Can You Get a Mortgage With Bad Credit?

Read Time: 4 minutes

Securing a mortgage with bad credit may seem like an uphill battle, but it’s far from impossible. While a lower credit score can make the process more difficult, there are steps you can take to increase your chances of mortgage approval and potentially secure more favorable loan terms.

What is considered bad credit?

There is no fixed credit score range that universally defines “bad credit.” However, the lower your credit score, the more difficult it becomes to secure a mortgage.

“Bad credit” generally refers to a credit history that includes negative events such as late payments, defaults, bankruptcies or excessive debt. Credit is generally measured by your FICO score, which is divided into categories that evaluate your credit rating.

See where your credit score falls in the FICO credit score ratings below:

FICO Credit Score Ranges
Score RangeCredit Rating
< 580Poor
580 – 669Fair
670 – 739Good
740 – 799Very good
800+Excellent

How to Get a Mortgage With Bad Credit

If you have poor credit, you will likely face additional obstacles when securing a home loan. However, there are various steps you can take to improve your chances of getting a mortgage with bad credit:

1. Know your credit history

Before applying for a mortgage, check your credit score and familiarize yourself with your credit history. Understanding your financial standing helps you assess your likelihood of approval and anticipate potential interest rates. There are plenty of online resources, such as AnnualCreditReport.com, to help you explore your credit history.

Online credit reports may not always include your credit score since various companies use slightly different formulas to calculate it. For example, mortgage lenders will often evaluate a unique FICO credit score that is calculated specifically for mortgage lending.

Your bank or credit card company is often a great starting point to give you a better idea of your credit score. Contact your bank, log into your online account or browse your banking app to see if they offer free credit score checks.

2. Improve your credit

Adopt healthy financial habits, including making timely payments and limiting hard credit inquiries, to positively impact your credit score over time. Maintaining consistent efforts toward improving your creditworthiness will be beneficial when seeking a mortgage in the long run.

3. Save for a large down payment

A larger down payment can offset the impact of a lower credit score. According to the National Association of Realtors, the median down payment for 2023 was 15%, or 8% for first-time homebuyers and 19% for repeat homebuyers. Lenders may be more willing to work with you if you can demonstrate financial responsibility through a substantial upfront payment, especially if it exceeds these median values.

While some loan options may not require a down payment, you may still consider this option if you are looking to increase your chances of approval.

4. Consider a government-backed mortgage

Government-backed loans, including FHA, USDA or VA loans, often have more lenient credit requirements and lower down payment options. If you meet the qualifications for one or more of these home loans, they are often a great option for those with poor credit history.

See the chart below for an overview of each loan’s credit score requirements:

Credit Score Requirements for Government-Backed Home Loans
Loan TypeMinimum Credit Score
FHA580
VA620*
USDA640*

*Note: VA loans and USDA loans have no set credit score requirement. The listed scores are general benchmark values that mortgage lenders will typically look for with each loan type.

5. Get a cosigner

Having a cosigner with a higher credit score can significantly improve your chances of mortgage approval. However, it’s important to remember that the cosigner is equally responsible for the loan.

6. Provide explanations for your credit history

When applying for a mortgage, be prepared to explain any negative items on your credit report. Demonstrating that these issues are in the past and have been resolved can build trust with lenders.

7. Work with a mortgage advisor

Consider seeking advice from a mortgage advisor or financial counselor. These experts can offer personalized guidance based on your financial situation and assist you in navigating the mortgage application process more effectively.

8. Shop around for mortgage lenders

Not all lenders have the same criteria when it comes to approving mortgage applicants. Explore various options, including online lenders, credit unions or mortgage brokers, to determine which is the best fit for your financial situation.

Mortgage Lenders for Bad Credit

When shopping around for the right mortgage lender, it’s helpful to compare their individual minimum credit score requirements to see how you compare to their desired applicant.

See the list below for mortgage lenders that may accept a less-than-ideal credit score:

  • New American Funding: 500 minimum credit score
  • Carrington Mortgage Services: 500 minimum credit score
  • Guild Mortgage: 540 minimum credit score
  • Network Capital: 560 minimum credit score
  • Guaranteed Rate: 580 minimum credit score
  • Flagstar Bank: 580 minimum credit score
  • Fairway Independent Mortgage: 580 minimum credit score

A lender’s minimum credit score often varies by loan type, and some lenders may not offer the loan type you are interested in. With this in mind, it’s recommended to contact multiple lenders when starting the process of qualifying for a home loan. Adopting a proactive approach with strategic planning can improve your chances of securing a mortgage, even with bad credit.

Aaron Crowe

Aaron Crowe is a seasoned personal finance and real estate journalist. Aaron writes on real estate as it relates to mortgages, refinancing loans and lending for Refi.com.

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