9 Best Mortgage Lenders of 2022 for Low or Bad Credit Score Borrowers
A home loan with bad credit is possible, even if you’re a first-time home buyer. These low credit score mortgage lenders specialize in serving borrowers with credit challenges.
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Your credit score tells lenders how likely you are to pay back the money you borrow. A high score sends all the right signals, while a low credit score, sometimes referred to as “bad credit,” can keep you from getting approved. When it comes to buying a home, a bad credit score generally falls below 620.
The credit score needed to buy a house depends on the type of loan. Government-backed loan programs — FHA, VA and USDA — generally have lower credit score requirements than conventional mortgages. But it’s the lender that ultimately decides what the minimum credit score will be for each loan product.
Lenders consider more than just credit score when evaluating a mortgage applicant. If your credit score is at or near a lender's minimum, they could demand a bigger down payment, charge a higher interest rate or require you to pay more fees. In short, you could end up paying more for your home loan. The best way to avoid these penalties is to elevate your credit score before you apply.
Your credit score tells lenders how likely you are to pay back the money you borrow. A high score sends all the right signals, while a low credit score, sometimes referred to as “bad credit,” can keep you from getting approved. When it comes to buying a home, a bad credit score generally falls below 620.
The credit score needed to buy a house depends on the type of loan. Government-backed loan programs — FHA, VA and USDA — generally have lower credit score requirements than conventional mortgages. But it’s the lender that ultimately decides what the minimum credit score will be for each loan product.
Lenders consider more than just credit score when evaluating a mortgage applicant. If your credit score is at or near a lender's minimum, they could demand a bigger down payment, charge a higher interest rate or require you to pay more fees. In short, you could end up paying more for your home loan. The best way to avoid these penalties is to elevate your credit score before you apply.
Best Mortgage Lenders of 2022 for Low or Bad Credit Score Borrowers
| Lender | NerdWallet rating | Min. credit score | Min. down payment | Learn more |
|---|---|---|---|---|
 New American Funding: NMLS#6606 Learn more at New American Funding | Best for low or bad credit scores overall | 500 | 0% | Learn more at New American Funding |
 Watermark Home Loans: NMLS#1838 Learn more at Watermark Home Loans | Best for FHA loans | 580 | 3.5% | Learn more at Watermark Home Loans |
 Northpointe: NMLS#447490 Learn more at Northpointe | Best for first-time home buyers | 600 | 3.5% | Learn more at Northpointe |
 Carrington: NMLS#2600 | Best for low or bad credit scores overall | 500 | 3.5% | Read review |
 Citibank: NMLS#412915 | Best for low down payment | N/A | 3.5% | Read review |
 Caliber: NMLS#15622 | Best for self-employed borrowers | 580 | 3.5% | Read review |
 Homebridge: NMLS#6521 | Best for customer support | 550 | 3.5% | Read review |
 Mr. Cooper: NMLS#2119 | Best for refinancing | 580 | 3.5% | Read review |
 Alterra: NMLS#133739 | Best for nontraditional credit | N/A | 3.5% | Read review |
at New American Funding
New American Funding: NMLS#6606
Min. credit score
500Min. down payment
0%at New American Funding
at Watermark Home Loans
Watermark Home Loans: NMLS#1838
Min. credit score
580Min. down payment
3.5%at Watermark Home Loans
at Northpointe
Northpointe: NMLS#447490
Min. credit score
600Min. down payment
3.5%at Northpointe
Carrington: NMLS#2600
Min. credit score
500Min. down payment
3.5%Citibank: NMLS#412915
National / regional
NationalMin. down payment
3.5%Caliber: NMLS#15622
Min. credit score
580Min. down payment
3.5%Homebridge: NMLS#6521
Min. credit score
550Min. down payment
3.5%Mr. Cooper: NMLS#2119
Min. credit score
580Min. down payment
3.5%Alterra: NMLS#133739
Min. down payment
3.5%National / regional
RegionalNOTE: The minimum credit scores displayed above represent the most recent information provided to NerdWallet by each lender, and they are subject to change. The credit score shown is each lender's lowest minimum requirement across common loan types. To see a lender's minimum credit scores for specific types of home loans, click or tap the "?" next to that lender's displayed minimum credit score. Bear in mind that credit score isn't the sole factor determining whether a lender will deem a borrower qualified — variables like debt-to-income ratio and down payment amount are important, too.
How to get a mortgage with a low or bad credit score
Lenders consider four primary factors when reviewing a mortgage application:
Your credit score.
The amount of debt you carry compared to the income you receive, also called your debt-to-income ratio or DTI.
Your employment history.
The size of your down payment.
Two or three positive factors might outweigh a negative one. Here's what you can do to improve each of them and bolster your chances of getting approved for a mortgage.
1. Credit score
Your credit score can determine what types of home loans you're eligible for, how high of an interest rate you'll be offered and how large of a down payment you have to make.
