How to get a mortgage with bad credit

The higher your credit score, the easier it is to get a mortgage. But what happens if your credit isn’t great? While getting a mortgage with a low score is tricky, it’s not impossible. Here are some options.

Credit scores usually range from 300 to 850. Higher scores are more favorable since they represent a lower risk to lenders. Here’s how FICO (the most widely used scoring model) rates different scores:

Credit score range Score rating
800+ Exceptional
740 to 799 Very good
670 to 739 Good
580 to 669 Fair
< 579 Poor

 

There’s no universal minimum score that automatically prevents you from getting a mortgage. However, the lower your score, the harder it can be to get a loan. Different types of mortgage loans can make it easier to qualify with a low credit score (or a low down payment), including:

  • Conventional loans: You generally need a score of 620 or higher to get a conventional loan (one not insured or guaranteed by the government). However, a lender might accept a lower score if you have a large down payment or your income is high relative to the loan size. 
  • FHA loans: The Federal Housing Administration (FHA) helps make it easier for homebuyers to get mortgages. You can qualify for an FHA loan with a minimum credit score of 580 if you put 3.5% down. With at least 10% down, your credit score can be as low as 500. 
  • VA loans: VA loans are guaranteed by the U.S. Department of Veterans Affairs. Eligible active-duty military members and veterans with a credit score of at least 580 may qualify for loans, potentially with 0% down. 
  • USDA loans: Backed by the U.S. Department of Agriculture, these loans help borrowers with lower incomes and credit scores buy homes in rural areas. While most lenders require a minimum credit score of 640, it’s possible to qualify with a lower score. 

Lenders check your credit score to determine if you qualify for a mortgage — and the interest rate they’ll charge if you do. (Lenders consider other factors, too, like your income, debt, and how much you have saved for a down payment.) Not surprisingly, borrowers with higher credit scores enjoy better mortgage rates, lower monthly payments, and substantially lower interest costs over the life of the loan.  

Here’s an example showing how FICO scores affect a $300,000, 30-year loan (interest rates are current as of Dec. 21, 2022):

FICO score APR Monthly payment Total interest paid
760 to 850 6.02% $1,802 $348,695
700 to 759 6.24% $1,845 $364,202
680 to 699 6.42% $1,880 $376,678
660 to 679 6.63% $1,922 $391,893
640 to 659 7.06% $2,008 $422,884
620 to 639 7.61% $2,119 $463,006

Source: myFICO loan savings calculator

Getting a mortgage can cost more if your credit isn’t great. Still, it might be worth it if it allows you to stop paying rent — and start building equity. Here are tips for getting the financing you need if you have bad credit: 

  • Shop around: No matter your credit score or financial situation, it pays to shop around. You may find a better deal by getting quotes from at least three lenders. 
  • Consider other lenders: National banks aren’t your only option for getting a mortgage. An online lender, credit union, or local community bank might present a better offer. 
  • Research down payment assistance: A larger down payment might help offset a less-than-perfect credit score. Ask your lender about down payment assistance programs or Google “down payment assistance grants in [your state, county, or city]” to learn about options.
  • Get help from a mortgage broker: They will try to match you with lenders based on your credit score. 
  • Ask someone with strong credit to cosign the loan: A cosigner can make it easier to qualify for a mortgage. But keep in mind that the cosigner is taking a big financial risk. Be realistic about how much house you can comfortably afford. 

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