Can you buy a home if you have bad credit?

If bad credit has you wondering whether you can buy a home, take a breath. You may have more options than you think. Your credit score is just one factor lenders consider.

Your income, debt and savings also play a role, and some loan programs are designed to help buyers with lower credit scores. Homeownership may still be within reach. Let’s look at what your credit score means and explore home loan options that may be available if you have bad credit.

Can you get a mortgage with bad credit?

Yes, depending on your financial situation and loan type, you may be able to get a mortgage even if you have bad credit.

While some loan programs have stricter credit requirements, others may offer more flexibility. For example, FHA loans may allow lower credit scores, and VA loans can be a good option for eligible Veterans, Servicemembers and surviving spouses.

A lower credit score can make it harder to qualify or lead to higher borrowing costs, but it doesn’t automatically prevent you from becoming a homeowner.

How credit scores affect mortgage approval and cost

Your credit score can affect both your chances of getting approved for a mortgage and how much you’ll pay to borrow. In general, higher credit scores may help you get lower interest rates and lower monthly payments. Lower credit scores can make approval more difficult and may result in higher borrowing costs.

Even a small difference in your mortgage interest rate can affect your monthly payment and the total interest you pay over the life of the loan. Improving your credit before you apply may help you qualify for a lower rate and reduce your borrowing costs.

Which credit score do mortgage lenders use?

When you apply for a mortgage, lenders commonly review FICO® Scores from all 3 credit bureaus: Experian®, Equifax® and TransUnion®. Rather than average the scores or use the highest one, most lenders use the middle score when reviewing your mortgage application.

For example, if your scores are 690, 700 and 710, the lender will likely use 700.

What if I’m applying with a co-borrower?

If you apply for a home loan with a co-borrower, lenders determine a middle score for each applicant the same way. In many cases, they’ll use the lower of the two middle scores when evaluating the loan.

For example, if your middle score is 720 and your co-borrower’s middle score is 660, the lender may use 660 when reviewing the mortgage application.

What home loan options are available if you have bad credit?

There’s more than one home loan option available if you have a lower credit score. The table below compares common mortgage types, credit score, down payment requirements and mortgage insurance costs. Keep in mind that requirements can vary by lender and your eligibility.

Here’s a side-by-side look, with details on each option:

VA loans

VA loans^{Footnote [1]} are often one of the first options eligible Servicemembers, Veterans and surviving spouses should explore. They offer flexible credit guidelines and no down payment or monthly mortgage insurance requirements.

While the Department of Veterans Affairs (VA) doesn’t set a minimum credit score requirement, individual lenders may have their own credit guidelines. Many lenders commonly look for a credit score of 620 or above, but requirements vary.

FHA loans

FHA loans are a common option for buyers with less money saved for a down payment or lower credit scores. They can also be worth exploring if you’re a first-time homebuyer. You may qualify with a credit score as low as 580 and a 3.5% down payment. If your score is between 500 and 579, you may still qualify with a 10% down payment.

These loans require mortgage insurance, which can increase your monthly housing costs.

USDA loans

USDA loans may be a good option if you’re buying a home in an eligible rural or suburban area. These loans need no down payment and are designed to help people with low to moderate incomes become homeowners. There’s no set minimum credit score, but many lenders commonly look for a score of 640 or higher. Income limits and location rules also apply.

Conventional loans

Conventional loans aren’t backed by a government program. Many conventional lenders commonly look for a score of 620 or higher, while FHA, VA and USDA loans may offer more flexibility or allow lower scores. Down payments usually range from 3% to 20%. Put down less than 20%, and you’ll likely pay private mortgage insurance (PMI) until you build enough equity.

Compared with VA, FHA and USDA loans, conventional loans may be more difficult to get with a lower credit score. But those who qualify may benefit from lower rates and fees.

If you have a lower credit score, VA, FHA and USDA loans may be worth exploring first because they often offer more flexible credit requirements than conventional loans.

Other factors lenders consider besides credit scores

If your credit score is lower than you’d like, a strength in another area may help balance it out. Some of the factors lenders review when deciding whether to approve a mortgage include:

• Debt-to-income ratio: How much of your monthly income goes toward debt payments.
• Employment history: How long you’ve worked and whether your income is steady.
• Cash reserves: How much money you have in savings after closing on the home.
• Down payment amount: How much money you can put toward the home upfront.

