How to buy a house with bad credit: 5 Steps you should take

November 22, 2022 - 16 min read

Is it hard to buy a house with bad credit?

It can be harder to buy a house with bad credit. But it’s by no means impossible. In 2022, about 1 in 10 borrowers got a mortgage with a credit score below 670.

Even if your credit score is in the 500s, there are ways to buy a house. So-called “bad credit home loans” like the FHA mortgage often approve buyers with scores starting at 580.

Before you write off your chances of becoming a homeowner, try taking these concrete steps that could put buying a house within reach.

Verify your home buying eligibility. Start here

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What’s the minimum credit score to buy a house?

As a rule of thumb, 580 is usually the minimum credit score to buy a house. A 580 FICO score makes it possible to get a government-backed FHA loan or VA loan from many mainstream lenders.

Conventional conforming loans — the most popular type of mortgage — require a credit score of at least 620. And USDA loans set the bar a little higher, at 640. (Though the USDA program requires no down payment, so it’s worth a look if your area is USDA-eligible.)

Loan ProgramCredit ScoreDown Payment
FHA Loan50010%
FHA Loan5803.5%
VA Loan580*0%
Conventional Loan6203%
USDA Loan640*0%

*The Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) do not set credit score minimums. Most lenders require a credit score starting at 580 or 620 for a VA loan or 640 for a USDA loan; however, requirements may vary

Verify your home loan eligibility. Start here

How to buy a house with bad credit in 5 steps

Buying a house with bad credit is doable, but you could face additional hurdles. For instance, your loan options are a little more limited and interest rates may be higher. So it’s important to set yourself up for success as much as possible.

Here are five steps you can take during the home-buying process to improve your odds of qualifying for a home loan.

1. Start with quick credit score wins

If you’re ready to buy a house now, you probably don’t want to spend months (or years) improving your score before you start. But take a little time before applying to look for quick credit wins. Make sure you’re not missing any tricks that could easily boost your score and earn you a lower rate.

  • Check your credit history: You can get a free credit report each year from Pull your credit history before you apply for a mortgage and take some time to review it carefully
  • Look for credit report errors: Credit reporting errors are surprisingly common. Incorrect missed payments or open liens on your report could be dragging your score down. If you notice any errors, work to get them fixed immediately
  • Consider a rapid rescore: It takes time for positive changes to be reflected in your credit score. If you recently made credit improvements or fixed errors in your credit history, ask your lender about a rapid rescore. This could potentially update your score in days instead of months

There’s no guarantee you’ll find quick fixes here. But you might — so it’s always worth taking the time to review your credit before applying. If nothing else, you’ll be better acquainted with your credit report and aware of any potential red flags lenders could bring up during the mortgage process.

2. Explore low-credit loan options

Some would-be home buyers assume they can’t get a mortgage because of their credit scores. But don’t write yourself off so quickly. Many different loan programs can help you get approved with below-average credit.

  • FHA loans (580 score): FHA loans are tailored to home buyers with bad credit. You can likely qualify with a 580 score and 3.5% down, or even a 500 score and 10% down in some cases
  • VA loans (580-620 score): VA loans are usually the best choice for eligible veterans and service members. Minimum credit scores can range from 580-620 or higher depending on the lender. No down payment is required
  • Conventional loans (620 score): Conventional loans (the most common type of mortgage) require a FICO score of 620 or higher. Eligible buyers can get a conventional loan with just 3% down

Keep in mind that while each loan program has a minimum credit score, lenders can set their own guidelines, too. And these may be stricter. For instance, an FHA loan only requires a FICO score of 580 but some lenders set the bar at 620 or higher.

If your score is on the low end for mortgage eligibility, shop around for a lender willing to approve you.

Check your home loan options. Start here

3. Get preapproved by a lender

The best thing you can do when buying a house is to get preapproved by a mortgage lender. Even if you’re not sure about your home loan eligibility, it’s worth getting in touch with a lender to start the process.