Though you may be able to qualify for a mortgage with a credit score that's as low as 500, you would need to be able to make a 10% down payment — and you probably wouldn't get a great interest rate.
Improving your credit takes time, but a higher score can help you start off your home loan on better terms, saving you money in the long run.
» MORE: 8 ways to build credit fast
2. Debt-to-income ratio
To calculate your debt-to-income ratio, or DTI, a lender will divide the total of your monthly debt obligations (things like car payments or student loans) by your monthly pretax income.
Most lenders will look for a DTI that's 36% or lower. A lender that qualifies you with a higher DTI is probably charging you a higher interest rate.
You can lower your DTI by paying down existing debts. While you're getting ready to buy a house, and during the homebuying process, you should avoid taking on any additional debts or making any major purchases.
3. Employment history
You can't change your employment history, but you can do your best to make sure your employment status is steady before you begin applying for mortgages. If you change jobs during the underwriting period, it can impact how much a lender is willing to loan you.
» MORE: What is mortgage underwriting?
4. Down payment
The amount of down payment you'll need depends on what type of home loan you're getting. If you are affiliated with the military, you may be able to qualify for a mortgage backed by the Department of Veterans Affairs. VA loans allow zero down payment. USDA loans, which are insured by the U.S. Department of Agriculture and meant to help lower-income borrowers living outside of urban areas, also have no down payment requirement.
Loans backed by the Federal Housing Administration can be beneficial to borrowers with lower credit scores because FHA loans tend to allow lower minimum credit scores. If your credit score is at least 580, you may be able to make a down payment that is as low as 3.5%. FHA loans also allow borrowers to use gift money to go toward the down payment.
If you are able to make a higher down payment, that may help offset a lower credit score in the eyes of your lender. State-sponsored first-time home buyer programs offer down payment assistance and grants that can enhance your borrowing power.
» MORE: How to get help buying a house
The bottom line? Shop around. You may qualify for a home loan with some lenders but not others, and you'll want to compare the different offers. Look closely at the rates, fees and other requirements to see which mortgage lender is offering you the best deal.
More from NerdWallet:
Last updated on August 1, 2022
Methodology
The star ratings on this page reflect each lender's rating for FHA products. Read more about how we determine those ratings. The lenders on this page are chosen using this methodology:
NerdWallet reviewed nearly 60 mortgage lenders, including the majority of the largest U.S. mortgage lenders by annual loan volume (lenders had to have at least a 1% market share), lenders with significant online search volume and those that specialize in serving various audiences across the country.
For inclusion in this roundup, lenders need to offer at least one loan product where the stated credit score minimum is 600 or lower. Additionally, the lender must offer at least one product or feature that accommodates borrowers with lower credit scores. This product or feature needs to be in addition to or separate from offering government-backed loans. Lenders that offer a loan product or feature that accommodates borrowers with lower credit scores but do not provide NerdWallet with minimum credit scores for all products or loan types can be included.
NerdWallet solicits information from reviewed lenders on a recurring basis throughout the year. All lender-provided information is verified through lender websites and interviews. We also utilized 2020 HMDA data for origination volume, origination fee, rate spread and share-of-product data.
To recap our selections...
NerdWallet's Best Mortgage Lenders of 2022 for Low or Bad Credit Score Borrowers
- New American Funding: Best for low or bad credit scores overall
- Watermark Home Loans: Best for FHA loans
- Northpointe: Best for first-time home buyers
- Carrington: Best for low or bad credit scores overall
- Citibank: Best for low down payment
- Caliber: Best for self-employed borrowers
- Homebridge: Best for customer support
- Mr. Cooper: Best for refinancing
- Alterra: Best for nontraditional credit
Frequently asked questions
A 500 is the absolute lowest credit score needed to buy a house. On paper, that score enables you to qualify for a loan backed by the Federal Housing Administration with a 10% down payment. In reality, however, few lenders will accept a score that low. Bringing up your credit score can give you more loan options, get you a lower interest rate and allow you to make a smaller down payment.
Mortgage lenders' requirements for borrowers vary, but if you have bad credit you should look for lenders that are willing to consider alternative credit data. That means they will review aspects of your financial situation, like on-time rent and utility payments, that aren’t normally reported to the credit bureaus. You'll have to provide the lender with documentation of this info.
Yes. Having a stable employment history and saving up a larger down payment can help offset a weaker credit score. Some kinds of mortgages, like FHA loans, have lower minimum credit score requirements. That said, if you can build your credit first, it will help you not only get a mortgage but also get a better interest rate. That can potentially save you thousands of dollars.
The easiest mortgage to qualify for depends on you. While FHA loans are known for allowing lower minimum credit scores, a VA loan or a USDA loan may be easier to qualify for if you fit their requirements. For a VA loan you need to be an active or retired member of the military or a military spouse. USDA loans have income and location requirements.
