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 or refinancers with less-than-perfect or limited credit.
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.
- 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.
» MORE: How to improve your credit score
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.
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.
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.
Here are prominent mortgage lenders that work with borrowers who have weak credit, in three important categories. And see our complete list of best mortgage lenders for borrowers with low credit scores.
Best overall mortgage lenders for borrowers with low credit scores
These lenders specialize in offering mortgages to borrowers with low credit scores
- Lends down to a 500 credit score.
- Participates in down payment assistance programs in some states.
- Considers alternative credit data, like rent payments.
- Vylla review
- FHA loans typically have a 580 minimum credit score
- Manually reviews loans to look at borrowers’ finances comprehensively
- Works with borrowers to find state and local down payment assistance programs
- New American Funding review
Best online mortgage lenders for borrowers with low credit scores
These lenders offer a mortgage experience for borrowers with low credit scores who want to apply online.
- Minimum credit score of 580 for FHA loans and 620 for most other loans
- Also offers FHA, VA and USDA loans
- Mortgage bankers are available to help if you have questions
- Rocket Mortgage review
- Minimum credit score for FHA and VA loans is 580; for conventional loans, 620
- Loan application can be completed online
- Allows alternative credit scoring for some government-insured loans
- J.G. Wentworth Home Lending review
Best refinance mortgage lenders for borrowers with low credit scores
These lenders offer refinance (as well as purchase) mortgages to borrowers with low credit scores.
- HomeRun loan program has a minimum 3% down payment and doesn’t require private mortgage insurance
- Offers FHA and VA loans
- Uses nontraditional credit, such as rental payment history, for some loan programs
- CitiMortgage review
- Minimum credit score of 550 for government-backed loans
- Low minimum loan amount of $50,000 benefits small borrowers
- Licensed in 50 states; branch locations in 30 states
- Homebridge Financial Services review
Summary: best mortgage lenders for borrowers with low credit scores
- Vylla: Best overall for borrowers with low or bad credit scores
- New American Funding: Best overall for borrowers with low or bad credit scores
- Rocket Mortgage: Best for online experience for borrowers with low or bad credit scores
- J.G. Wentworth Home Lending: Best for online experience for borrowers with low or bad credit scores
- CitiMortgage: Best refinance mortgage lenders for borrowers with low or bad credit scores
- Homebridge Financial Services: Best refinance mortgage lenders for borrowers with low or bad credit scores
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