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How to buy a house with bad credit

It’s possible to buy a home even when your credit score is under 580

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Purchasing a home is a huge milestone, yet the road might seem impossible if you're dealing with bad credit. The good news is that while a low credit score can present obstacles, it doesn't mean homeownership is out of reach.

Learn which homebuying options are available to you if you have bad credit and how to prove to lenders you aren’t a risk.

Key insights

  • Government-backed loans, like a VA or FHA loan, will be easier for someone with bad credit to qualify for than a conventional loan.
  • Expect to pay a higher down payment to increase your approval odds.
  • You can choose to refinance your home loan later on when your credit score improves.

What is a bad credit score?

Mortgage lenders can differ in what they consider a “bad” credit score, and some may have more rigorous lending standards than others. A bad credit score typically falls below 580, according to FICO.

That said, conventional, conforming loans — those not part of a government lending program but that meet requirements for backing by Fannie Mae and Freddie Mac — generally have a minimum credit score requirement of 620, according to Fannie Mae.

Government-backed loans, such as Federal Housing Administration (FHA) loans, usually have more flexible credit score requirements. However, they may have other restrictions, such as borrowing limits.

» COMPARE: Best bad credit home loans

Can you buy a house with bad credit?

Buying a house with bad credit is possible, but your requirements and journey will look different than someone who has excellent credit. Not only will you need to find a lender that accepts borrowers with poor credit, but you will need to prove you are a safe risk for lenders to finance. Here are a few ways you can better qualify for a home loan:

While it’s possible to qualify for a conventional mortgage with a low credit score, government-backed mortgages may be a better option.
  • Larger down payment: You may offer to put more toward your down payment, which reduces the size of the mortgage you need — and the lender’s risk. This costs more upfront, but you start with more equity in your home.
  • Reduce your debt; increase your income: This will improve your debt-to-income (DTI) ratio, another critical metric lenders look at when making a lending decision. Having a healthy level of income and few debts shows lenders you’re likely to have enough cash to make your monthly mortgage payments.
  • Use a co-signer: “If you're able to get a family member or friend to co-sign, know that they're doing you a huge favor,” said Todd Stearn, founder and CEO of The Money Manual. “Co-signing a loan is a big deal because that person is taking responsibility in the case that you can't pay. So if you don't pay on time, every time, this will negatively impact the co-signer's credit score.”
  • Use a nonconforming, government-backed loan: These loans don’t meet Fannie Mae or Freddie Mac’s purchase standards. They may not have high credit score requirements, and some may even let you borrow after bankruptcy.

» MORE: How much house can I afford?

Pros and cons of buying a house with bad credit

Even though there are several options for individuals with poor credit to purchase a home, the pros and cons should be considered before moving forward.


  • Homeownership: Homeownership can be more affordable than rent and provide stability and potential long-term financial benefits.
  • Improved credit over time: Making regular mortgage payments will improve your credit score, and you can refinance to a better rate when your score is better.
  • Build equity: The more you pay toward your home the more equity you build, which increases wealth accumulation and financial stability in the long run.


  • Higher interest rates: Your credit could stick you with a higher interest rate, which will increase the monthly payment and overall cost of the loan.
  • Higher down payment: Expect to pay a larger down payment upfront to compensate for your score.
  • Limited options: Not only will you have fewer loan and lender options, but you might have to settle on a home you don’t love to meet stricter loan requirements.

Bad credit home loan options

A government-backed loan can be a great option if you have a low credit score. Private lenders make these loans, but the government guarantees them. That reduces the lender’s risk, allowing them to relax lending standards.

Here are some government-backed loan options if you have poor credit.

FHA loans let you put down as little as 3.5% if you have a credit score of 580 or higher. However, you may still be able to get a loan with a credit score of at least 500 — but you’ll need to make a 10% down payment. FHA loans also require you to pay a mortgage insurance premium for the life of the loan.

Additionally, you must meet the following requirements:

  • DTI ratio of 43% or less
  • Steady employment and income (proved with documentation)
  • Home must be your primary residence
The U.S. Department of Veterans Affairs guarantees VA loans for service members, veterans and some surviving spouses. VA loans are available to:
  • Veterans who meet service length requirements
  • Service members on active duty who have served a minimum period
  • Certain reservists and National Guard members
  • Certain surviving spouses of deceased veterans

If you believe you qualify, you should contact the VA to receive a Certificate of Eligibility. Some lenders may be able to get the certificate on your behalf.

