How to buy a house with bad credit

If you have a low credit score, you might think that you won’t be able to buy a house, but that isn’t true. While your options may be a little more limited, you can still buy a house with bad credit.  

There are two organizations that rank credit scores: FICO and VantageScore. Both rate on a scale of 300-850, but both take different aspects into consideration when scoring. When you are looking at your credit score, the greater the number, the better your score. 

Most lenders, especially in the mortgage sector, prefer FICO scores. 

To start process of purchasing a home, regardless of your credit score, fill out an online mortgage application. 

What is considered bad credit when buying a home? 

While looking at your FICO score, most lenders will consider a score of 580 or lower as bad credit. But remember that even if you have a bad credit score, it doesn’t mean you won’t be able to purchase a home. 

There are many loan options available for those looking to purchase a home but who might have low or bad credit scores. 

Loan options for buying a house with bad credit 

If your credit score isn’t where you want it to be but are looking to buy a home, these are a few loan options you could consider. 

Exact credit score minimums for each loan could vary slightly depending on your lender. 

FHA loans for borrowers with low credit scores 

FHA loans* are mortgages issued through private lenders but insured by the Federal Housing Administration. Those looking for an FHA loan could be approved with a credit score as low as 500 and have down payment options as low as 3.5% for borrowers with slightly higher credit. 

VA loans and flexible credit guidelines 

Eligible military service members looking for a home loan with flexible credit score requirements could get a VA loan. The VA doesn’t set a minimum requirement for borrowers looking to purchase a home, but your lender may set one. Those eligible for a VA loan could get a mortgage with a 0% down payment option. 

USDA loans for eligible rural buyers 

USDA loans are available for those with lower credit scores looking to purchase a home in a suburban or rural area. These loans, guaranteed by the U.S. Department of Agriculture, offer a credit score minimum of 620 as well as 0% down payment options for borrowers and properties that qualify. 

Conventional loans with low credit scores 

Conventional loans offer mortgages for borrowers with credit scores as low as 620. A conventional loan is a loan issued by a lender and not guaranteed or insured by any government organization. Because of this, the qualifications and requirements borrowers need to meet tend to be stricter. 

How to improve your chances of mortgage approval 

The best way to improve your chances of a mortgage approval is to research the mortgage that works best for you and your situation. Knowing which home loan you are hoping to get can allow you to make sure you meet all requirements. 

If you aren’t in a rush to purchase a home, taking the time to build your credit score or reduce your debt-to-income (DTI) ratio is a great way to improve your chances of getting a mortgage approval. Building your credit score and lowering your debt-to-income ratio will not only increase your mortgage approval chances but also increase the number of mortgages you could qualify for. 

First-time homebuyer programs for buyers with bad credit 

Buyers with bad credit looking for assistance when purchasing a home can access programs to ease the financial requirement. Many of these programs can help reduce the down payment amount borrowers will have to put toward their home purchase. 

State and local down payment assistance programs 

Every state and some local governments offer down payment assistance programs to buyers. There are more than 2,500 down payment assistance programs across all 50 states designed to help make buying a home more affordable. Buyers could qualify for up to $40,000 through these programs. 

Grants and forgivable loan options 

There are many grants and forgivable loan options available to homebuyers. These options could help buyers with down payments, closing costs or other expenses. Grants and forgivable loans do not need to be repaid if requirements are met. Some of these requirements could include taking homebuying courses or living in the property for a certain number of years. 

How to apply for a mortgage with bad credit 

You can apply for a mortgage with bad credit by starting an application online. 

An online application will connect applicants with a professional Loan Officer who can help you through the mortgage process and answer any questions you may have. Loan Officers could even let you know which loans or programs you might qualify for with your credit score. 

Ready to apply for a mortgage with bad credit score? Start your online application today! 

*Owning is a private corporation organized under the laws of the State of Delaware. It has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the Nevada Department of Veterans Services, the US Department of Agriculture, or any other government agency. No compensation can be received for advising or assisting another person with a matter relating to veterans’ benefits except as authorized under Title 38 of the United States Code. 

Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.  

Owning does not provide credit counseling or credit repair services.