Mortgage preapproval will tell you whether you qualify for a mortgage and how much house you can afford. It will also show you your projected interest rate and monthly mortgage payment — so you’ll have a much clearer picture of your future homeownership costs.

Working with a lender can be helpful even if your score is too low to get a home loan. In this case, your loan officer can explain what’s holding you back and help create a plan to improve your credit. They’ll tell you exactly what needs to be done so you can qualify for a mortgage more easily in the future.

Get started on your preapproval. Start here

4. Make any other financial improvements you can

Mortgage lenders look at your full financial picture when you apply for a home loan. Credit score is just one component of that picture. Other factors — like your income, savings, and existing debts — are equally important.

You’ll have an easier time buying a house with bad credit if the rest of your finances look good. If your score is low, see whether you can improve in other areas. For instance, saving a bigger down payment or paying down existing debt could seriously help your application.

Keep in mind that your “debt-to-income ratio” (DTI) matters just as much as your actual income level. The lower your debts are compared to your monthly income, the more home you can afford. Paying down things like personal loans, car loans, and credit cards, if you’re able, is a great way to improve your chances as a home buyer.

5. Avoid common credit mistakes

You might not have time to build up your credit score before you buy a house. But you can avoid common mistakes that would lower your score and hurt your chances of getting a home loan.

If you’re hoping to buy a house soon, don’t apply for multiple credit cards, open new credit accounts, or take out any new loans. Taking on additional debt — like a car payment — will increase your debt-to-income ratio and could substantially lower your home buying budget.

In addition, try to keep your credit usage below 30% of your total limit if possible. (For example, if your credit card has a $3,000 limit, try to keep its balance below $1,000.) Keeping your “credit utilization ratio” low is one of the best ways to maintain a healthy credit score. And low card balances help keep your DTI in check, too.

Be aware that lenders don’t just check your credit when you apply for a mortgage; they usually check it again before closing, too. So you should follow these best credit practices all the way through to closing day.

If your score drops after you’re preapproved but before you close the home loan, it’s possible for your approval to be revoked.

Verify your home buying eligibility. Start here

Can I buy a house with a 500 credit score?

It’s technically possible to buy a house with a 500 credit score using an FHA loan. But in practice, it’s more difficult.

According to the Federal Housing Administration, which backs the FHA program, you can get approved to buy a house with a credit score of 500 and at least 10% down. But in reality, very few lenders will approve borrowers with FICO scores between 500 and 579. Most want to see a score of at least 580.

If possible, aim to get your credit score to 580 or higher before applying for a home loan. This will make approval much more straightforward. Any improvements you make beyond that can only help your case — and likely your interest rate, too.

Verify your home buying eligibility. Start here

Using an FHA loan to buy a house with bad credit

The most common “bad credit home loan” is the FHA mortgage. These loans are specifically intended to help lower-credit buyers become homeowners.

FHA loans are famous for their lenient credit score requirements. If your score is 580 or above, you can buy with just 3.5% down. These rules have made homeownership not only possible, but also affordable for thousands of buyers who couldn’t otherwise get a mortgage.

Importantly, FHA doesn’t punish borrowers for having low credit scores.

Take the standard conventional mortgage for comparison. Conventional loans come with “risk-based pricing.” That means a lower credit score and/or low down payment directly translates to higher interest rates. Conventional borrowers with bad credit will carry higher private mortgage insurance (PMI) rates, too.

This can make a conventional loan more expensive even for borrowers who meet the 620 minimum credit score.

By contrast, FHA won’t charge you a higher interest rate because you have a lower FICO score. FHA rates are meant to be affordable for all home buyers, even those with so-so credit histories.

This is a critical point for home buyers with bad credit. Even if you qualify for a conventional loan, an FHA mortgage might be cheaper.

Ask your loan officer to run the numbers on both loan types. You can compare interest rates, upfront fees, and mortgage insurance costs to figure out which program is truly cheapest for you.

