NOTE: These credit scores are the most recent ones shared with NerdWallet, but they can change. Approval isn’t guaranteed, since your score is just one factor lenders consider. Want to see credit score minimums for other home loan types? Tap the “?” in the credit score column.
Low credit home loans: What are my options?
FHA mortgage loans are a common pick if you have bad credit. With a 500 credit score, your best bet is probably some type of government-backed loan.
Common choices include these government-backed loans for bad credit:
Type of loan | Backed by | Focus | Minimum down payment |
|---|
| Federal Housing Administration | All home buyers | 3.5% (with a credit score 580+) 10% (with a credit score 500-579) |
| Department of Veterans Affairs | Active military and veterans | 0% |
| U.S. Department of Agriculture | Mostly rural areas | 0% |
Conventional loans are the most popular type of mortgage, but they typically require a credit score of at least 620. That said — while putting together this list, we did find one lender (State Employees’ Credit Union in North Carolina) that accepts credit scores below 600 for conventional loans, if you meet certain criteria. MORE NERDY PERSPECTIVE 🤓
| I have bad credit. Which mortgage is best for me? In most cases, you’ll probably end up looking at FHA loans. You can get an FHA loan with a credit score as low as 500 if you meet other qualifications (like making a 10% down payment). Less common options include special mortgages — not government or conventional — called non-QM loans. My best advice: Talk to a couple of these lenders IRL. Be honest about your overall financial situation. They can’t help you unless they know the full picture, including your debt and savings. |
How to get a home loan with bad credit
Mortgage loans don’t have guaranteed approval. You have to apply and prove that you can pay the loan back. When you apply for a mortgage, lenders want to know your history of handling money. To do that, mortgage lenders look at these four things:
Your credit score.
Your job history.
If you are weak in one area, a strong point in another might help. Let’s look at what things you can control to help get your loan approved.
1. Credit score
Your credit score affects which home loans you can get, your interest rate and how much money you need to pay upfront. You may be able to qualify for a mortgage with a credit score that's as low as 500. However, you might have to make a larger down payment and pay a higher interest rate.
It takes time to bump your credit, but a higher score can help you start off your home loan on better terms. A good credit score to buy a house is at least 620. That saves you money in the long run. 2. Debt-to-income ratio
Where to start: Review your current bills and loans. Then, pay down what you can. See our tips to pay off debt before you take on a big loan like a mortgage. To figure out your debt-to-income ratio, or DTI, a lender will divide your total monthly bills (like car payments or student loans) by your monthly pre-tax income.
Most lenders will look for a DTI that's 36% or lower (including your housing costs). A lender that allows a higher DTI probably charges higher interest rates.
You can lower your DTI by paying down existing debts. While you're getting ready to buy a house, avoid taking on any more debt or making big purchases.
3. Employment history
Where to start: Avoid making any job changes until after you close on a house. The steadier, the better.
You can't change your work history, but you can do your best to make sure you have a steady job before you apply for a mortgage. (To get a self-employed mortgage, expect to do a little more paperwork.) If you change jobs or get laid off during the mortgage underwriting process, it can be harder to get the loan approved. 4. Down payment
Where to start: Put down as much as you can comfortably afford. To a lender, a larger down payment can offset a lower credit score.
The minimum down payment to buy a house depends on what type of home loan you're getting. You don’t need 20% down to buy a house, but a higher amount will generally get you a better interest rate. Keep some cash in your emergency savings, but try to put down as much as you can comfortably afford. State-sponsored first-time home buyer programs offer down payment assistance and grants that can give your savings a boost.
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 and fees to see which mortgage lender is offering you the best deal. More from NerdWallet:
