Explore ways to buy a home even with bad credit.

You can buy a house with bad credit through FHA loans (minimum 500 credit score with 10% down, or 580 with 3.5% down), VA loans if you’re a veteran (no minimum score requirement), or USDA loans for rural properties. Expect higher interest rates—typically 0.5% to 1.5% above what borrowers with good credit pay. A 580 score borrower might get 7.5% when a 740 score borrower gets 6.5% on the same loan.

What Credit Score Do You Need to Buy a House?

Different loan types have different minimums. Here’s the breakdown:

Loan Type	Minimum Score	Down Payment	Notes
Conventional	620	3-5%	Most common loan type
FHA	580	3.5%	Government-backed
FHA	500-579	10%	Higher down payment required
VA	None official	0%	Most lenders want 620+
USDA	640	0%	Rural areas only

Your credit score directly affects your interest rate. On a $300,000 loan:

Score Range	Approximate Rate	Monthly Payment	Total Interest (30yr)
760+	6.50%	$1,896	$382,560
700-759	6.75%	$1,946	$400,560
680-699	7.00%	$1,996	$418,560
620-679	7.50%	$2,098	$455,280
580-619	8.00%	$2,201	$492,360

The difference between a 580 and 760 score costs $305 per month or $109,800 over the loan term.

How to Get a Home Loan with Bad Credit

Bad credit doesn’t disqualify you from homeownership. It limits your options and increases costs, but several paths exist.

Option 1: FHA Loans

FHA loans are the most common choice for bad credit buyers. The Federal Housing Administration insures these loans, reducing lender risk.

Requirements:

• 580+ score: 3.5% down payment
• 500-579 score: 10% down payment
• debt-to-income ratio under 43% (sometimes up to 50%)
• Steady employment history
• Property must be primary residence

Costs to consider:

• Upfront mortgage insurance: 1.75% of loan amount
• Annual mortgage insurance: 0.55% of loan (paid monthly)
• Higher interest rates than conventional loans

Marcus Thompson had a 565 credit score after a rough patch with medical debt. He saved 10% down ($27,500 on a $275,000 home) and got approved for an FHA loan at 7.75%. His monthly payment including mortgage insurance came to $2,145.

Option 2: VA Loans (Veterans Only)

VA loans have no official minimum credit score, making them ideal for veterans with credit challenges.

Requirements:

• Eligible veteran, active service member or surviving spouse
• Certificate of Eligibility from the VA
• Meet lender’s credit standards (usually 580-620)
• Sufficient income for payments

Advantages:

• No down payment required
• No monthly mortgage insurance
• Competitive interest rates
• More flexible credit evaluation

The catch: While the VA doesn’t set a minimum, individual lenders do. Shop around—some VA lenders specialize in lower credit scores.

Jennifer Walsh served in the Army for six years. After divorce tanked her credit to 595, she worried about buying a home. A VA-specialist lender approved her with zero down. Her 7.25% rate was higher than ideal but still competitive.

Option 3: USDA Loans

USDA loans work for rural and some suburban properties. Income limits apply and you typically need at least a 640 score.

Requirements:

• Property in USDA-eligible area (check eligibility maps)
• Household income below 115% of area median
• Credit score typically 640+
• Debt-to-income ratio under 41%

Advantages:

• No down payment
• Low mortgage insurance rates
• Below-market interest rates

Option 4: State and Local Programs

Many states offer homebuyer programs specifically for lower-income or credit-challenged buyers.

Common features:

• Below-market interest rates
• Down payment assistance
• Flexible credit requirements
• Homebuyer education requirements

The Rodriguez family in Texas used the My First Texas Home program. Despite a 610 credit score, they qualified for a below-market rate plus 5% down payment assistance. The program’s counseling also helped them improve their financial habits.

Option 5: Non-QM Loans

Non-qualified mortgages don’t meet federal standards but offer flexibility for unconventional situations.

Who they’re for:

• Self-employed with irregular income
• Recent credit events (bankruptcy, foreclosure)
• Large bank statement deposits
• Foreign nationals

Trade-offs:

• Interest rates 1-3% higher than conventional
• Larger down payments (often 20%+)
• Higher fees
• Not all lenders offer them

How to Get a House Loan with Bad Credit: Step by Step

Follow this process to maximize your approval chances.

Step 1: Know Your Actual Credit Score

Before applying, check your scores from all three bureaus. Lenders typically use the middle score.

Free options:

• AnnualCreditReport.com (free reports, may not include scores)
• Credit Karma (free scores from TransUnion and Equifax)
• Many banks offer free FICO scores to customers

Review your reports for errors. Common mistakes include:

• Accounts that aren’t yours
• Debts reported twice
• Incorrect balances
• Accounts incorrectly marked late

Disputing errors can boost your score quickly. Angela Martinez found an old collection account that wasn’t hers. After disputing it, her score jumped from 589 to 621 within 45 days.

Step 2: Improve Your Score If You Have Time

Even a few months of effort can make a difference.

