Bad credit? These lenders might be able to help
Just because your FICO score isn’t as good as you’d like, doesn’t mean you’re stuck with a bottom-tier mortgage lender. In fact, some of the very best lenders out there are willing to help borrowers with credit scores near or below 600.
Of course, not everyone will qualify. And your rate will be higher than a “prime” mortgage borrower. But you can still shop around for the best interest rate, fees, and customer service, just like any other home buyer.
Here’s where we recommend starting your search.Get matched with a mortgage lender. Start here
In this article (Skip to...)
- Bad credit mortgage lenders
- What’s bad credit?
- Bad credit mortgage loans
- Refinancing with bad credit
- Find the best mortgage rate
- Improving credit scores
- Review methodology
|Lender||The Mortgage Reports Score1|
Home Point Financial
American Financing Corporation
Mr. Cooper (Nationstar)
Getting a mortgage loan with bad credit can be a challenging task. However, several lenders specialize in offering bad credit home loans.
Our analysis of average mortgage interest rates* revealed that the following five lenders are the most suitable for home buyers with bad credit.
It’s important to remember that while these lenders may be more accommodating, maintaining good financial habits and striving to improve your credit score can help you secure even better loan terms in the future.
*From our list of the top 10 lenders for 2022. These are the lenders best suited for poor-credit borrowers due to their minimum credit score requirements.
The best bad credit mortgage lenders in 2022, ranked
To find the lenders that were best for borrowers with bad credit, we looked at loan-level data filed in 2022 under the Home Mortgage Disclosure Act (HMDA).Get matched with a lender. Start here
Keep in mind that the years 2020 and 2021 saw record-low mortgage interest rates. Mortgage rates have increased as of late, and industry experts anticipate that they will continue to rise through 2023. Lenders may therefore modify their credit score requirements in response to changes in borrower default rates in order to more effectively manage their risk.
Even so, using these average credit score minimums gives you a useful starting point for comparison shopping by allowing you to compare lenders side by side.
Home Point Financial
Home Point Financial is recognized for its understanding of individual financial circumstances. Their flexible underwriting criteria include consideration of factors beyond the traditional credit score. This approach allows them to offer loans to a broader range of borrowers, including those with less-than-perfect credit. Moreover, they often provide low rates compared to other lenders, even for those with bad credit, which can make the loan application process more accessible.
American Financing Corporation
American Financing Corporation offers a diverse range of mortgage options. Their flexible loan products are designed to meet varying needs, with consideration given to lower credit scores. This allows applicants to secure lower interest rates as their creditworthiness isn’t judged solely on their credit scores.
loanDepot stands out for its accommodating minimum credit score requirements. They specialize in helping applicants secure loans even with lower credit scores. Their focus is on the full financial picture of the borrower, thereby allowing more individuals to access home loans.
For those with poor credit, Mr. Cooper, formerly known as Nationstar Mortgage, also makes a strong case. Their flexible underwriting process takes into consideration the financial hardships that might have led to a lower credit score. This way, they ensure that a wide array of borrowers can access their services.
Rocket Mortgage, by Quicken Loans, has earned a reputation for its user-friendly online loan application process. Their platform simplifies the traditionally complex mortgage process, making it more accessible to borrowers, including those with bad credit. They offer several loan options suitable for various credit scores, ensuring that potential homeowners have the best chance at securing a mortgage.
What’s considered ‘bad credit’ for a mortgage?
We’re talking about bad credit mortgage lenders here. But what exactly is “bad credit”?
Many lenders follow the scoring model from FICO, the company that created the most widely used scoring technologies. It reckons that anything below 580 counts as “poor.”
If your score is in the 580–669 range, it’s actually considered “fair.” If it’s between 670 and 739, it’s good,” and anything above that is “exceptional.”
- Below 580: Bad credit
- 580-669: Fair credit
- 670-739: Good credit
- Above 740: Excellent credit
However, it’s important to understand that the definition of “bad credit” can vary because lenders are free to define their own score ranges however they like. That means what one lender considers a bad credit score could be perfectly acceptable to another lender.
Just because your score is in the low range doesn’t mean you can’t get approved for a mortgage. But you’ll likely need a sizable down payment and a good story that explains your low score and shows that its cause is in your past.
