may be able to get an FHA, VA, or non-QM loan with a score lower than this, though.
A larger down payment can make it easier to qualify for a mortgage, especially if you have bad credit. You may need at least 20% down on a conventional loan or 10% on an FHA loan.
In general, the absolute lowest credit score you can have and still get approved for a mortgage is 500.
You will pay a higher mortgage interest rate if you have bad credit. The higher rate compensates the lender for the higher risk.
How long it takes to improve your credit score to qualify for a mortgage depends on your situation, but you may be able to improve your score fairly quickly by reducing your debts, paying your bills on time, and avoiding new credit accounts.
You can get an FHA loan with a 500 credit score if you make at least a 10% down payment. On a $200,000 home, this means you'd need to put $20,000 down.
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