Check your home loan options. Start here

Downsides of buying a house with bad credit

While it’s possible to buy a house with poor credit, there are some real tradeoffs to consider. A bad credit score can lead to higher interest rates, fewer loan options, and high mortgage insurance premiums that deter some would-be buyers.

Let’s take a closer look at what those downsides could mean for you.

Fewer loan options

Having a credit score below 620 limits your home loan options. It’s likely your only choice will be an FHA loan or, if you’ve served in the military, a VA loan.

VA loans are an excellent choice for those who qualify. If you’re a veteran, active-duty service member, or have served in the Reserves or National Guard, you may be eligible for zero down payment. And many VA lenders require a credit score of just 580.

An FHA loan isn’t a bad option by any means. However, it does restrict your home buying prospects a little.

For example, FHA mortgages have lower loan limits than conventional loans. In 2024, the standard FHA loan limit in most areas is $ while the conventional limit is $. So you’ll have to keep your purchase price within budget.

In addition, FHA loans can only be used for a primary residence, meaning a home you’ll reside in full-time. You can’t use this loan type for a vacation home or investment property, Though, if you’re a first-time buyer purchasing a house to live in, that probably won’t bother you.

Mortgage insurance fees

If you use an FHA loan to buy a house with bad credit, you’ll have to pay the FHA’s mortgage insurance premium (MIP). FHA charges both an upfront mortgage insurance fee and an annual one; the annual fee will be included in your monthly mortgage payments, whereas the upfront MIP can be rolled into your loan amount so you don’t have to pay it at closing.

For most borrowers, MIP is the main downside of the FHA loan program. MIP rates — which come in at 1.75% upfront and 0.85% annually — add a fairly substantial amount to your mortgage cost. And you typically pay FHA MIP for the life of the loan (or until you refinance into a different loan type).

Of course, conventional borrowers often pay for mortgage insurance, too. Conventional private mortgage insurance (PMI) is required on loans with less than 20% down. And for borrowers with low credit (in the mid 600s) PMI rates can be even more expensive than FHA mortgage insurance.

The upside to PMI is that you can usually cancel it after a few years, once you’ve gained enough home equity. But look carefully at the numbers before you buy. If your PMI rate would be high because of a poor credit score, using an FHA loan and eventually refinancing out of your MIP might be cheaper in the long run.

Higher interest rates

Probably the biggest downside to buying a house with bad credit is that you could see a much higher interest rate than someone with average or good credit.

That’s a very real drawback. Higher mortgage rates lead to higher monthly payments, lower home buying budgets, and more interest paid to your lender over the long term. Because of this, many home buyers work to boost their score into the higher 600s or even the 700s before buying.

But there’s no one-size-fits-all solution. If you can afford a home at the rate you’re quoted, and you’re ready to own, buying now could be the right decision. And keep in mind that if rates drop later on, you may be able to refinance into a cheaper home loan.

As some mortgage pros like to say, you can “marry the home and date the rate.”

Is it worth buying a house with bad credit?

Taking steps to improve your credit before you buy a house could save you a lot of money. But waiting doesn’t always make sense. Every home buyer is unique, and you should ask yourself a few important questions when deciding whether to buy with bad credit:

  • Can I comfortably afford the loan? If your earnings are consistent and your employment is secure, a fixed-rate mortgage is a safe prospect
  • Can I work on my credit score after buying? Paying a mortgage consistently can help improve your credit score. You can also raise your score by working to pay down debts and keeping your credit card balances low. As your credit score increases, you could have opportunities to refinance into a lower rate and cheaper mortgage payment later on
  • Are home prices rising in my area? If home values just keep rising where you want to buy, waiting until your credit score is higher could mean paying a much steeper price when you’re ready. Keep in mind that once you own a home, those price increases will benefit you in the form of equity gains
  • Is buying a house important at this stage of my life? Buying a home is incredibly personal. If you have a growing family, an aging parent about to move in, or are simply ready to quit renting, buying a house could be the smartest move even with a higher rate

The best thing you can do is run the numbers and take a good hard look at your finances before buying.

