How To Buy a House With Bad Credit

You can buy a house with bad credit, but your options may depend on your credit score, debt, income, savings and the type of mortgage you use. FHA loans are often the most flexible path for borrowers with lower credit scores, while VA and USDA loans may help eligible buyers qualify with no down payment.

FHA loans may accept FICO scores as low as 500 with 10% down or 580 with 3.5% down, according to HUD. VA and USDA loans don’t set official minimum credit scores, but lenders can apply their own requirements. Conventional loans typically require stronger credit, with Fannie Mae’s HomeReady program listing a minimum credit score of 620.

Bad credit still makes homebuying harder. A lower credit score may limit your lender options, increase your interest rate or require a larger down payment. Your credit score and credit report help determine whether you can get a mortgage and what rate you’ll pay.

That doesn’t mean you’re stuck. Here’s how to buy a house with bad credit and what to know before you apply:

Key Takeaways

• Bad credit doesn't block homeownership. You can still buy a house with a low credit score, especially through an FHA loan that allows scores as low as 500 with 10% down or 580 with 3.5% down. VA and USDA loans set no official minimum score and may require no down payment for eligible buyers.

• Your score affects more than approval. A lower credit score can mean a higher interest rate, larger down payment and pricier mortgage insurance -- costing you tens of thousands over the life of the loan.

• Strengthen your file before you apply. Check your credit reports for errors, pay down credit card balances, save extra cash for closing costs and reserves, get preapproved and compare Loan Estimates from lenders that work with lower-credit borrowers.

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What Counts as Bad Credit When Buying a House?

“Bad credit” usually means your score falls below the range many lenders prefer. For mortgages, the exact cutoff depends on the loan program and the lender.

A credit score isn't the same thing as a credit report. Your credit report shows your history with loans, credit cards, payments and debt. Your credit score is a number calculated from information in that report. Most mortgage lenders review credit information from all three major credit bureaus -- Equifax, Experian and TransUnion -- and may use the middle score when pricing your loan.

That’s why you should check your reports before you apply. An error could make your score look worse than it should, which may cost you money or affect approval.

Can You Buy a House With Bad Credit?

Yes, you may be able to buy a house with bad credit if you qualify for the right loan program and can show the lender you can afford the payment. Your credit score matters, but lenders also look at your income, debt-to-income ratio, employment history, cash reserves, assets and down payment.

FHA loans may be available to borrowers with credit scores as low as 500, but borrowers with scores from 500 to 579 generally need at least 10% down. FHA borrowers with scores of 580 or higher may qualify for the 3.5% minimum down payment. HUD states that borrowers are not eligible for FHA-insured financing if the minimum decision credit score is below 500.

A key thing to remember: FHA sets program rules, but lenders can add their own stricter requirements. Those stricter lender rules are often called overlays.

MoneyLion offers a service to help you find personal loan offers. Based on the information you provide, you can get matched with offers for up to $100,000 from our top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you.

Mortgage Options for Buying a House With Bad Credit

If your credit score is lower than you’d like, start by comparing loan programs. The best option depends on your score, income, location, military status and how much cash you can bring to closing.

FHA Loans

FHA loans are backed by the Federal Housing Administration and are commonly used by borrowers with lower credit scores or smaller down payments. You may qualify for an FHA loan with:

• A credit score of 580 or higher and 3.5% down

• A credit score from 500 to 579 and 10% down

• A primary residence you plan to live in

• Verifiable income and manageable debt

FHA loans can be helpful if your score isn’t high enough for a conventional loan. But FHA loans usually require mortgage insurance, which adds to your monthly payment and total loan cost.

VA Loans

VA loans may be an option if you’re an eligible veteran, active-duty service member or surviving spouse. The VA does not set a minimum credit score, but lenders can set their own credit standards. The VA also notes that some lenders have credit score requirements, so it can help to compare more than one lender.

VA loans may offer:

• No required down payment for many eligible borrowers

• No private mortgage insurance

• Competitive rates

• Flexible credit review

You’ll still need to meet lender requirements for income, debt and overall creditworthiness.

USDA Loans

USDA loans may help eligible buyers purchase homes in qualifying rural or suburban areas. The USDA’s Single Family Housing Guaranteed Loan Program has no set credit score requirement, but applicants must show a willingness and ability to manage debt. Rates are set by individual lenders, and USDA encourages borrowers to comparison shop.

USDA loans may offer:

• No down payment for eligible borrowers

• 30-year fixed-rate terms

• Income-based eligibility

• Property location requirements

A lender may still require a minimum credit score, even when USDA itself does not.

