1. Understand Your Credit Situation
Check Your Credit Report
If you want to boost your chances of getting a mortgage with bad credit, the first step is to know exactly where you stand. In the U.S., you’re entitled to a free credit report every year from each of the three major credit bureaus: Equifax, Experian, and TransUnion. You can get these at AnnualCreditReport.com. Review your reports carefully for any errors or outdated information.
What to Look For in Your Credit Report
| Item | Why It Matters |
|---|---|
| Personal Information | Ensures the report is actually yours and accurate |
| Account Status | Shows open, closed, or delinquent accounts that impact your score |
| Payment History | Lenders want to see on-time payments; missed payments hurt your score |
| Credit Inquiries | Too many recent hard inquiries may raise red flags for lenders |
| Public Records/Collections | Bankruptcies, foreclosures, and collections lower your chances of approval |
Understand Your Credit Score
Your credit score is a three-digit number ranging from 300 to 850. Most American lenders consider a score below 620 as “bad credit.” But even with a low score, understanding what’s affecting it can help you improve your application.
| Score Range (FICO) | Status | Lender Viewpoint |
|---|---|---|
| 300–579 | Poor | Very difficult to qualify for traditional loans without high interest rates or large down payments. |
| 580–669 | Fair | Lenders may offer mortgages but expect higher rates and stricter terms. |
| 670–739+ | Good/Excellent | Easier to qualify with better rates and terms. |
Identify Factors Impacting Your Credit According to Lenders
Lenders in the U.S. look at several key factors when reviewing your mortgage application:
- Payment History: Are you making payments on time?
- Total Debt: How much do you owe compared to your available credit (credit utilization)? Lower is better.
- Length of Credit History: Longer history often means more trustworthiness.
- Types of Credit Used: A mix of credit cards, auto loans, and installment loans can help.
- Recent Applications: Applying for a lot of new credit in a short time can be a red flag.
If you spot any mistakes or negative items that shouldn’t be there, dispute them right away. Even small corrections can make a difference when applying for a mortgage with bad credit.
2. Explore Government-Backed Loan Programs
If your credit score isn’t perfect, don’t worry—there are still ways you can become a homeowner. The U.S. government offers several loan programs specifically designed to help people with less-than-stellar credit scores. These loans are backed by different federal agencies and often have more flexible requirements than conventional mortgages.
FHA Loans: Friendly for Lower Credit Scores
The Federal Housing Administration (FHA) loan is one of the most popular options for buyers with bad credit. FHA loans usually accept applicants with credit scores as low as 580, and sometimes even lower with a larger down payment. These loans also require a smaller down payment—sometimes as little as 3.5% of the purchase price.
Key Features of FHA Loans
| Requirement | FHA Loan |
|---|---|
| Minimum Credit Score | 580 (or 500 with 10% down) |
| Minimum Down Payment | 3.5% (with 580+ score) |
| Mortgage Insurance Required? | Yes, both upfront and monthly premiums |
VA Loans: A Benefit for Veterans and Service Members
If you’re a current or former member of the U.S. military, you may qualify for a VA loan through the Department of Veterans Affairs. VA loans do not require a minimum credit score set by the VA itself, though individual lenders may have their own requirements (often around 620). The best part? No down payment is required, and there’s no private mortgage insurance (PMI).
Key Features of VA Loans
| Requirement | VA Loan |
|---|---|
| Minimum Credit Score | No official minimum (lender standards apply) |
| Minimum Down Payment | 0% |
| Mortgage Insurance Required? | No PMI required; funding fee applies |
USDA Loans: For Rural Homebuyers
The U.S. Department of Agriculture (USDA) offers loans to homebuyers in eligible rural areas. USDA loans typically require no down payment, and while they prefer applicants with a score of 640 or higher, some lenders will work with lower scores if you meet other criteria.
Key Features of USDA Loans
| Requirement | USDA Loan |
|---|---|
| Minimum Credit Score | 640 preferred (exceptions possible) |
| Minimum Down Payment | 0% |
| Mortgage Insurance Required? | Yes, but typically lower than FHA loans |
| Property Location Requirement? | Must be in an eligible rural area |
Which Program Is Right for You?
If your credit isn’t great, these government-backed loan programs can make buying a home more achievable. Consider your eligibility, employment status, where you want to buy, and whether you qualify for special programs based on your background. By learning about these options and talking to lenders experienced with government-backed loans, you can boost your chances of getting approved even with less-than-perfect credit.
3. Save for a Larger Down Payment
If you have bad credit, saving up for a bigger down payment can really make a difference when you’re applying for a mortgage. Lenders look at your down payment as proof that you’re financially responsible—even if your credit score isn’t perfect. Let’s explore how putting more money down can help you get approved.
Why Does a Bigger Down Payment Help?
When you offer a larger down payment, you’re lowering the lender’s risk. If you put down 20% or more, lenders may overlook past credit issues because you have more “skin in the game.” Plus, it shows that you’ve been able to save and manage your money, which is reassuring to lenders.