Get a mortgage preapproval to see how interest rates and monthly payments would add up at your current credit score. If you can afford the payments for a home you want, buying now could be a great choice. If the numbers don’t currently add up, maybe you want to wait a bit longer while you improve your score.

This is where working with a trusted mortgage advisor can really come in handy.

If you decide you’re not ready to buy, your loan officer can help you develop a credit roadmap to get your score where it needs to be. They’ll help you make a concrete plan and timeline for raising your credit so you can afford the home you want.

Check your home buying options. Start here

Buy a house with bad credit: FAQ

Can you buy a house with bad credit? 

It’s possible to buy a house with bad credit; many lenders allow FICO scores starting at 580. But keep in mind that credit score and credit history are two separate things. While a low score may not get in your way, issues like a bankruptcy or foreclosure on your credit report could block your application.

What is the lowest possible credit score to buy a house? 

It’s possible to buy a house with a credit score as low as 500. But there are some caveats here. First, it’s hard to find lenders that will approve a 500 FICO score; it’s much easier to get qualified with a score starting at 580. Second, buying with a credit score in the 500s can lead to higher interest rates and more expensive mortgage insurance. So if you can get your score to 580 or even 620 before buying, your costs may be significantly lower.

Can I buy a house with bad credit and low income? 

Some loan programs are specifically designed for buyers with low credit and modest incomes. The FHA loan might help if you have bad credit and you’re short on cash flow, thanks to its lenient DTI rules. Other programs, like Fannie Mae’s HomeReady loan, are specifically targeted at low-income home buyers — though you need a credit score of at least 620 to qualify.

Can I get an FHA loan with a 500 credit score? 

Technically, yes. The FHA allows credit scores of 500-579 if you can make a 10 percent down payment. However, few lenders approve scores below 580 in practice. And if your FICO score is 580 or higher, you need only 3.5 percent down instead of 10 percent.

What credit score do I need for a VA loan?

The Department of Veterans Affairs, which wrote the rulebook for VA loans, does not have a minimum credit score. However, lenders get to set their own guidelines and most require a FICO score of at least 580-620 to qualify for a VA loan. Some participating VA lenders offer free credit counseling for veterans who want to buy a house but have poor credit.

What credit score do I need for a conventional loan? 

You need a credit score of at least 620 to buy a house with a conventional loan. For those who qualify, a conventional loan lets you buy with just 3 percent down. But keep in mind that lower credit scores can lead to higher interest rates and PMI costs on conventional mortgages.

What is the fastest way to fix your credit to buy a house? 

If there are errors in your credit history, working with the credit bureaus to get these fixed can quickly improve your score. It often takes a while to see positive credit changes reflected in your score, but some lenders offer a service called a rapid rescore that will help incorporate these changes faster. Other effective strategies to improve your credit include paying bills on time, paying down debts, and keeping credit usage below 30 percent of your total limit. However, building a positive score through these methods can take months or years.

What is the easiest loan to get approved for? 

If your credit score is low, an FHA loan is typically the easiest mortgage to get approved for. The Federal Housing Administration created this program specifically for credit-challenged borrowers. Depending on your situation, though, another loan type could be better. For instance, VA loans are generally an easy choice for eligible veterans and service members. And HomeReady and Home Possible loans can be attractive alternatives to FHA for first-time buyers. So have your lender walk you through all your options.

See if you can buy a house with bad credit

Credit score is not the be-all, end-all for home buyers. Mortgage lenders look at your entire financial portfolio, and a bad credit score might not stand in your way if you have a reliable income and can afford the home you want.

Start the preapproval process with a lender to find out whether you qualify for a home loan. Getting preapproved is typically free and will give you a much clearer picture of your home buying prospects.

Time to make a move? Let us find the right mortgage for you

Maggie Overholt
Authored By: Maggie Overholt
The Mortgage Reports contributor
Maggie Overholt is a former Editor at The Mortgage Reports, where she helps make complex topics more approachable. She has also written for publications specializing in insurance and personal finance.