How To Buy A House With Bad Credit | Loan Options 2025

Can I buy a house with bad credit?

Yes, you can buy a house with bad credit. While securing home loans for bad credit can be challenging, it’s definitely achievable.

Across the industry, the lowest possible credit score to get a mortgage loan is 500. However, it’s important to note that mortgage lenders willing to accommodate such low scores are few and far between.

Additionally, these lenders usually charge higher interest rates to offset the risk associated with lending to borrowers with poor credit histories.

In this article (Skip to...)

• Lowest credit score to buy a house
• Home loans for bad credit
• Getting a bad credit home loan
• Bad credit mortgage lenders
• FAQ

What is the lowest credit score to buy a house?

Credit scores are typically categorized into tiers—excellent, very good, good, fair, and poor—which can impact your ability to qualify for a mortgage.

FICO credit score ranges:

• Below 580: Poor
• 580 to 669: Fair
• 670 to 739: Good
• 740 to 799: Very good
• 800 and above: Excellent

The lowest credit score to buy a house typically starts at 500 for FHA loans with a higher down payment, while conventional loans often require a minimum score of 620. Knowing the lowest credit score to buy a house can help you assess your options and take steps to improve your financial standing.

Home loans for bad credit

Home buyers seeking bad credit home loans have multiple programs to choose from. Yet, the FHA loan stands out as the most common mortgage option for those with poor credit histories.

When comparing home loans for bad credit, evaluate the loan terms, interest rates, and monthly payments to determine which suits your personal finances best.

Although each loan program and lender has its own unique credit score requirements and minimum down payments, here’s what you can generally expect to see:

Conventional loans: 620 credit score

Conventional loans are arguably the most common type of mortgage. Borrowers with low credit scores may wish to consider alternative options because a conventional loan would most likely have higher interest rates and fees.

• A minimum credit score of 620 is generally required.
• Loan-level price adjustments (LLPAs) are based on credit score and loan-to-value ratio (LTV).
• Private mortgage insurance (PMI) is required for down payments of less than 20% of the home purchase price.

As your LTV rises and your credit score falls, your fee goes up. For instance, a borrower with a 20% down payment and a 700 credit score will pay 1.25% of the loan amount in LLPAs. But an applicant with a 640 score and 10% down will be charged a fee of 2.75%.

Still, despite the higher costs associated with lower credit scores, conventional loans remain a viable option for many, with FHA loans often presenting a more cost-effective route for bad-credit borrowers.

FHA loans: 500 credit score

An FHA mortgage is a government-backed loan guaranteed by the Federal Housing Administration. This is why they’re a good option for borrowers with bad credit. You can qualify for an FHA loan with a low credit score of 500 and a 10% down payment, or 3.5% down if your FICO is 580 or above.

• FHA loans accept applicants with credit scores as low as 500.
• Applicants with scores between 500 and 579 need a 10% down payment.
• Borrowers with low or bad credit may pay higher mortgage interest rates, but FHA loan rate increases are typically lower than conventional loans.
• An upfront and annual mortgage insurance premium (MIP) is required, which adds to the loan’s overall cost.

Another appealing quality is that, unlike conventional loans, FHA-backed mortgages don’t carry risk-based pricing. This is also known as “loan-level pricing adjustments” (LLPAs). Risk-based pricing is a fee added to loan applications with lower credit scores or other less-than-ideal traits.

FHA loans are a strong option if you’re seeking home loans with bad credit. This type of mortgage offers lenient qualifying credit requirements and no risk-based pricing adjustments.

VA loans: 580 credit score

The Department of Veterans Affairs offers VA loans to veterans, active-duty service members, and some military-affiliated borrowers. VA loans do not require a down payment or ongoing mortgage insurance payments.

• VA loans do not have a minimum credit score, but lenders typically prefer a minimum of 580 to 620.
• Borrowers with lower credit scores get rates comparable to those with higher credit scores.
• VA loans are renowned for offering the lowest interest rates available.
• A one-time funding fee is included, which most borrowers roll into their closing costs.

VA loans are among the best options for financing a home for those who qualify, regardless of credit history.

USDA loans: 640 credit score

USDA loans are popular with home buyers in qualifying rural areas because they offer zero-down payment options and competitive mortgage rates.

• Applicants need a minimum 640 credit score to qualify.
• The property must be situated in a designated rural area.
• Household income cannot exceed 115% of the area median income (AMI).
• Whether you’re purchasing a home or refinancing your current mortgage with a USDA loan, you’ll pay a 1% upfront guarantee fee and a 0.35% annual fee.

A USDA mortgage is a government-backed loan guaranteed by the U.S. Department of Agriculture. This is why USDA loans are a great option for people looking to buy real estate in a rural area because they have flexible credit requirements and require no down payment.