VA loans come with multiple benefits:

  • No minimum credit score
  • No down payment
  • No mortgage insurance
  • No maximum DTI ratio (although lenders must provide other compensating factors if DTI exceeds 41%)
  • No maximum loan amount
  • VA staff to assist if you have trouble with payments
U.S. Department of Agriculture (USDA) loans are designed to help low- and moderate-income households in rural areas afford homes. The Section 502 Single Family Housing Guaranteed Loan Program has no formal credit requirement, but the USDA says that applicants must demonstrate a “willingness and ability to repay debts.”

These loans only come as 30-year fixed-rate loans, and the property must be located in an eligible rural area. The USDA provides a search tool you can use to see if the area you are looking at qualifies. A down payment is not required on a USDA loan.

Other application requirements include:

  • Agreeing to use the property as a primary residence
  • Having a household income that doesn’t exceed 115% of the median amount
  • Having a maximum DTI ratio of 41%

Bad credit home loan alternatives

If you can’t find a lender that will finance your homebuying dreams, there are two alternative paths you can take that can help.

Improving your credit

It can be frustrating to delay homebuying to work on your credit, but this step will ultimately lead to better loan terms. You can work with a credit counselor or do this on your own:

  • Check your credit report for errors. Credit bureaus occasionally make mistakes, like failing to wipe off loans you’ve paid off or mixing your name up with someone else’s.
  • Make payments on time. A history of on-time payments helps build your score, while late and missed payments damage it.
  • Only use credit cards for essentials. The rule of thumb is to keep your credit utilization at less than 30%. Only swipe your card for necessary purchases.
  • Don’t close unused accounts. Your credit mix (the diversity of your open credit accounts) plays a part in determining your credit score. Some lenders may close accounts after extended periods of inactivity, so consider spreading your essential purchases across a few cards to keep them active.
  • Avoid new credit. Too many hard inquiries in a short period can make a lender less likely to extend you a loan. Avoid applying for new credit several months before you plan on getting a mortgage.

Rent-to-own agreements

A rent-to-own agreement can be a viable option for those with bad credit. This arrangement allows you to rent a property with the option to buy it at a later date. A portion of your monthly rent goes toward building equity in the home, which can be used as a down payment when you're ready to purchase.

While this offers more flexibility and time to work on improving your credit, be cautious and thoroughly review the terms of the agreement before committing.

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    How can I buy a house with bad credit and no down payment?

    Your best options might be two types of government loans: a VA loan or a USDA loan. Neither type of loan has a minimum credit score requirement, and both types allow you to qualify for a home loan with no down payment. Each private lender making these government-backed loans may have slightly different requirements, so you’ll need to shop around to find the one that works for you.

    What credit score do you need to refinance your mortgage?

    As with purchase mortgages, you’ll generally need a score of at least 620 to refinance your mortgage through a conventional refinancing loan.

    FHA rate-and-term and cash-out loans require your score to be at least 500 if the loan-to-value ratio is below 90% and 580 if it’s above; FHA streamline refinances don’t have a minimum requirement.

    The USDA and VA don’t set a minimum credit score requirement for their refinancing options.

    Can I get a home loan with a 500 credit score?

    Yes, you can. You may be able to get an FHA loan with a credit score of 500 if you are able to put down 10%. VA loans and USDA loans have no specific credit score requirements, so you may also be eligible for one of these loans with a 500 credit score.

    Bottom line

    Buying a home with bad credit is possible, whether you get a conventional loan or a government-backed loan through the FHA, USDA or VA. You may have to spend more time shopping for lenders, and you could end up with a high interest rate if you don’t have other factors to offset the low score, like a strong DTI ratio or a large down payment.

    In this case, you might want to put off a mortgage temporarily and work on your credit score more. Address any short-term credit issues first, then establish a long-term plan of timely debt payments. With some hard work, you’ll be able to improve your credit and get into a home you love.

    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. FICO, “Credit Scores: How Low Can You Go?.” Accessed Aug. 14, 2023.
    2. Fannie Mae, “What is the minimum credit score requirement?” Accessed Jan. 10, 2022.
    3. U.S. Department of Veterans Affairs (VA), “VA Guaranteed Loan.” Accessed Jan. 12, 2022.
    4. U.S. Department of Agriculture (USDA), “Single Family Housing Guaranteed Loan Program.” Accessed Jan. 12, 2022.
    5. Experian, “What Affects Your Credit Scores?” Accessed Jan. 10, 2022.
    6. Experian, “What is a Credit Utilization Rate?” Accessed Jan. 10, 2022.
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