Benefits of a Larger Down Payment
| Down Payment Size | Benefit |
|---|---|
| 10% or Less | May require higher interest rates and private mortgage insurance (PMI) |
| 15%–19% | Some lenders may waive PMI, but interest rates could still be high |
| 20% or More | No PMI required, better chances of approval, possibly lower interest rates even with bad credit |
How Much Should You Aim For?
If possible, try to save at least 20% of the home’s purchase price. Not only does this improve your odds of getting approved, but it also reduces your monthly payments and overall loan costs. Even if 20% feels out of reach, remember that every extra dollar counts toward making you a more attractive borrower.
Quick Tips to Boost Your Down Payment Savings:
- Set up automatic transfers to your savings account
- Cut back on non-essential expenses temporarily
- Consider picking up a side hustle or gig work
- Look into local down payment assistance programs in your area
Larger down payments can be your secret weapon when working with less-than-perfect credit. The more you can put down upfront, the better your chances of hearing “yes” from mortgage lenders.
4. Shop Around and Compare Lenders
When you have bad credit, finding a mortgage can feel overwhelming. But one of the smartest moves you can make is to shop around and compare lenders. Not all lenders are the same—some specialize in working with borrowers who have less-than-perfect credit, while others may offer better rates or lower fees. Taking the time to explore your options can save you thousands of dollars and help you find a loan that fits your unique situation.
Approaching Different Lenders
Start by reaching out to various types of lenders, including banks, credit unions, online mortgage companies, and local lenders. Each lender has its own requirements and programs for people with bad credit. When talking to lenders:
- Be honest about your credit situation up front.
- Ask about specific programs for buyers with low credit scores.
- Request a pre-qualification or pre-approval letter to see what loan amount you might qualify for.
Leveraging Mortgage Brokers
Mortgage brokers can be valuable allies when your credit isn’t perfect. They work with multiple lenders and can help match you with the best options available for your situation. A good broker will:
- Review your financial information and credit history.
- Present you with several loan products from different lenders.
- Negotiate on your behalf to get better terms or lower fees.
Comparing Loan Offers
Once you receive offers from different lenders, it’s important to compare them side by side—not just the interest rate, but also the fees, down payment requirements, and other terms. Here’s a simple table to help you organize and compare offers:
| Lender | Interest Rate | Down Payment | Origination Fees | P.M.I./M.I.P. |
|---|---|---|---|---|
| Lender A | 6.5% | 3% | $2,000 | $150/mo |
| Lender B | 6.8% | 5% | $1,500 | $120/mo |
| Lender C (Broker) | 6.9% | 3.5% | $1,800 | $140/mo |
What Should You Look For?
- Total monthly payment: Includes principal, interest, taxes, insurance, and any mortgage insurance premiums.
- Total upfront costs: Down payment plus closing costs and fees.
- Flexibility: Some lenders may offer flexible payment options or allow you to refinance later if your credit improves.
Tips for Success:
- Avoid applying to too many lenders at once—multiple hard inquiries can hurt your credit score further. Try to do all applications within a short period (like 14 days) so they count as a single inquiry on your report.
- If possible, get quotes in writing so you can refer back when making your decision or negotiating with another lender.
- If something is unclear in an offer, don’t hesitate to ask questions. A reputable lender or broker will take the time to explain everything in detail.
The key is not settling for the first offer you get. With persistence and careful comparison, even borrowers with bad credit can find mortgage options that make homeownership achievable.
5. Consider Adding a Co-Signer or Co-Borrower
How a Co-Signer or Co-Borrower Can Help
If your credit score is less than perfect, getting approved for a mortgage can be tough. One way to improve your chances is by adding a co-signer or a co-borrower to your application. In the U.S., lenders look at both applicants’ credit profiles, which means having someone with stronger credit on your side can make a big difference.
Co-Signer vs. Co-Borrower: What’s the Difference?
| Co-Signer | Co-Borrower | |
|---|---|---|
| Main Role | Guarantees the loan but doesn’t live in the home or have ownership rights | Shares responsibility for repayment and usually lives in the home |
| Credit Impact | Their credit is used to help you qualify; their credit is at risk if you miss payments | Their income and credit are considered for approval; their credit is at risk if payments are missed |
| Ownership Rights | No ownership in the property | Has legal ownership of the property |
| Responsibility for Payments | Responsible only if you default on payments | Equally responsible for all payments from day one |
Things to Consider Before Asking Someone to Co-Sign or Co-Borrow
- Impact on Their Credit: If you miss a payment, it will affect their credit score too.
- Trust and Communication: You’ll need someone who trusts you and understands what’s involved.
- Future Finances: A mortgage on their credit report could impact their ability to get new loans themselves.
- Legal Responsibility: Both parties are legally responsible for paying back the loan.
Why Lenders Like It When You Have a Co-Signer or Co-Borrower
Lenders feel more secure when there’s another person with strong credit backing up the loan. This reduces their risk, so they may be more likely to approve your application or offer better terms—even if your own credit isn’t great.