You’re also likely to have to seek out a sympathetic lender. And that’s where our list of the best bad credit mortgage lenders can come in handy.Check your mortgage eligibility. Start here
How a low credit score affects your mortgage
Even if you’re approved for a loan, a low score means you’re going to pay a higher mortgage rate than someone with a better score. That part is unavoidable.
How much higher? FICO has a calculator that could give you an idea. It actually doesn’t go below 620, but it can give you a feel for the difference a credit score makes.
Here’s how the numbers looked for a $250,000 mortgage (though keep in mind that these will vary as mortgage rates change daily):
|Credit score range||Estimated APR*||Monthly payment||Total interest paid over 30 years|
*Interest rates and payments were sampled in June 2023 and may not reflect current market rates
The monthly differences may look small. But even if you pay just $30 more per month, your total interest costs go up by $10,000.
As credit scores go lower, the difference in interest rates and payments grows.
See your home buying options. Start here
What type of mortgage can I get with bad credit?
Of course, you’re not just seeking out the best lenders for people with bad credit. You need a type of mortgage that can accommodate your needs. Here are the main ones:
- FHA loans: FHA loans, backed by the Federal Housing Administration, are the most popular option for borrowers with bad credit. Most borrowers need a minimum credit score of 580 and a 3.5% down payment to qualify. But if you can make a 10% down payment, you may be approved for an FHA mortgage with a credit score of 500–579.
- VA loans: VA loans have no formal minimum credit score. But most lenders want at least 620. Some go as low as 580. And a few, such as Navy Federal Credit Union, don’t specify a score and may be sympathetic if yours is low for a good reason. We excluded Veterans United from our list because it wants a 660 credit score or better
- USDA loans: USDA loans typically require a credit score of at least 640, so they may not be the best for low-credit borrowers. But if your score is high enough, you can use a USDA loan to purchase a home with no down payment
- Non-conforming loans: These loan programs, for which banks and lenders set their own rules, may allow credit scores below 600
Conventional mortgages — loans that conform to standards set by Fannie Mae and Freddie Mac — require a minimum score of 620 and a 3% down payment. That’s why FHA loans are more popular among those with lower credit scores.
Non-conforming loans do not meet the standards set by Fannie Mae and Freddie Mac, meaning they’re not eligible for backing from those agencies.
As a result, non-conforming loans typically have higher interest rates, but they may be available to borrowers with low credit scores.
Pick the type of loan that suits you best. If you’re eligible for a VA loan, it’s likely to be one of those.Find the right home loan for you. Start here
How to get a mortgage with bad credit
Navigating the homebuying process can be daunting for first-time home buyers, especially those with poor credit histories. Yet the prospect of homeownership is not entirely bleak. Many bad credit mortgage lenders provide tailored solutions that can turn your dream of a new home into a reality, even with a subpar credit score.
Securing a mortgage with bad credit starts with understanding your financial situation. You need to be cognizant of:
- Your payment history: This includes any late payments, defaults, or bankruptcies that may be on your credit report. Lenders will typically view a history of missed payments as a red flag and may be hesitant to approve you for a mortgage
- Your income and employment stability: Lenders want to see that you have a steady source of income and stable employment. This helps them assess your ability to make consistent mortgage payments
- Your credit score: A lower credit score can make it more difficult to qualify for a mortgage, but it doesn’t necessarily mean you won’t be able to get one. There are bad credit mortgage lenders who specialize in working with borrowers with lower credit scores
- Your debt-to-income ratio (DTI): DTI is a financial metric used by lenders to determine a borrower’s ability to repay their debts. It is calculated by dividing the borrower’s total monthly debt payments by their gross monthly income. A lower debt-to-income ratio indicates that a borrower has a lower level of debt in proportion to their income, which is generally viewed as more favorable by lenders
Bear in mind that the loan amount you may be approved for will largely depend on your financial health and your ability to make mortgage payments. While homeownership with bad credit is possible, it might come with higher interest rates and loan terms that are less favorable. As a potential homeowner, it’s important to ensure that you’re comfortable with these terms before signing any agreement.
Consider a mortgage broker
One of the best ways to find a bad credit mortgage lender is to consult with a mortgage broker. Brokers have extensive connections in the real estate market and can help you explore a range of mortgage options. They can guide you towards lenders who specialize in helping borrowers with low credit scores, rural areas, or unconventional employment circumstances.
Credit score vs. credit report
It’s easy to fixate on your credit score, the single number that represents your reliability as a borrower. But mortgage lenders don’t just look at this number. They also do a thorough review of your credit report.
