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4 Tips for Finding the Best Bad-Credit Mortgage Lenders

Holden LewisJuly 2, 2019

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If you have bad credit or a low credit score, you can still qualify to buy a home or refinance your current mortgage. Here's how to find the right lender.

Even if you have a low credit score, it doesn’t mean you can’t buy a home. Many lenders will approve mortgages for qualified borrowers with bad credit. A few lenders even specialize in mortgages for home buyers and refinancers with less-than-perfect or limited credit.

Here are some top mortgage lenders that work with borrowers who have weak credit, in three important categories. Want more options? See our complete list of best mortgage lenders for borrowers with low credit scores.

How to find a bad-credit mortgage lender Use these tips to find a mortgage lender who can work with your credit. Read more about each tip here.

You don't have to feel like you're being judged for having flawed credit. Here are four tips that will give you the knowledge to talk to mortgage lenders with confidence and choose one that’s best for you, even if your credit score isn't sky-high.

  1. Know the credit score you need. Check it ASAP and figure out how far it is from the typical minimum requirements.

  2. Figure out what you can afford. Your budget may be more limited with a lower credit score.

  3. Consider a government loan program. FHA and VA loans often allow lower credit scores.

  4. Gather a bigger down payment. Bringing more cash to the table can help compensate for a low credit score.

NerdWallet has researched some of the top mortgage lenders to help you quickly find the right one for your needs.

Summary of 4 Tips for Finding the Best Bad-Credit Mortgage Lenders

Vylla: NMLS#2600

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Min. Credit Score

500

Min. Down Payment

3%


Why we like it

Ideal for first-time home buyers or credit-challenged borrowers who may have trouble qualifying for a mortgage.

Pros

  • Low minimum credit score.

  • Online application, loan tracking and document upload.

  • Free rate locks.

Cons

  • No online preapproval.

  • No presence in Massachusetts or North Dakota.

Read Full Review
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at New American

New American Funding: NMLS#6606

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Min. Credit Score

640

Min. Down Payment

3%

National / Regional

National

at New American


Why we like it

Ideal for borrowers who need to be evaluated on the basis of nontraditional credit. New American Funding offers FHA and VA loans, works with down payment assistance programs, and helps borrowers whose credit histories don't fit the mold of traditional banking.

Pros

  • Uses manual underwriting to evaluate creditworthiness.

  • Offers full online mortgage application, rate quotes, document upload and loan tracking.

  • Home equity lending sets it apart from most non-bank lenders.

Cons

  • Services not available in all 50 states.

Read Full Review
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at Rocket Mortgage

Rocket Mortgage by Quicken Loans: NMLS#3030

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Min. Credit Score

580

Min. Down Payment

3%

at Rocket Mortgage


Why we like it

Ideal for anyone who appreciates smartphone app service, support and time savings. Rocket Mortgage offers a fully digital home loan experience with a large variety of mortgage products.

Pros

  • The site caters to self-service users who want to apply for a home loan without talking to a human unless it’s absolutely necessary.

  • With your authorization, accesses asset statements from 98% of U.S. financial institutions.

  • Tells you the loan amount you’ll qualify for within minutes.

  • Rocket Mortgage’s document and asset retrieval capabilities can save you a bunch of time and hassle.

Cons

  • Doesn't offer home equity loans or HELOCs.

  • If you’re a “look me in the eye” type of customer, you’re out of luck.

  • Doesn’t consider alternative credit data. It just looks at credit scores and debt-to-income ratios, the way most mortgage lenders always have.

Read Full Review

Freedom Mortgage: NMLS#2767

Not yet rated

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Min. Credit Score

620

Min. Down Payment

3%


Why we like it

Ideal for borrowers looking for a wide variety of mortgage options, including fixed-rate home loans, adjustable-rate mortgages and VA loans.

Pros

  • N/A

Cons

  • N/A

Read Full Review

Citibank: NMLS#412915

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National / Regional

National

Min. Down Payment

3%


Why we like it

Good for: Borrowers wanting to compare mortgage rates online for a variety of loan options.

Pros

  • Offers a wide variety of loan options, including low-down-payment mortgages and jumbo mortgages.

  • Provides customizable mortgage rates on its website.

  • Offers low rates and fees compared to other lenders.

Cons

  • Charges a mortgage application fee.

  • Requires help from a mortgage loan officer to complete the loan application online.

Read Full Review

HomeBridge: NMLS#6521

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Min. Credit Score

550

Min. Down Payment

3%


Why we like it

Good for borrowers who want a loan officer's help, in person or on the phone, when deciding among the wide range of available mortgage options — including loans to buy and renovate.

Pros

  • Offers a full array of mortgage products, including government and renovation loans.

  • Has loans for most purposes, including purchase, refinance and jumbo mortgages.

  • Online portal keeps borrowers up-to-date on the loan application's progress.

Cons

  • Doesn't post interest rates on its site.

  • Doesn’t offer home equity loans or lines of credit.

