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To be honest, "bad credit" is a relative term, and what it means depends on who is looking at it. FICO scores go from 300 to 850. Most mortgage lenders use FICO scores from Experian, Equifax, and TransUnion to figure out how creditworthy you are.
Scores below 580 are called "poor" by FICO, and scores between 580 and 669 are called "fair." Most traditional lenders have required a minimum score of 620 in the past, so getting financing with a score below that is hard. But the situation is important. When an FHA lender looks at a borrower with a 550 score, they look at the whole picture, including their income stability, savings, debt ratios, and the reason for the low score. A medical collection from three years ago is very different from a pattern of missed payments on several accounts.
FICO says that the average credit score in the U.S. is 715. The Home Mortgage Disclosure Act says that the average conventional borrower has a score of about 755. FHA borrowers have a score of about 692, and VA borrowers have a score of about 725. You have fewer choices if your score is much lower than those averages, but you still have some.
Not every loan program treats credit the same way. Government-backed mortgages were created to expand homeownership access, and they remain the best path forward for borrowers with credit challenges.
FHA loans are insured by the Federal Housing Administration and remain the most popular choice for buyers with lower credit scores. The program was built to help people who might not qualify for conventional financing, and it delivers on that promise.
If your credit score is 580 or higher, you can qualify for an FHA loan with as little as 3.5% down. If your score falls between 500 and 579, you can still qualify, but you'll need a 10% down payment. These are the FHA's own guidelines; individual lenders may set higher minimums, so it's worth talking to multiple lenders to find one that will work with your specific score.
FHA loans come with mortgage insurance: an upfront premium of 1.75% of the loan amount and an annual premium that ranges from 0.15% to 0.75%, paid monthly. For most borrowers putting less than 10% down, the annual premium stays for the life of the loan. The tradeoff is access. FHA loans give you a way into homeownership that conventional loans might not, and you can always refinance into a conventional loan later once your credit improves and you've built equity.
FHA also evaluates your debt-to-income ratio, typically preferring a back-end DTI below 43%, though exceptions exist when you have compensating factors like significant cash reserves or a long employment history. The property must be your primary residence and must meet FHA minimum property standards.
If you've served in the military, a VA loan may be the single best mortgage option available to you, especially with imperfect credit. The Department of Veterans Affairs does not set a minimum credit score at the program level. Instead, the VA allows individual lenders to establish their own requirements, and most set that floor somewhere between 580 and 620.
VA loans require zero down payment and carry no monthly mortgage insurance. Instead, borrowers pay a one-time funding fee ranging from 1.25% to 3.3% depending on the down payment and whether it's a first or subsequent use of the benefit. Veterans receiving VA disability compensation are exempt from the funding fee entirely.
For a buyer with a 580 credit score, a VA loan can save thousands compared to an FHA loan because there's no monthly mortgage insurance premium weighing on the payment. The VA also tends to be more forgiving of past credit events like bankruptcy or foreclosure, as long as sufficient time has passed and you've reestablished credit.
USDA Rural Development loans offer zero-down financing for buyers in eligible rural and suburban areas. The USDA itself does not mandate a minimum credit score, but most lenders require at least a 640. If your score is below that, USDA loans will likely be out of reach unless you find a lender willing to do manual underwriting with compensating factors.
USDA loans carry a 1% upfront guarantee fee and a 0.35% annual fee, both of which remain for the life of the loan. Household income cannot exceed 115% of the area median income, and the property must be in a USDA-eligible location. These loans work well for buyers who meet the geographic and income criteria, but the credit requirements are a step above FHA.
Here's something worth knowing: Fannie Mae and Freddie Mac removed their minimum credit score requirements from conventional loan guidelines in late fall of last year. The agencies shifted their approach to evaluate borrowers based on a broader set of risk factors, including reserves, debt levels, property characteristics, and loan purpose, rather than relying on a single credit score threshold.
What does that mean for you? In practice, individual lenders still set their own minimums, and most continue to require a 620 or higher for conventional loans. But the door has opened for some borrowers with lower scores to qualify for conventional financing when they have strong compensating factors elsewhere. If you have a 600 credit score but substantial savings, stable employment, and a low debt-to-income ratio, it's worth asking a conventional lender whether they'll consider your application under the updated guidelines.
Conventional loans offer an advantage that FHA does not: private mortgage insurance can be canceled once you reach 20% equity. For borrowers who start with bad credit but improve over time, a conventional loan avoids the lifetime mortgage insurance that comes with FHA.
Your credit score does more than determine whether you qualify. It directly shapes the cost of your mortgage for the next 30 years.
Lenders use your credit score as one of the primary factors in setting your interest rate. According to myFICO data, the difference in interest rates between the highest and lowest FICO score tiers can add roughly $169 per month to your mortgage payment on a $250,000 loan. Over 30 years, that adds up to approximately $61,000 in additional interest.
To put that in practical terms: a borrower with a 760 credit score might receive a rate around 6.4% on a 30-year fixed mortgage, while a borrower with a 620 score on the same loan could see a rate near 8.0% or higher. On a $300,000 loan, that rate gap translates to roughly $300 more per month. Those dollars are real, and they compound every single month for the life of the loan.
Lower credit scores often require larger down payments. FHA borrowers with scores between 500 and 579 must put 10% down instead of 3.5%. Conventional lenders may require 5% to 10% down for borrowers in the lower qualifying range, even though the minimum is 3% for those with stronger credit profiles. A larger down payment reduces the lender's risk and can sometimes offset a weaker credit score during underwriting.
On conventional loans, your credit score is one of the factors that determines your private mortgage insurance rate. Borrowers with lower scores pay higher PMI premiums, sometimes significantly so. A borrower with a 760 score might pay 0.3% of the loan amount annually in PMI, while a borrower with a 620 score could pay 1.0% or more. On a $300,000 loan, that's the difference between roughly $75 per month and $250 per month in mortgage insurance alone.
FHA mortgage insurance is standardized regardless of credit score, which is actually an advantage for lower-score borrowers. The VA funding fee also does not vary by credit score. For borrowers with damaged credit, these government programs provide more predictable costs.
If your credit needs work, here's the good news: focused effort over three to six months can move your score meaningfully. Here's where to start.
Pull your free credit reports from all three bureaus at AnnualCreditReport.com. Look for accounts that don't belong to you, incorrect payment statuses, duplicate collection accounts, and outdated negative items that should have aged off. According to the CFPB, errors on credit reports can reduce your score and cost you money through higher interest rates. Dispute any inaccuracies directly with the credit bureau, which has 30 to 45 days to investigate and respond.
Your credit utilization ratio, the percentage of your available credit that you're using, makes up roughly 30% of your FICO score. The CFPB recommends keeping utilization below 30%, but lower is better. If you're carrying $8,000 in credit card debt across $10,000 in total limits, that 80% utilization is dragging your score down significantly. Paying those balances to $3,000 or less could boost your score by 30 to 50 points or more within a single billing cycle.
Payment history accounts for 35% of your FICO score, making it the single most influential factor. Every late payment that hits your credit report damages your score, and recent late payments hurt more than older ones. Set up automatic minimum payments on every account to prevent accidental missed payments. Then pay extra toward the balance whenever you can. Six months of consistent on-time payments sends a positive signal to scoring models.
Each new credit application generates a hard inquiry on your report, which can temporarily lower your score by a few points. If you're planning to apply for a mortgage within the next six to twelve months, avoid opening new credit cards, financing furniture, or taking out a car loan. The exception is rate shopping for your mortgage itself: multiple mortgage inquiries within a 45-day window count as a single inquiry for scoring purposes, so comparing lenders won't hurt you.
If a family member has a credit card with a long history, low utilization, and perfect payment record, ask them to add you as an authorized user. You don't need to use the card or even possess it. The account's positive history will appear on your credit report and can boost your score. This strategy works best when the primary cardholder has excellent credit habits and a card with a high limit and low balance.
Collection accounts damage your score, but how you handle them matters. Some newer FICO scoring models ignore paid collection accounts, meaning settling the debt could improve your score. For medical collections specifically, paid medical debt has been removed from credit reports under recent industry changes. If you have medical collections, verify whether they still appear on your report and dispute them if they've been paid. For other types of collections, consider negotiating a "pay for delete" agreement where the creditor agrees to remove the account from your report upon payment.