Your credit report shows your full history as a borrower. If you have a low score because of a past event, like a foreclosure, but you’ve been a reliable borrower since then, lenders might be more forgiving.
How to compare mortgage lenders
When you’re seeking to purchase a new home, it’s critical to compare different bad credit mortgage lenders to secure the best loan terms for your unique situation. Understanding the array of mortgage options available to you can save you a considerable amount of money in the long run.Compare mortgage offers from multiple lenders. Start here
Each lender varies in terms of the interest rates, closing costs, loan amounts, and repayment terms they offer. Some might cater specifically to first-time home buyers or homeowners living in rural areas. It’s important to delve deep into these aspects when comparing lenders.
A mortgage broker can be a great asset in this scenario as well. They can help you navigate through the sea of lenders, explaining the pros and cons of each one. Mortgage brokers can streamline the process, enabling you to make an informed decision about your homeownership journey.
Remember, the loan terms are not the only criteria for choosing a lender. Consider their reputation, customer service, and responsiveness to your inquiries. Transparency in their dealings should also be a priority.
How to refinance a mortgage with a low credit score
Refinancing your mortgage can be a strategic move for homeowners looking to lower their monthly mortgage payments or switch from an adjustable-rate to a fixed-rate mortgage. But if you have a low credit score, you may think that refinancing is out of reach. However, bad credit mortgage lenders can help you.
Just like the process for first-time home buyers, refinancing requires an assessment of your payment history, income, and overall financial health. This helps to determine your qualifying chances for refinancing and the terms you could be offered.
It’s important to note that while you can refinance with a low credit score, your options might be limited compared to borrowers with better credit. You might face higher interest rates or additional closing costs, but the opportunity to lower your monthly payments or secure a fixed interest rate could still make refinancing worthwhile.
The key is to discuss your circumstances and goals with a mortgage broker or lender, review all your mortgage options, and decide if refinancing is the right step towards more manageable homeownership. As with any financial decision, you should carefully weigh the costs and benefits before proceeding.Review refinance rates from multiple lenders. Start here
What type of mortgage refinancing can I get with bad credit?
How easy it is to refinance with bad credit will depend on your current loan type and what you want your refinance to achieve.
If you currently have a government-backed loan, you may be in luck. FHA, VA, and USDA all offer Streamline Refinance programs that do not require credit score approval. However, some lenders check credit anyway, so you’ll have to search for one that doesn’t.
To use a Streamline Refinance, your new loan must be the same type as your current one. For instance, refinancing a VA loan to a VA loan or an FHA loan to an FHA loan.Review your streamline refinance options. Start here
Conventional loan refinance
Conventional refinances, like conventional home purchase loans, require a credit score of at least 620.
If your current mortgage is a conventional loan and your credit score has fallen, you may be eligible for an FHA refinance. However, FHA loans require expensive mortgage insurance. This could eat up enough of your savings that refinancing isn’t worth it.Verify your refinance options. Start here
If you want a cash-out refinance, you’re likely to need a higher credit score. FHA cash-out refinancing typically requires a credit score of 600 or higher. And a VA cash-out refinance will often require at least 620.
If you currently have a conventional loan but your credit score isn’t high enough for a conventional cash-out refinance, an FHA cash-out refinance might help you access your home equity.Verify your cash-out refi eligibility. Start here
What to do if your credit score is too low for a home loan
The obvious way to get a mortgage with bad credit is to improve your score. You may be surprised at how quickly you can make a material difference.
There are other ways to qualify for a mortgage with bad credit, too.
- Pay down as much existing debt as you can. If you’re a more attractive borrower in other respects, lenders may be more forgiving about your score. Paying down existing debts, like credit cards and auto loans, improves your debt-to-income ratio. This has a big impact on your home loan eligibility
- Build up your savings. Making a bigger down payment can also help your case, as it reduces your risk to the mortgage lender. Borrowers with a cushion against financial problems are less likely to default. If you’re able to make a 20% down payment, a low credit score might not matter as much
- Qualify on a friend's or relative's good credit. If you can get someone with good or great credit to co-sign your mortgage application, your problems may be over. But it’s a huge ask because your loved one could lose a lot of money and creditworthiness if your loan goes bad
We wouldn’t recommend asking for a co-signer in any but the most exceptional circumstances, because this can be a huge risk to the person helping you out. If your loan defaults, they’re on the line for the money.