How to get a home loan for bad credit

Improving your chances of getting a bad credit home loan may seem daunting, but there are strategies to boost your loan approval odds. As you begin the loan approval process, mortgage underwriters will review your entire financial history. If your credit is low but the rest of your financial picture looks good, you’re more likely to get approved.

By following these proven steps, you can significantly improve your appeal to lenders and streamline your home buying process.

Check your free credit report for accuracy

The three major credit bureaus (Experian, Equifax, and TransUnion) make mistakes sometimes. Your creditors can report inaccurate information to the credit bureaus, too. Monitor your credit history to notice errors before they lower your score. The government has set up a website where you can check your credit accounts free: annualcreditreport.com

Dispute inaccurate information

If you do find inaccurate information in your credit history, be sure to file a dispute, especially if the errors include huge blemishes like foreclosures, repossessions, or collections accounts.

Collections accounts can linger on your credit reports for years. They can negatively impact your financial standing even after they’re paid, as paying off a collection upgrades its status to “Paid” but doesn’t remove it from your report.

Negotiating for its complete removal, known as “Pay for Delete,” by contacting the collection agency and offering payment in exchange for deletion from your credit report is a game-changer. Always ensure this agreement is in writing before making any payments, effectively erasing the financial mishap and potentially boosting your credit score.

Get mortgage loan preapproval

Securing mortgage preapproval is a pivotal step for buyers with bad credit. It not only clarifies your budget but also boosts your appeal to sellers. The preapproval process can also pinpoint where to improve your credit so be honest about your finances when seeking preapproval; lenders may suggest programs for credit issues.

Lower your DTI and credit utilization ratios

Lenders evaluate your debt-to-income ratio, or DTI, to determine if you can afford a new monthly mortgage payment. Reducing existing debts before submitting a mortgage application can make qualifying for a home loan easier.

Similarly, paying down credit card debt and personal loan balances also lowers your credit utilization ratio. Credit utilization measures your debt balance against your credit limit. For instance, a $7,000 balance on a $10,000 credit limit results in a 70% ratio, which is considered high. Aiming for a utilization ratio of 30% or lower can significantly boost your credit score.

Improve your payment history

Missed and late payments will lower your FICO score. To raise your credit score, be sure to make on-time payments on all your loans and credit cards. It’s a good idea to set your accounts on autopay.

Consider a co-signer

If you’re unable to qualify for a mortgage due to a low credit score, you might want to consider bringing a co-signer into the equation. A co-signer essentially vouches for you, making lenders more comfortable with extending credit your way. In essence, you’re leveraging another person’s higher credit score and financial stability to boost your chances of securing that loan.

That said, it’s crucial to understand the responsibilities and implications for both parties involved. The co-signer’s credit score will be affected, for better or worse, by the loan’s performance. Lenders might also average your credit scores, depending on their specific policies, which can make the loan more attainable. Nevertheless, your interest rates will often be based on the lower of the two scores, meaning you may pay a bit more over the life of the loan.

Avoid unnecessary hard pulls

First things first: not all credit checks are detrimental to your credit score. Soft inquiries, such as those conducted for background checks, don’t affect your score.

However, hard inquiries, like the ones made when you apply for a new credit card or a loan, can lower your score a bit. Each hard pull can reduce your credit score by a few points. So always check whether the creditor will be performing a hard or soft pull on your credit report.

Leverage home equity

For homeowners who are unable to cash-out refinance due to bad credit, a home equity line of credit (HELOC) may be a solution. A HELOC allows access to funds based on the equity built in the home. By tapping into home equity through a HELOC, individuals bypass the strict credit requirements of conventional cash-out refinancing.

This approach can unlock cash for renovations, debt consolidation, or other financial needs, even when a poor credit score would typically close doors to such opportunities.

Bad credit mortgage lenders

A less-than-perfect FICO score doesn’t mean you’re confined to dealing with subpar mortgage lenders. Surprisingly, some top-tier lenders specialize in assisting borrowers whose credit scores hover around or even dip below 600.

While it’s true that qualification may not be possible for everyone and your interest rate might be above what a “prime” mortgage borrower would receive, you have just as much right to seek out the best mortgage rates, fees, and customer service. Don’t let your credit score deter you from exploring all available options.

For comprehensive advice on finding the right lender for your situation, check out our guide to the best bad credit mortgage lenders. This resource lists the top lenders specifically catering to bad credit home loans, helping you make an informed decision that aligns with your needs.

FAQ: Home loans for bad credit

Check your eligibility for a bad credit home loan

It’s possible to buy a house with bad credit.

You’ll likely pay a higher mortgage rate, but you could get on the homeownership ladder now and start building equity. And you can always refinance to a lower rate later once your credit improves.

Want to find out whether you qualify for one of the many home loans for bad credit? Consulting with a mortgage loan officer about your options is free and will help you determine which bad credit mortgage program is best for you.