Know your credit score and understand your credit report. Pull reports from all three bureaus and review them for accuracy. Know where you stand before approaching a lender.
Talk to a HUD-approved housing counselor. These counselors provide free or low-cost guidance on preparing for homeownership, improving your credit, and understanding your loan options. Find one at consumerfinance.gov or by calling 800-569-4287.
Determine which loan programs fit your situation. Based on your score, down payment savings, and military status, narrow your options to FHA, VA, USDA, or conventional.
Get preapproved with multiple lenders. Different lenders have different credit overlays. A lender that won't touch a 560 score may have a competitor down the street that will. Getting preapproved also shows you what rate and terms you qualify for.
Save for a larger down payment if possible. A bigger down payment reduces the lender's risk and can help offset a lower credit score. It also lowers your loan amount, your monthly payment, and your total interest over the life of the loan.
Keep your finances stable during the buying process. Do not change jobs, open new credit accounts, make large purchases, or move money between accounts in ways that look unusual to an underwriter. Lenders verify your financial picture at multiple points before closing.
Consider a co-signer or co-borrower. If you have a family member with stronger credit who is willing to apply with you, their income and credit profile can strengthen the application. Be aware that both parties are equally responsible for the debt.
Close on your home and start building equity. Once you're in the home, continue improving your credit. When your score reaches the mid-to-upper 600s or higher and you've built 20% equity, you may be able to refinance into a conventional loan with better terms and no mortgage insurance.
Buying a home with bad credit requires extra care to avoid costly missteps. Here are the ones I see most often.
Do not accept the first loan offer you receive. Borrowers with lower credit scores face the widest range of rate quotes between lenders, which means shopping around can save you more than it would for a borrower with excellent credit. The CFPB reports that failing to comparison shop costs the average home buyer approximately $300 per year.
Do not ignore your debt-to-income ratio. Even if your credit score qualifies you for a loan, a high DTI can disqualify you at underwriting. Most loan programs prefer a back-end DTI below 43%, and some require lower. Pay down existing debts before applying.
Do not drain your savings for the down payment. Lenders want to see that you have reserves after closing, typically two to six months of mortgage payments in the bank. If you empty your accounts to make the down payment, the underwriter may view that as a risk.
Do not make large deposits or financial moves you can't document. Underwriters trace every deposit over $200 to $500 depending on the lender. Unexplained deposits require sourcing, and if you can't provide a paper trail, the deposit may not count toward your qualifying assets.
Do not co-sign for anyone else's debt while you're in the home buying process. That obligation will appear on your credit report and could push your DTI past the qualifying threshold.
If your credit isn't quite ready for a mortgage, or if you've been declined by multiple lenders, there are other ways to work toward homeownership.
Down payment assistance programs exist in every state, and many are designed for buyers with moderate credit. These programs offer grants, forgivable loans, and deferred-payment loans that reduce the amount of cash you need at closing. Contact your state housing finance agency or a HUD-approved counselor to find programs you qualify for.
Rent-to-own agreements allow you to rent a property with the option to purchase it at a predetermined price after a set period. A portion of your rent payments may be credited toward the purchase price. This gives you time to improve your credit while locking in a future home. Be cautious with these arrangements and have an attorney review the contract before signing.
Manual underwriting is an option with some FHA and VA lenders. When you don't meet the automated underwriting requirements, a human underwriter reviews your file manually, considering factors like rental payment history, utility payment history, and savings patterns that automated systems might overlook. Not every lender offers manual underwriting, so you may need to search specifically for one that does.
It will be harder, more expensive, and take longer to buy a house if you have bad credit than if you have good credit. But it is possible, and millions of Americans do it every year through FHA, VA, and other programs that are set up for this. The most important thing is to be honest about your credit score, know what your options are, and make a plan. The best path for you depends on your own numbers and the market in your area. You can buy now with an FHA loan and refinance later, or you can spend six months working on your credit score to get better terms.
Your credit history doesn't say anything about what kind of homeowner you'll be in the future. It tells you what the terms of your first mortgage are, and those terms can get better over time as you make payments, build equity, and get better with money. The hardest part is getting started, and since you're reading this, you've already done that.
