How To Get A Mortgage Loan With Bad Credit

Many or all of the products here are from our partners that pay us a commission. It's how we make money. But our editorial integrity ensures our experts' opinions aren't influenced by compensation. Terms may apply to offers listed on this page.

Many lenders have strict qualifying requirements for mortgage loans, which can make it challenging for borrowers with bad credit to obtain a mortgage. However, if you're a would-be homebuyer looking for the best mortgage lenders for bad credit, there are options out there. A lot of home loans for bad credit are backed by government agencies including the Federal Housing Administration (FHA), the Veteran's Administration (VA), or the U.S. Department of Agriculture (USDA).

The Ascent's best mortgage lenders for bad credit:

Diverse loan types and terms: New American Funding
Diverse loan terms: Navy Federal Credit Union Mortgage
Nontraditional credit history: PNC Bank Mortgage
Low income and low down payment options: Wells Fargo Mortgage
First-time home buyers: CitiMortgage

Competitive rates and a diverse set of loan terms and products are a rare combo. Fast service simplifies the homebuying process even more. Read Full Review

Key Features

Fast service
High customer satisfaction, A+ BBB rating

Loan Types

Conventional
FHA
VA

Fixed Rate Terms

Customizable (8y-30y)

Adjustable Rate Terms

10/1, 7/1, 5/1

Navy Federal Credit Union Mortgage

Best for: Diverse loan terms

Navy Federal Credit Union Mortgage

Bottom Line

The rate match guarantee ensures homeowners can secure a great deal and the ability to finance up to 100% of purchase price is a rare offering. The lender scores some of the best customer satisfaction ratings among top picks.

Key Features

High customer satisfaction
Up to 100% financing
No PMI offering
Rate match guarantee

Loan Types

Conventional
FHA
VA
Jumbo
Interest Only

Fixed Rate Terms

30y, 15y

Adjustable Rate Terms

5/5, 3/5
5/1, 3/1, 1/1

PNC Bank Mortgage

Best for: Nontraditional credit history

PNC Bank Mortgage

Bottom Line

Diverse loan products and terms mean PNC can accommodate many borrowers, including those looking for mortgage options with no PMI.

Key Features

3% down no PMI offering
HELOC's
Home equity loans
Considers nontraditional credit history

Loan Types

Conventional
FHA
VA
USDA
Jumbo

Fixed Rate Terms

30y, 25y, 20y, 15y, 10y

Adjustable Rate Terms

10/1, 7/1, 5/1

Wells Fargo Mortgage

Best for: Low income and low down payment options

Wells Fargo Mortgage

Bottom Line

First-time homebuyers will benefit from the no income requirement loan product and access to FHA loans.

Key Features

No income loan offering
Uses expanded credit criteria
Diverse terms and loan products

Loan Types

Conventional
FHA
VA
USDA
Jumbo

Fixed Rate Terms

30y, 15y

Adjustable Rate Terms

10/1, 7/1, 5/1

CitiMortgage

Best for: First-time home buyers

CitiMortgage

Bottom Line

The diverse set of loan products and terms and relationship discounts make it a top pick, particularly for first-time homebuyers. The high customer satisfaction ratings are the cherry on top.

Key Features

No PMI mortgage
High customer satisfaction
Available in all 50 states

Loan Types

Conventional
FHA
VA
Jumbo

Fixed Rate Terms

30y, 15y

Adjustable Rate Terms

10/1, 7/1, 5/1

What type of mortgage can I get with bad credit?

While some lenders make conventional loans to home buyers with bad credit, you will often secure more affordable financing if you get a poor credit mortgage insured by a government agency. These mortgages not only have relaxed credit requirements but also require lower down payments than most conventional mortgages do.

There are three primary options for government-backed loans that could be available to borrowers looking for bad credit mortgage loans.

FHA Loans

FHA Loans are issued by private lenders but backed by the Federal Housing Administration. You can qualify for one with a credit score of 580 and a down payment of 3.5% or with a score as low as 500 and a 10% down payment. There are no minimum income requirements, although lenders must determine if the would-be homeowner has sufficient income to repay the loan. Check out our best FHA lenders list here.

VA Loans

VA Loans are also issued by private lenders, but this time the Department of Veterans Affairs guarantees the loan rather than the FHA. There is no minimum credit score requirement imposed by the VA. There's also no down payment required unless the home appraises for less than you're paying for it. You do need to be a service member or have a record of military service, although surviving spouses of servicemen and women are also eligible. Our best lenders for VA loans are here for you to check out.

USDA Loans

The U.S. Department of Agriculture offers two programs for would-be home buyers. Section 502 Direct Loans are made by the USDA directly and are open only to borrowers with limited incomes who are buying properties in rural areas. The USDA also guarantees loans to borrowers with low incomes, although the income limits are higher for these loans made by private lenders. No down payment is required for USDA loans, interest rates are often below what you'd be charged on a conventional loan, and you can qualify even with imperfect credit. Our experts' list of the best USDA lenders can be found here.