A larger down payment, steady income or healthy savings may help improve your chances of approval.

How to prepare for a mortgage with a lower credit score

Taking time to improve your credit before applying for a mortgage may help you get approved more easily and qualify for better loan terms. Even small changes can make a difference over time.

• Check your credit report for errors because they can lower your score.
• Pay down high credit card balances, which may help raise your score over time.
• Keep your credit utilization ratio below 30%, which means using less than 30% of your available credit.
• Make on-time payments because payment history is one of the most important credit score factors.
• Avoid opening new credit accounts before applying because that can temporarily lower your score.
• Shop for mortgage rates within a short period. Multiple mortgage-related credit checks made close together may be treated as a single inquiry for credit-scoring purposes, depending on the score model.

The earlier you start preparing, the more time you may have to improve your credit before applying for a mortgage.

Other factors that can affect mortgage approval

If you have a lower credit score, there are a few other factors that can affect your mortgage approval or home loan options. Here’s what to know before you apply:

• Co-borrowers. Applying with a co-borrower may strengthen your application, especially if their income helps you qualify for a home loan. Before applying, review both credit scores and credit reports so you know what a lender is likely to see.
• Bankruptcy waiting periods. A Chapter 7 bankruptcy often means a 2-year wait before you can get a VA or FHA loan. Waiting periods can vary by lender, so ask about your options early.
• Foreclosure waiting periods. A past foreclosure often means a 2-year wait for VA loans and a 3-year wait for FHA loans. Some lenders may make exceptions if there was a major life event, such as job loss or illness.
• Mortgage scams. Be cautious of “guaranteed approval” offers. Real lenders review your financial information before approving a mortgage. Watch for requests for fees upfront, pressure to act quickly or promises that seem too good to be true.

Mortgage approval vs. affordability

Getting approved for a mortgage doesn’t always mean a home is affordable. A lender may approve you for more than you want to borrow. Think about what monthly payment feels comfortable for your finances.

Your monthly housing costs include more than principal and interest. Property taxes, HOA fees, homeowners’ insurance and home maintenance costs can all add to your monthly expenses. To understand what you can truly afford, look at all the costs that come with homeownership.

You don’t have to borrow the full amount a lender approves. In some cases, choosing a lower loan amount may be a better fit for your budget.

A mortgage calculator can help you estimate your monthly payment and see how different home prices, down payments and loan terms affect your costs. Taking time to review the numbers can help you choose a home that’s affordable now and in the future.

The path to a better credit score

If you’re working to rebuild your credit, taking small steps now may help improve your home loan options in the future. Learning about the home-buying process, including mortgage options, housing costs and credit basics, can help you prepare for the path ahead.

We offer MakingCents articles, tools and calculators to help you estimate costs and compare options. You can explore homeownership resources, including how to qualify for a mortgage and what credit score you need to buy a house.

As your credit improves, you may have access to more loan types and better borrowing terms. When you’re ready to apply for a mortgage, we can help you explore mortgage options, compare rates and find helpful guidance to support your home-buying journey.

Frequently asked questions

Can you get a mortgage with bad credit?

Yes, you may be able to get a mortgage, even with bad or poor credit. FHA, VA and USDA loan programs may offer more flexible credit requirements than conventional loans. Lenders also generally consider factors such as income, savings and payment history when reviewing an application.

What is considered a bad credit score for a mortgage?

No specific credit score is considered “bad” when applying for a mortgage. Credit score requirements vary by loan type and lender. Many conventional lenders commonly look for a score of 620 or higher, while FHA, VA and USDA loans may offer more flexibility or allow lower scores.

Do VA loans have a minimum credit score requirement?

No, the Department of Veterans Affairs (VA) doesn’t set a minimum credit score for VA loans. Many lenders commonly look for a credit score of 620 or above, but credit score expectations vary.

Can a larger down payment help you qualify for a mortgage?

Yes, sometimes a larger down payment may make a lender more comfortable approving a loan. It may also help offset a lower credit score or lead to better loan terms.

Will applying for a mortgage hurt your credit score?

Applying for a mortgage may cause a small, temporary drop in your credit score. If you shop for mortgage rates within a short period, multiple mortgage credit checks are often counted as one.