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- It's possible to buy a house with bad credit, but you may end up with a high mortgage rate.
- If your score is above 580, you can look into FHA loans or other government-backed mortgages.
- If you can't get approved for a mortgage right now, there are ways to increase your credit score.
Buying a house with bad credit is possible, but it will likely end up costing you extra money in the long run.
Unlike conforming mortgages, which require a good credit score to qualify, loans that are available to those with lower credit scores typically have higher mortgage rates. But if homeownership is your goal, it's definitely possible to achieve it with some concessions.
If you're a first-time homebuyer, there are programs designed to help you qualify for a loan. To start, it helps to understand what you'll need to do to buy a house.
What do mortgage lenders consider bad credit?
In general, a 500 credit score is the lowest you can go when getting a mortgage, though even with score above this, getting a mortgage can be very costly if you have less-than-ideal credit. Having a score in the upper 600s will typically help you get better pricing.
You can also use our guide to the best low credit score mortgage lenders to see which lenders accept borrowers with lower scores.
Minimum credit score by mortgage type
Conforming mortgage: 620 or higher
Conforming mortgages, which are the most common type of mortgage, are only available to borrowers with credit scores of 620 or higher.
Some individual mortgage lenders may have more stringent requirements and set a higher minimum score for its conforming loans. You may also need a higher score to compensate for other areas of your application that aren't as strong, like if you have a high debt-to-income ratio.
FHA mortgage: 580, or 500 with 10% down
FHA loans are popular with those who have lower scores, since it's possible to qualify with a score of 580. If you have at least 10% for a down payment, you could even get an FHA mortgage with a score as low as 500. But as with conforming mortgages, individual FHA lenders can have more stringent requirements.
VA mortgage: Varies by lender
The US Department of Veterans Affairs doesn't set a minimum credit score for the loans it guarantees, but most lenders set their own minimum requirements.
For their VA mortgages, many lenders require scores starting around 620 or 660. Some lenders accept scores lower than this; Rocket Mortgage requires a 580 score for its VA mortgages, while Freedom Mortgage requires a 550 score. Carrington Mortgage Services even accepts scores down to 500.
USDA mortgage: Varies by lender
USDA mortgages also don't have a minimum credit score that's the same across the board, but many lenders require USDA borrowers to have at least a 640 credit score.
How a low credit score can impact your mortgage payment
Just because you can qualify for a mortgage with a low score doesn't necessarily mean you should. Getting a mortgage with bad credit can be expensive.
Here's how your mortgage rate and monthly payment can vary on a $300,000 loan depending on your credit score, according to myFICO.com.
| FICO Score | APR | Monthly payment |
620 to 639 | 8.369% | $2,279 |
640 to 659 | 7.823% | $2,164 |
660 to 679 | 7.393% | $2,076 |
680 to 699 | 7.179% | $2,032 |
700 to 759 | 7.002% | $1,996 |
760 to 850 | 6.780% | $1,952 |
That's a $327 difference each month between the lowest scores to the highest scores. As you shop around and get rate quotes from lenders, consider how much you could save by waiting to improve your score before getting a mortgage.
How to buy a house with bad credit
1. Get copies of your credit report
Understanding your credit history is key to understanding what's affecting your credit score. Your credit report features details like your personal information, your payment history, and whether you've filed for bankruptcy. Getting your credit report can help you figure out any discrepancies so you can report errors, pay off debts, and boost your score.
You're entitled to a free credit report from all three major credit bureaus every year. Go to AnnualCreditReport.com to find out more.
Increase your credit score with help from CreditRepair.com »
2. Consult a housing counselor
Speaking with a housing counselor from a HUD-approved agency can help you understand different parts of the home-buying process, such as lending options and how to close on a house, and how your credit score will factor in.
Typically, these are free or low-cost meetings; the goal is to help you understand the nuances of becoming a homeowner. You can search on HUD.gov for HUD-approved housing counseling agencies in your state.
3. Start saving for a down payment
Saving for a down payment will show lenders you're serious about buying a house. Those with bad credit should consider setting aside a larger down payment, as it could help you get a better mortgage rate.
A larger down payment shows the lender that you are more invested in purchasing a home, since you put more money down. While there are mortgages that accept down payments of 3%, aiming for higher is best.
4. Review your housing budget
Understanding how much you can realistically afford will help you manage your housing costs. It's not only the mortgage you need to worry about — there are taxes, insurance, home maintenance costs, and potentially HOA fees.
Don't forget there are also closing fees, which you'll pay when you close on your house, as well as moving costs. If you're unsure of how to work out estimated costs, ask your housing counselor.
Use Insider's free mortgage calculator to understand how much you can afford.
5. Apply for an FHA or lower-credit-score loan
Unfortunately, with a low credit score, the mortgage you qualify for will likely come with a higher interest rate, which means you'll end up paying more interest throughout the lifetime of the loan. Still, shopping around for mortgage rates, options, and terms is a good idea. Speak to your mortgage broker or housing counselor about your options.
Another option is to look into an FHA loan, which comes from a traditional mortgage lender and is insured by the Federal Housing Administration. You may be able to qualify for an FHA loan with a minimum credit score of 580 and a 3.5% down payment. (You may be able to qualify with a score between 500 and 579, but you'll need at least 10% for a down payment.) However, not all lenders will approve you, as some have higher credit score requirements.
You can also look into VA loans if you are a veteran — the VA doesn't set a minimum credit score, but lenders typically prefer borrowers with at least a 660 score. The same is true for USDA loans, which are available to some borrowers in rural and suburban areas, though lenders tend to prefer borrowers with a score of 640 or higher.
6. Work on rebuilding your credit
If you find that you can't qualify for a loan, you'll want to take steps to become more creditworthy. Review your credit report again to see what is impacting your credit score, then take steps to improve it. Consider decreasing your debt-to-income ratio by increasing your income, paying off debts, or both.
Consider using credit monitoring tools — there are free tools, some provided by your credit card issuer — so you can keep track of your credit score and figure out when it's time to apply for a home loan.
Getting a mortgage with bad credit frequently asked questions
Can you get a mortgage with a 500 credit score?
It's possible to get a mortgage with a 500 credit score, but it might not be the best idea. With an FHA mortgage, you'll need at least 10% down to qualify with a 500 credit score. You'll also have a higher interest rate.
What is the lowest credit score to get approved for a mortgage?
In general, the absolute lowest credit score you can have and still get approved for a mortgage is 500.
Can you buy a house with a 400 credit score?
If you plan to use a mortgage to buy a house, you'll most likely be unable to do so with a 400 credit score. But if you're paying in cash, it doesn't matter how low your score is.
Can I get an FHA loan with a 500 credit score?
You can get an FHA loan with a 500 credit score if you make at least a 10% down payment. On a $200,000 home, this means you'd need to put $20,000 down.