Conventional Loans

Conventional loans are not backed by a government agency. They may be harder to qualify for with bad credit, but they can still be worth comparing if your score is improving. Fannie Mae’s HomeReady program, for example, lists a minimum credit score of 620, a debt-to-income ratio of no more than 50% and an income limit tied to area median income.

Conventional loans may work better if you have:

• A score of 620 or higher

• Stable income

• Lower debt

• Money saved for a down payment and closing costs

• A path to remove private mortgage insurance later

If your score is below 620, FHA, VA or USDA may be more realistic starting points.

Your Step-By-Step Guide For Buying a House

Buying a house with bad credit is easier when you know which parts of your finances lenders will review.

Before you apply, focus on the factors you can improve -- your credit reports, debt, savings, loan options and overall mortgage readiness.

These steps can help you strengthen your application and avoid surprises before closing:

Step 1: Check Your Credit Reports Before Applying

Before you talk to lenders, review your credit reports. You can get free credit reports from the three major credit bureaus through AnnualCreditReport.com.

Look for:

• Accounts you don’t recognize

• Incorrect late payments

• Wrong balances

• Duplicate collection accounts

• Old negative items that should no longer appear

• Mixed-file issues from someone with a similar name

The CFPB recommends checking your credit report and correcting errors before applying for a mortgage because errors can reduce your score and lead to a higher rate. Don't dispute accurate negative information just because you want it removed. Accurate late payments, collections or charge-offs can stay on your report for a set period under credit reporting rules.

Step 2: Know How Your Score Affects Your Mortgage Costs

A lower credit score doesn’t just affect approval. It can affect how much you pay every month.

The CFPB’s mortgage rate tool shows that, based on its sample data, a borrower with a 625 credit score could see loan offers from 6.125% to 8.875%, while a borrower with a 700 score could see offers from 5.875% to 8.125%. In that example, the higher credit score could save up to $264,523 over the life of the loan.

That’s why it may be worth improving your credit before applying if you’re close to a better score range. Even a small rate difference can change your monthly payment and long-term interest costs.

Step 3: Lower Your Debt Before You Apply

Your credit score matters, but lenders also look at your debt-to-income ratio. That ratio compares your monthly debt payments with your gross monthly income.

You may improve your mortgage chances by paying down:

• Credit card balances

• Personal loans

• Auto loan balances

• Past-due accounts

• Small debts that affect your monthly obligations

Focus first on credit card balances if they’re high. Credit utilization -- how much of your available credit you’re using -- can have a meaningful impact on your score.

Step 4: Save More Than Just the Down Payment

A down payment is only one part of buying a house. You may also need money for closing costs, inspections, moving costs, prepaid taxes, homeowners insurance and reserves.

A larger down payment can also reduce your borrowing costs. In one CFPB example, increasing the down payment from 10% to 25% lowered the loan amount and saved up to $272,017 over the life of the loan.

If you’re buying with bad credit, more cash can also make your application look stronger. It may not erase credit problems, but it can show the lender you have more room in your budget.

Step 5: Compare Lenders That Work With Lower-Credit Borrowers

Not all lenders treat bad credit the same way. One lender may deny your application while another may approve it with a different loan program, higher down payment or added documentation.

We recommend requesting and comparing Loan Estimates from multiple lenders once you have a specific home in mind. A Loan Estimate is a standardized form that shows important details about the loan offer, including rate, fees and closing costs.

When comparing lenders, ask:

• Which loan programs do you offer for lower-credit borrowers?

• Do you have a minimum credit score for FHA, VA or USDA loans?

• Do you use lender overlays?

• What down payment would I need at my score?

• What rate and fees would I qualify for today?

• Would paying down debt improve my approval odds?

• Do you offer down payment assistance programs?

Step 6: Consider Down Payment Assistance

Down payment assistance programs may help with upfront costs. These programs are often offered by state housing agencies, local governments, nonprofits or approved lenders. Assistance may come as:

• Grants

• Forgivable loans

• Deferred-payment loans

• Low-interest second mortgages

• Closing cost assistance

Requirements vary by location, income, credit score, property type and first-time buyer status. If you’re using FHA, VA, USDA or a conventional low-down-payment program, ask your lender which assistance programs can be paired with that mortgage.

Step 7: Get Preapproved Before House Hunting

A preapproval gives you a clearer idea of how much a lender may let you borrow. It can also show sellers you’re a more serious buyer.