Read Full Review

How to find a home loan when you have bad credit

You don't have to feel like you're being judged for having flawed credit. Here are four tips that will give you the knowledge to talk to mortgage lenders with confidence and choose one that’s best for you, even if your credit score isn't sky-high.

1. Know the credit score you have and the score you need

You might believe you have bad credit because of some late or missed payments. But before you assume your credit score is in the basement, you need to find out what it truly is, for a couple of reasons:

  • Your credit score could be higher than you think

  • Knowing your score will help you understand which loan programs you're likely to qualify for

You can get your credit score free by creating your NerdWallet account. Your credit score dashboard not only tells you your score, but also describes how you fare in six factors that affect it, including how much of your available credit you’re using, payment history and average age of accounts.

If your credit score is:

740 and higher: You are eligible for the lowest interest rates and fees.

700-739: You are eligible for most mortgage programs, with relatively low rates and fees.

620-699: You might be eligible for some conventional loan programs as well as Federal Housing Administration or U.S. Department of Veterans Affairs loans.

580-619: Your best bet might be the FHA in this slice of credit scores. With a credit score of 580 and higher, you can qualify for an FHA loan with a 3.5% down payment. You might qualify for a VA loan, too, with the right mix of income and expenses. Find the best VA lenders.

500-579: You might qualify for an FHA loan if you have a down payment of 10%. Not all FHA lenders will approve mortgages with credit scores in this range, so you might have to shop around. Try the guide to best FHA lenders or a local mortgage broker.

When talking to a loan officer in person or on the phone, bring up your credit score at the beginning. That way, you'll find out immediately if the lender can help you or if continuing the conversation would be a waste of time.

If your credit score could use a lift, you can start by checking your credit report to find out if it contains inaccurate information. Mistakes are not uncommon.

There are three main credit bureaus, and you are entitled to request a free credit report from each of them annually or when you are denied credit, insurance or a job because of poor or limited credit.

2. Know how much you can afford — and borrow

If you have not-so-good credit and you're looking to buy a home, use a home affordability calculator to establish a baseline budget to understand how a home loan will affect your monthly finances.

As you shop for lenders, one of the first steps they'll take is to assess how much you’re eligible to borrow, based on your income and expenses. This amount may be more than you feel you can afford, so understanding what you can afford is really important before shopping for loans and getting preapproved.

From lender to lender, the estimates of what you can borrow shouldn't vary much. If one estimate is significantly lower or higher than others, ask why. The answer could help you narrow down your search for the right lender.

3. Look for lenders that offer FHA or VA loans

The FHA is well-known for allowing down payments as low as 3.5% for most qualified borrowers. But it's friendly to home buyers for another reason: being more forgiving of low credit scores.

Many conventional mortgage programs won't approve home loans for applicants with credit scores lower than 620. But FHA loans can be an option with credit scores below 620 and into the 500s. Lenders have varying credit score requirements on mortgages, including on FHA loans, so it's a good idea to shop around.

The VA doesn't have a minimum credit score requirement, but most lenders do. If your credit score is less than 620, you might have to search for a lender that will offer a VA loan with a score that low.

4. Come to the table with a bigger down payment

With a low credit score, you'll want to look for what some lenders call "compensating factors" that partially offset the dings to your credit. One of the most effective compensating factors is a hefty down payment. Lenders know you'll work hard to avoid foreclosure if you've made more than the minimum down payment. That means you're less risky to lend to.

Conventional lenders tend to charge less for credit-challenged borrowers who make down payments greater than 10%.

Another compensating factor is a low debt-to-income ratio. If your house payment will take up 28% or less of your before-tax income, that's a mark in your favor when you apply for a mortgage.

Bring up your compensating factors early in the conversation with a loan officer — preferably, immediately after you discuss your credit score. When you have a low credit score, finding the right lender entails bringing up your strengths as well as your weaknesses, and understanding which lenders are willing to work with you.

More from NerdWallet:

Last updated on July 2, 2019

Methodology

NerdWallet's star ratings for mortgage lenders are awarded based on our evaluation of the products and services each lender offers to consumers who are actively shopping for the best mortgage. The five key areas we evaluated include the variety of loan types and products offered, online conveniences, online mortgage rate information, and the rate spread and origination fee lenders reported in the latest available Home Mortgage Disclosure Act data. To ensure consistency, our ratings are reviewed by multiple people on the NerdWallet Mortgages team.

To recap our selections...

NerdWallet's 4 Tips for Finding the Best Bad-Credit Mortgage Lenders

  • Vylla: Best for overall mortgage lenders for borrowers with low credit scores
  • New American Funding: Best for overall mortgage lenders for borrowers with low credit scores
  • Rocket Mortgage by Quicken Loans: Best for online mortgage lenders for borrowers with low credit scores
  • Freedom Mortgage: Best for online mortgage lenders for borrowers with low credit scores
  • Citibank: Best for refinance mortgage lenders for borrowers with low credit scores
  • HomeBridge: Best for refinance mortgage lenders for borrowers with low credit scores