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How to Buy a House with Bad Credit

Reviewed by: David Naimey

Approved by: Chad Turner


  • Conventional loans have varying credit score requirements.
  • FHA, VA, USDA, HomeReady, and Home Possible loans cater to low credit scores.
  • Each loan program has different credit score thresholds and down payment requirements.
  • Down payment assistance programs can aid in securing a mortgage.
  • Making a larger down payment can lower monthly payments and interest rates.
  • Paying off existing debts and making timely payments can improve creditworthiness.

Your credit score matters a lot when you’re trying to get a mortgage to buy a home. However, you still have plenty of mortgage options even with a below-average credit score. Lenders of conventional loans have a qualifying credit which is the minimum required for them to approve your mortgage application. 

If you have a credit score that is above the qualifying minimum but still below average, you can still get a loan from various lending vehicles. Credit scores of 500 or less are usually turned down but anything above that provides you with several options to finance your family home. 

You should also remember that your credit score can improve — just make sure that there are no mistakes in your credit history. You can also improve your score with some helpful steps. With upgraded credit scoring, your mortgage lender will be more willing to give you lower interest rates and more favorable repayment terms. 

What Do Lenders Ask to Pre-Approve a Mortgage?

The credit score is one of many things a lender or bank will require for you to supply. They will also check your credit reports and notice if you have any collections, unpaid bills, defaults, late payments, or debts as well as the number of hard inquiries. 

In addition, they will ask for proof of employment, your annual income level, your debt-to-income ratio (DTI), and how much money you need to borrow. These, in combination with your credit score, will determine whether your bank will pre-approve your mortgage.  If you have had stable employment for the last few years and you are asking for a mortgage that matches your income, your lender will look at your request favorably. 

Your credit score is not the exclusive criteria lenders use to determine if you can qualify for a mortgage. However, a good credit score is a positive starting point to land a good deal on your house loan. 

Mortgage Options for Home Buyers with Poor Credit

Banks, lenders, and credit unions often disburse mortgages to people who want to buy a house property even though their credit score is low. There are various home loans for first-time homebuyers or to refinance your current mortgage available for you. Compare and choose from these, as each comes with its own credit score requirement and pros and cons regarding other specific requirements that don’t involve credit scores. 

The following programs are designed to consider a bad or low credit score with a mortgage application.

FHA loans

An FHA loan, backed by the Federal Housing Administration, requires a minimum credit score of 600 with a 3.5% down payment but can go as low as 500 with a down payment of 10%. Loan amount limits apply.

VA loan

VA loans, backed by the Department of Veterans Affairs, often come with low credit score requirements which are set by each lender individually. They typically start at 600. 

USDA loans

If you want to live in the countryside or a rural area, you can apply for a USDA loan, backed by the US Department of Agriculture.  USDA lenders require credit scores of around 640 for homes in specific rural areas.

HomeReady and Home Possible

The Fannie Mae HomeReady program has a credit score floor of 620. The Freddie Mac Home Possible loan program requires a 660 credit score. 

How Can I Make Sure I Get a Mortgage with a Bad Credit Score?

Even if your credit score is not stellar, you still have room to improve your financial situation and get your mortgage loan application approved. The following simple guidelines can help you gradually improve your credit score when buying a home.

Get a co-signer

If you have a family member with a good credit score, you can ask them to be your co-signer on the mortgage. Their positive credit history will reflect on you and you can obtain a mortgage on better terms. With this option, make sure you are financially responsible and you pay your mortgage every month without delays to keep your co-signer safe. 

Check your credit history for mistakes

Before applying for a home loan, check your credit history. Almost 30% of people realize there are mistakes in their credit history that cost them in terms of their credit score.  

Closed accounts that are not categorized properly, an incorrect payment history that wrongly shows you were late in paying your bills, accounts not belonging to you, an inaccurate address, and other mistakes of this type should be fixed before you apply. Your credit history will be updated to accurately reflect your financial past. 

Increase the credit limit on your credit cards

Lenders try to mitigate their risk. They want to know that you have wriggle room to pay your mortgage if you lose your job or end up unemployed for a couple of months. Call your credit card issuer and ask them to increase your credit limit on your cards. This will show that you are only using a small percentage of your limit and have enough financial room if something unexpected happens. Make sure you don’t actually use this increased credit limit. 

Don’t close your credit cards even if you are not using them

It might sound counter-intuitive but if you have credit cards with a $0 balance, don’t close them. Each credit card has a credit limit and all together increase your available credit. Your lender wants to know your credit utilization ratio, which is how much of your credit limit you are using. The higher the available credit, the smaller your utilization ratio: your financial situation looks rosier. 

Don’t get new credit cards or new debts

When you apply for a mortgage is not the right time to get a new credit card, new personal loans, or a second car loan. These will reflect on your credit history and credit score. The tidier your finances, the more attractive they will look. 

Another reason why you shouldn’t apply for a new credit card is because the bank will run a hard credit on your account. This is reflected in your credit score and your credit history. You want as few hard credit inquiries as possible. 

Make a larger down payment

Banks and lenders want to know you are creditworthy, even if you have a bad credit score. 

If you have savings and can afford to make a sizeable down payment above the minimum required, this will signal that you are genuinely invested and interested in buying a house and paying your mortgage. You could also look for down payment assistance programs to help you offer a substantial down payment.

A large down payment will lower your monthly payments and you could land a lower interest rate on your mortgage. Remember that with a down payment of 20% and above you don’t have to pay for Private Mortgage Insurance (PMI), which helps you save money as it lowers your monthly payment. 

Pay your existing debts

If you can afford it, repay existing debts, particularly ones with high mortgage rates. Credit cards and other debts impact your credit score. 

Likewise, make on-time payments with your bills to show that you are financially responsible. Timely bill payment is mirrored in your credit history.

Contact Society Mortgage 

Each mortgage company might have different criteria for assessing a borrower’s creditworthiness. To successfully navigate the home-buying process with a lower credit score, you must first understand the details in your credit report. Credit scores can make a big difference and errors in this report can impact your ability to qualify for a variety of loan programs, especially a conventional loan. For a first-time homebuyer or those with low credit scores, government-backed options like an FHA mortgage may be more accessible and offer better terms compared to conventional mortgages. However, these options may come with higher interest rates or additional fees.

Working with the best mortgage lenders who specialize in assisting those with average credit can thus be a game-changer. Professionals like Society Mortgage can help you navigate the complexities of equity, various fees, and state-specific regulations. Tools like our loan calculator can help you understand the financial implications of a 15 or 30-year mortgage, letting you make more informed decisions.

Despite the challenges that come with lower credit scores, there are still several avenues open for prospective homeowners. By staying informed and exploring both conventional mortgage and government-backed loan options, you can increase your chances of finding a suitable solution. Always consider the long-term financial implications, including the potential for higher interest rates and the impact of various fees.

Contact a mortgage loan officer today for more information on your mortgage loan options depending on your credit score and let us help you choose the most sustainable path to homeownership!

Frequently Asked Questions

Most mortgage lenders won’t consider homebuyer mortgage applications with credit scores of 500 and below. They see such borrowers as too risky and can’t measure properly their creditworthiness, so you should try improving your score before applying if it is below 500. Once your credit score picks up, you can then apply for a mortgage as you stand more chances of getting approved. 


If you have a family member or friend with a good credit score and monthly income, they could be co-signers on your mortgage. You can then benefit from their financial standing and get a mortgage on favorable terms, with a lower rate or lower closing costs for example. 

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