Mortgage Calculator: How Much House Can I Afford?

Home I Can Afford

Total Mortgage Cost

How to get a mortgage with bad credit

Aim to get your score in the best shape possible. Reducing debt, correcting errors on your credit record, and asking creditors to remove black marks from your credit history could help you qualify for a better rate.
Research loan options for bad credit borrowers. Many lenders cater to borrowers with low credit scores. Government-backed loans including FHA, VA, and USDA loans are also available even with low credit scores. Look into each option.
Save up a down payment. A larger down payment reduces the risk of lending to you. You're borrowing less and have more of a stake in the house.
Shop around and compare loan options. Get quotes from multiple lenders to get the most affordable rate. It's even more important to shop around when your credit score is low, as some lenders offer better rates for bad credit borrowers than others.
Consider a cosigner. If someone with better credit will cosign, you may be able to qualify for a better rate.

Can first-time home buyers with bad credit purchase a home?

First-time home buyers with bad credit may be able to purchase a home. Some lenders offer special first-time buyer programs that have relaxed credit score requirements to qualify. There are even some options for how to buy a house with no credit.

While there are conventional loans for borrowers with imperfect credit, many would-be homeowners do better with government-backed loans. Government agencies guarantee loans in part to help people become first-time homeowners. These include FHA loans, VA loans, and USDA loans.

Each of these government-guaranteed loans comes with relaxed requirements for the credit score needed for a mortgage. FHA loans require a credit score of only 500 with a 10% down payment, and other loans have no credit score requirement at all.

Should I get a mortgage with bad or poor credit?

While you can get a mortgage with bad credit, your mortgage will be less expensive and you'll have a broader choice of lenders if you raise your score. There are seven simple steps you can take to help you rebuild credit.

Pay all your bills on time. Payment history is the most important component of your score. Almost any creditor, including landlords and storage unit owners, can report you if you're late on payments.
Make sure your positive payment records are included in your credit history. If you've paid your rent, utilities, or other bills on time, try to get them included. Services such as Experian Boost can help you get some of these accounts reported for free that otherwise wouldn't be.
Keep your credit utilization ratio low. Maxed-out cards can be very damaging to your credit score. Try to keep your credit utilization ratio below 30% of your credit line to avoid hurting your score.
Avoid closing old credit card accounts. The length of your credit history is an important factor in determining your credit score. The older your accounts, the higher your score.
Aim to have a mix of different kinds of credit. Lenders like to see you've used different kinds of debt, including credit cards and other revolving debt, as well as car loans and other installment loans.
Try to get old black marks removed from your credit history. Sometimes creditors are willing to remove a late payment from your credit report if you've mostly been a good customer. You can write a goodwill letter or call your creditor to ask.
Be smart about rate shopping. While it's a smart idea to shop for a mortgage or other loan, you want to avoid getting too many hard inquiries on your credit report. Look for lenders that pre-approve you and provide details of loan terms with a soft credit check only.

FAQs

It is possible to buy a home with a low credit score. Your best option may be to search for an FHA or USDA loan as these government-backed loans tend to be easier to qualify for and often offer the most affordable loans to bad credit borrowers.
In most cases, you will need to make at least a small down payment to buy a home, especially if you have bad credit. If your credit score is at least 580, you may be able to qualify for an FHA loan that enables you to make a down payment as low as 3.5%. The USDA and VA also both allow $0 down payment loan options for qualifying borrowers.
If you're buying a home with a low credit score, here are the key steps you should take:If you're buying a home with a low credit score, here are the key steps you should take:
1. Determine why your credit score is low. To qualify for a conventional mortgage (a loan not backed by the government), your score usually needs to be 620 or higher. If your score is low because you don't have a credit history, lenders may be willing to engage in manual underwriting.
2. Show consistent borrowing behavior. If you're working on paying down debt and you've paid all your recent bills on time, lenders may be open to providing a loan even with imperfect credit.
3. Get your rent included on your credit report. Rental payments aren't generally included on your credit report. But services such as RentTrack, ClearNow, ERentPayment, and RentReporters can get your on-time rental history included, which can help increase your credit.
4. Build up your cash savings. Having substantial assets can make you a more attractive borrower so lenders may be more willing to loan you money even with poor credit.
5. Make a large down payment. The bigger your down payment, the less risk the lender takes on and the more easily you can qualify for a loan.
6. Keep your debt-to-income ratio low. This is the ratio of debt relative to income. The maximum debt-to-income ratio for most mortgage lenders is 43%.
7. Buy a less expensive home. A cheaper home enables you to borrow less, so lenders don't have to take on as much risk.
8. Shop around. Compare online mortgage lenders, local banks, and credit unions to find the best bad credit mortgage loan options. Consider FHA, VA, or USDA loans as well as conventional loans, and get quotes from several lenders to find the best rates.