Instead, we recommend steadily building up your credit score.
Even if you can’t pay off big debts in full, making on-time payments and keeping your credit usage under 30% can go a long way toward improving your score and boosting your mortgage eligibility.
How to improve your credit
Improving your credit is a crucial step towards opening more doors in your financial journey, especially if you’re aiming to work with bad credit mortgage lenders. An improved credit score can make the underwriting process smoother, lead to better loan terms, and increase your chances of getting approved for a mortgage.
Review your free credit reports
One of the most fundamental aspects of credit improvement is understanding your credit score. Major credit bureaus such as Experian, Equifax, and TransUnion provide annual credit reports that detail your credit history. These reports can help you identify areas that need improvement, such as late payments or high credit card balances.
Pay your bills on time
Late payments can significantly impact your credit score. To mitigate this, aim to pay all your bills on time. If you have missed payments, make it a priority to get current as soon as possible. Keep in mind that the impact of a late payment reduces over time, so it’s never too late to start making consistent, on-time payments.
Pay down your debts
Underwriting decisions often consider your credit utilization ratio, which is the amount of credit you’re using compared to your total available credit. To improve your credit, try to keep your credit utilization ratio below 30%. You can either increase your credit limits or pay off your current balances to achieve this.
Dispute any errors on your credit report
Dispute any inaccuracies you find on your credit report promptly. The credit bureaus—Experian included—have procedures in place to investigate and correct errors on your report. This can be an effective way to boost your credit score.
Remember, improving your credit is not an overnight process. It takes time, discipline, and consistent effort. But with these steps, you’re on your way to a better financial future and increased opportunities with mortgage lenders.
Check your home buying options. Start here
FAQ: Mortgage lenders for bad credit
Absolutely. Some mortgage lenders specialize in providing loan opportunities to borrowers with bad credit. These bad credit mortgage lenders understand that a low credit score doesn’t necessarily reflect your ability to manage mortgage payments. They often offer a variety of mortgage options tailored specifically to borrowers who have experienced financial challenges, providing a path to homeownership for individuals with less-than-perfect credit.
While there are lenders who specialize in assisting borrowers with poor credit, a score as low as 480 is indeed quite challenging. Typically, most lenders will require a credit score of at least 500, even for more lenient mortgage types such as FHA loans. In such cases, larger down payments and other compensating factors might be necessary.
Yes, it’s possible to get an FHA loan with a credit score as low as 500. The FHA, or Federal Housing Administration, insures loans made by FHA-approved lenders to borrowers with lower credit scores.
If your credit score is between 500 and 579, you can qualify for an FHA loan, but you’ll typically need to put down a 10% down payment. If your credit score is 580 or higher, you may qualify with a down payment as low as 3.5%. Remember, individual lenders may have additional criteria beyond the FHA’s minimum requirements.
The minimum credit score to qualify for a mortgage varies depending on the type of loan and the lender’s underwriting criteria. For most conventional loans, many lenders prefer a credit score of 620 or higher. However, government-backed loans like FHA loans have more lenient requirements. For instance, some FHA loans can be approved with credit scores as low as 500 but with a higher down payment requirement.
How to find the best mortgage rate with bad credit
Some lenders specialize in “top-tier” borrowers, who have excellent credit scores, bulletproof finances, and large down payments. But other lenders, including the six on our list, are perfectly comfortable helping those with damaged credit.
So shop around to see who can offer you the best deal. And if one lender turns you down, don’t assume they all will, because that’s not how mortgage lending works. Each lender’s business priorities can change from day to day. And different lenders offer different deals.
Putting some effort into comparison shopping could find you the loan you want at the best rate you can get.
Verify your new rate
To find the best mortgage lenders for bad credit, we started with a list of the 50 biggest lenders in 2022 (the most recent data available at the time of writing per the Consumer Financial Protection Bureau's Home Mortgage Disclosure Act (HMDA) Data). We compared mortgage companies based on third-party data including average 30-year fixed interest rates, median total loan costs, and median origination costs as well as online customer ratings and a review of each lender’s mortgage offerings by our editorial team. Average interest rates and fees were sourced from loan-level data lenders are required to file each year under the HMDA act. All mortgage lender reviews are carried out independently by The Mortgage Reports’ editorial team. You can read our full editorial disclosures hereTime to make a move? Let us find the right mortgage for you