Bad Credit Home Loans

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In this article, we will help you determine which home loan is best if your credit score is less than ideal. Additionally, you will find information to help you qualify for a better loan even if you think your credit score is holding you back.


What Cover in This Guide

  • What is a bad credit home loan?
  • Types of mortgages
  • Pros and cons for low credit borrowers
  • Mortgage calculator
  • What you need before you apply for a mortgage
  • Tips for when you apply
  • FAQ

What is a Bad Credit Home Loan?

A bad credit home loan is generally understood to be a mortgage where your credit score is less than 620. They are not their own category, but a subset of general home loans.

While a lower score may make it harder to get approved, do not worry, a good lender will look at a variety of factors besides your credit score to help you get the best loan. We will address the various options below.

Types of Bad Credit Home Loans

Privately-backed loans (bank owned)

  • Conventional - Ideal for a full range of income types but most beneficial for those with good credit.

  • Fannie Mae (Home Ready) - Ideal for low-moderate credit scores with added benefits for first time home buyers.

  • Freddie Mac (HomePossible) - Ideal for moderate-good credit scores and added benefits for first time home buyers.

Government-backed loans

  • FHA - Ideal for low credit scores and first time home buyers.

  • VA - Designed for veterans. Ideal for low-moderate credit scores.

  • USDA - Designed for rural/suburban buyers with low-moderate credit.

Many mortgage companies service a full range of loan choices, just be sure that you are exploring all of your options if you have already selected a lender. You can apply for government-backed loans at approved lenders, including most banks.

Next, we will break down these options so you can compare the benefits and drawbacks of various loans as it relates to your credit score.

Pros & Cons for Low Credit Borrowers

Loan Type Min. Credit Score Pros Cons Note
Conventional Loan Varies, typically above 620 Various options with appealing terms available. PMI is cancelable.* High fees & interest rates for borrowers with low credit scores. *once an 80/20 loan to value ratio is met.
Fannie Mae (Home Ready) 620 Lower credit accepted. Good rates available. 3% down payment for first time buyers. PMI is cancelable.* Longer to qualify after financial events. PMI required. Higher interest rates. +5% down payment. *once an 80/20 loan to value ratio is met.
Freddie Mac (Home Possible) 660 3% down payment for first-time home. Flexible options to source funds (like co-signers). PMI is cancelable.* 660+ score required. Longer to qualify after financial events. PMI required. Higher interest rates. +5% down payment *once an 80/20 loan to value ratio is met.
FHA 500*/580 Low credit scores accepted. Low interest rate. 580+ credit score allows 3.5% for a down payment. Lower fees. More money down required for lower interest rate. PMI is required and not cancelable. *A low credit score between 510-579 requires a 10% down payment.
VA - Serving Veterans or Active Military No Set Min. Score PMI not required. No down payment required. Great interest rates. Most lenders want a minimum score of 580-620. Lenders review payment history and other factors to qualify customers for a VA loan.
USDA - Serves Rural/Suburban Borrowers 581*/640 No down payment Great interest rates available. Lower fees. A requirement of a higher credit score of 640 is typical. PMI required. *Lenders may use manual underwriting to help approve borrowers with scores as low as 581.

Now that you have reviewed the various options, you should take a look at how the payment terms of the mortgage can affect your interest rate. The best part is that interest rates continue to be extremely low.


Mortgage Calculator

Use a mortgage calculator to help you get an estimate for how much you will owe monthly and over the life of the loan. You simply put in your mortgage amount and time frame, then insert the interest rate, and you will have a pretty good idea of what these payments will look like. There are also fields for more information which will help make the calculation more accurate.

mortgage calculator

What You Need Before You Apply for a Bad Credit Home Loan

  • Credit score
  • Tax returns
  • Pay stubs and/or proof of income
  • Bank statements and proof of assets
  • Gift letters (documentation of any monetary gifts which you wish to include)
  • Government ID
  • Residential and rental history

As you collect all of that information and apply, use this guide to help you go through the application process confidently so you can be sure to ask the right questions.

Tips for When You Apply for a Bad Credit Home Loan

  • Check your credit score for delinquent payments you might have missed.
  • Review your mortgagee choices. There are quite a few options even if your credit is poor.
  • Use a mortgage calculator to see how much you will qualify for.
  • Consider the impact of private mortgage insurance (PMI), which can add up to hundreds of extra dollars to your monthly payment.
  • As you review the benefits and policies of a product, look for tacked on fees or charges which may be negotiable.
  • Compare several companies for the best price.


If you are still not sure about how to be best positioned to qualify for a loan given your credit situation, here are a few FAQs to help.

Q: What are my options after a bankruptcy or foreclosure?
A: Typically, there is a set amount of time that must pass before you can qualify for a loan. These terms are outlined here.

Q: What happens if I miss a payment?
A: Most companies allow for a history of a couple of months of missed payments. Ask your agent or broker about their company’s policy.

Q: Will a credit judgment affect my score?
A: Yes, depending on the judgment. In addition, there may be a delinquent payment that you do not know about, so take a look at your credit report.


A less-than-ideal credit score is not always a deal-breaker in getting you into the home of your dreams. Compare quotes and consider how much you can manage on a monthly basis. By now, you should have the information and tools you need to buy a home with confidence.