For borrowers with bad credit, preapproval is especially useful because it can uncover issues early. A lender may tell you that you need to pay down a certain account, save more cash, document income differently or wait until a recent late payment is older.

Preapproval isn't final approval. Your loan can still be denied if your finances change, the property does not qualify or underwriting finds a problem.

Step 8: Avoid New Credit Before Closing

Try not to open new credit cards, finance furniture, take out a personal loan or buy a car before your mortgage closes. New debt can hurt your score and raise your debt-to-income ratio.

Applying for or opening many new accounts in a short time can lower your score, especially when you’re getting ready to apply for a mortgage.

Keep your finances steady between preapproval and closing. Lenders may check your credit again before final approval.

Should You Wait To Buy Until Your Credit Improves?

Sometimes, yes. Buying a home with bad credit can make sense if you can afford the payment, qualify for a reasonable loan and need housing stability now. Waiting can make sense if your score is close to a better range, your debt is high or the monthly payment would stretch your budget too far.

Waiting may help you:

• Qualify for more lenders

• Get a lower rate

• Lower your monthly payment

• Reduce mortgage insurance costs

• Save a bigger down payment

• Avoid becoming house poor

But waiting isn't always the right move. Home prices, rents and mortgage rates can change. The better choice depends on your budget, credit profile, local market and timeline.

How To Improve Your Chances of Getting Approved

If you want to buy a house with bad credit, focus on the factors you can control before applying. Start with these steps:

• Check your credit reports for errors

• Pay every bill on time

• Lower credit card balances

• Avoid new credit applications

• Save for closing costs and reserves

• Compare FHA, VA, USDA and conventional options

• Ask lenders about overlays

• Get preapproved before making an offer

• Compare Loan Estimates before choosing a lender

Bad credit doesn’t automatically block you from buying a home. But it does mean you need a plan, realistic expectations and a lender that fits your situation.

The Bottom Line

You can buy a house with bad credit, especially if you qualify for an FHA, VA or USDA loan. FHA loans may allow scores as low as 500 with a larger down payment, while VA and USDA loans don’t set official minimum credit scores but still allow lenders to apply their own standards.

The best move is to check your credit, fix errors, lower debt, save cash and compare lenders before you commit. A stronger credit profile can give you more options and may save you thousands in interest over time.

Key Terms

• Credit score: A number that predicts how likely you are to repay borrowed money on time, based on information in your credit reports.

• Credit report: A record of your credit history, including payment history, account balances and other details lenders review when you apply.

• Debt-to-income ratio: The share of your gross monthly income that goes toward monthly debt payments. Lenders use it to measure how manageable a mortgage may be.

• Minimum Decision Credit Score (MDCS): The FHA credit score used for eligibility. It’s usually the middle score from three bureaus or the lower score from two.

• Mortgage insurance: Insurance that protects the lender if you stop making payments. It often adds to your monthly mortgage cost.

Sources:

• Consumer Financial Protection Bureau: What is a credit score?

• Consumer Financial Protection Bureau: What is a credit report?

• Consumer Financial Protection Bureau: What is a debt-to-income ratio?

• U.S. Department of Housing and Urban Development: Does FHA require a minimum credit score and how is it determined

• Consumer Financial Protection Bureau: What is mortgage insurance and how does it work?

Summary generated by AI, verified by MoneyLion editors

FAQ

Can I buy a house with bad credit? Yes. You may be able to buy a house with bad credit if you qualify for the right mortgage program and can show enough income, manageable debt and savings to support the payment. FHA loans are often one of the more flexible options, but VA and USDA loans may also help eligible buyers.

What credit score do I need to buy a house with bad credit? FHA loans may allow a credit score as low as 500 if you can put at least 10% down. If your score is 580 or higher, you may qualify for the FHA 3.5% down payment option. Conventional loans often require stronger credit, and lender requirements can vary.

Can I buy a house with bad credit and no money down? It may be possible if you qualify for a VA loan or USDA loan. VA loans are generally for eligible veterans, service members and surviving spouses, while USDA loans are for eligible buyers purchasing qualifying homes in approved rural or suburban areas.

What is the easiest mortgage to get with bad credit? FHA loans are often easier to qualify for with bad credit because they allow lower credit scores than many conventional loans. That said, approval isn’t guaranteed. Lenders still review your income, debt, credit history, down payment and overall ability to repay the loan.

Should I improve my credit before buying a house? It can help. Improving your credit before you apply may help you qualify for more lenders, a lower interest rate and a more affordable monthly payment. Start by checking your credit reports, paying bills on time, lowering credit card balances and avoiding new debt before closing.