A score of 500 is the lowest you can get for a mortgage. This means you can get an FHA loan with a 10% down payment. There is no set minimum for VA loans, but most lenders want you to have a credit score between 580 and 620. There isn't an official minimum for USDA loans, but most lenders want 640. Recently, conventional loans stopped requiring minimums for investors, but most lenders still want a score of 620 or higher. If your score is below 500, you need to work on raising it before you apply.
Yes. You should probably get an FHA loan. FHA rules say that if your score is 550, you can get a loan with a 10% down payment. Some lenders won't work with scores below 580, so you may need to call a few FHA lenders to find one that will. VA loans may also be an option for you if you are a qualified veteran and can find a lender whose overlay accepts your score. You should expect to pay a higher interest rate than people with scores in the 600s and 700s, but you can still buy a house.
Based on myFICO data, the difference between the highest and lowest credit score tiers can add about $169 a month and $61,000 over the life of a 30-year mortgage on a $250,000 loan. For loans of more money, the difference is even bigger. A borrower with a 620 score might pay 1.0% to 1.5% more in interest on the same loan than a borrower with a 760 score. Over time, this adds up to tens of thousands of dollars. This is why you can save a lot of money by raising your score by 20 to 40 points before you apply.
This depends on how quickly you can improve your score and how the housing market is where you live. If you can raise your score from 580 to 640 in three to six months by paying off debts and fixing mistakes on your report, the interest savings over 30 years might be worth the wait. If the prices of homes in your area are going up faster than your savings, it might be better to buy now and then refinance later. A housing counselor can help you understand the numbers from both sides.
It's possible but not likely if you have bad credit. Fannie Mae and Freddie Mac got rid of their official minimum credit score requirements in late fall of last year. However, most individual lenders still want a score of 620 or higher for conventional loans. FHA and VA are better options if your score is below 620. If your score is between 600 and 619 and you have strong compensating factors like a low DTI, large reserves, and stable employment, some traditional lenders may look at your application under the new risk-based evaluation framework.
You need to have a hard credit check done to get preapproved for a mortgage. This could lower your score by a few points for a short time. If you apply for a mortgage with more than one lender within 45 days, though, FICO will only count those inquiries as one. This means you can find the best rate without hurting your score with each application. The small, short-term drop from a hard inquiry isn't nearly as bad as the benefit of knowing what you can get and getting the best deal.
Instead of just an automated system, a real person looks over your loan application when you use manual underwriting. When your credit score is too low for automatic approval, manual underwriting lets the underwriter look at things that a computer might not see, like a strong history of paying bills, rent, and saving money on time, as well as a good reason for past credit problems. You can do manual underwriting for both FHA and VA loans. Not all lenders offer it, so make sure to ask when you apply for a loan.
Adding a co-signer or co-borrower's income and credit history to your mortgage application can help it get approved. This might help you get a bigger loan or a lower interest rate. But the person who co-signed is also responsible for the debt. It hurts their credit too if you don't pay on time. Some loan programs say that the co-signer must live in the property, while others let co-borrowers who don't live there. Before you go ahead, talk to your lender about the terms and make sure you both understand what you're getting into.
The amount of time you have to wait depends on the type of loan and the type of bankruptcy. You have to wait two years for FHA and VA loans and four years for conventional loans if you file for Chapter 7 bankruptcy. If you file for Chapter 13 bankruptcy, FHA and VA may let you apply for a loan one year into your repayment plan if the court says it's okay. On the other hand, conventional loans require you to wait two years after your discharge or four years after your dismissal. These dates are based on the idea that you have fixed your credit and haven't missed any payments or gotten any bad marks during the waiting period.
People who want to buy a home can get free or low-cost advice from a housing counselor who has been approved by HUD. They can check your credit report, help you make a budget and savings plan, tell you which loan programs are best for you, and connect you with local programs that can help you with your down payment. The counselor is there to help you and doesn't make money from selling you a loan. You can reach a HUD-approved counselor by going to the Consumer Financial Protection Bureau's website or calling 800-569-4287.
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