Quick wins:

• Pay down credit card balances (aim for under 30% utilization)
• Become an authorized user on someone’s old, well-managed card
• Don’t close old accounts (length of history matters)
• Don’t apply for new credit

Longer-term fixes:

• Set up payment reminders to avoid late payments
• Pay collection accounts (negotiate pay-for-delete if possible)
• Build positive history with a secured credit card

Carlos Mendez had a 580 score in January. He paid his credit cards from 85% utilization down to 25% and waited three months for the change to reflect. By April, his score hit 628—enough for a conventional loan with a lower rate than FHA.

Step 3: Save a Larger Down Payment

More money down helps in two ways:

1. Compensates for credit risk in the lender’s eyes
2. Reduces your loan amount and monthly payment

With a 500-579 score, FHA requires 10% down minimum. Saving beyond that shows financial responsibility.

Step 4: Document Everything

Bad credit buyers face extra scrutiny. Be prepared to explain:

• Any derogatory marks on your credit report
• Employment gaps
• Income variations
• Large deposits in bank accounts

Write a “letter of explanation” for each issue. Be honest and specific. Lenders appreciate accountability.

Step 5: Get Pre-Approved with the Right Lender

Not all lenders work with bad credit buyers. Look for:

• FHA-approved lenders
• Lenders advertising low credit score options
• Credit unions (often more flexible)
• Mortgage brokers who shop multiple lenders

Avoid predatory lenders who charge excessive fees or push subprime products. Check reviews and compare costs.

Step 6: Consider a Co-Signer

A co-signer with better credit can help you qualify. They take on legal responsibility for the loan if you default.

Requirements:

• Co-signer must meet credit and income requirements
• Their debts count in the DTI calculation
• They’re fully liable for the mortgage

Risks:

• Strains relationships if problems arise
• Co-signer’s credit is affected by your payment history
• Co-signer may have trouble getting their own mortgage

David Park’s father co-signed on his first home. David’s 595 score would have meant an 8% rate. With his father’s 780 score on the application, they got 6.875%.

Credit Score Impact: What Hurts and How Long

Knowing what damaged your credit lets you plan your timeline.

How Long Negative Items Stay on Reports

Event	Time on Report	Impact on Buying
Late payment (30 days)	7 years	Moderate - recent ones hurt more
Late payment (60-90 days)	7 years	High - shows pattern
Collection account	7 years	High - but impact lessens over time
Charge-off	7 years	High
Bankruptcy (Chapter 7)	10 years	Severe - 2-4 year wait typical
Bankruptcy (Chapter 13)	7 years	Severe - 2 year wait typical
Foreclosure	7 years	Severe - 3-7 year wait depending on loan
Short sale	7 years	Moderate to high

Waiting Periods After Major Credit Events

Different loan types have different waiting periods:

After Bankruptcy:

• FHA: 2 years (Chapter 7), 1 year (Chapter 13 with court approval)
• Conventional: 4 years (Chapter 7), 2 years (Chapter 13)
• VA: 2 years (Chapter 7), 1 year (Chapter 13)

After Foreclosure:

• FHA: 3 years
• Conventional: 7 years (3 years with extenuating circumstances)
• VA: 2 years

After Short Sale:

• FHA: 3 years
• Conventional: 4 years (2 years with extenuating circumstances)
• VA: 2 years

Patricia and Robert Nguyen went through foreclosure in 2021. They rebuilt their credit carefully and by 2024 qualified for an FHA loan at the 3-year mark. Their score had recovered to 635.

Bad Credit Home Buying: Real Cost Comparison

Let’s compare what a bad credit buyer actually pays versus a good credit buyer.

$275,000 Home Purchase

Buyer A: 740 Credit Score

• Loan type: Conventional
• Down payment: 5% ($13,750)
• Interest rate: 6.50%
• Monthly P&I: $1,650
• PMI: $95/month
• Total monthly: $1,745
• Total interest paid: $332,750

Buyer B: 600 Credit Score

• Loan type: FHA
• Down payment: 3.5% ($9,625)
• Interest rate: 7.75%
• Monthly P&I: $1,898
• MIP: $121/month
• Total monthly: $2,019
• Total interest paid: $418,750

Difference:

• Monthly: $274 more
• Over 30 years: $98,640 more in payments
• Plus upfront MIP: $4,641

The bad credit buyer pays nearly $100,000 more over the life of the loan. This is why improving your score before buying—even by 40-50 points—can save tens of thousands.

Strategies to Buy Sooner with Bad Credit

If waiting to improve credit isn’t an option, these strategies help.

Strategy 1: Buy a Less Expensive Home

Lower purchase price = lower loan amount = more affordable payments despite higher rates.

A $225,000 home at 7.75% costs roughly the same monthly as a $265,000 home at 6.5%.

Strategy 2: Make a Larger Down Payment

More money down reduces your loan amount and can help offset rate increases.

Every $10,000 extra down payment saves about $67/month at 7.75% interest.

Strategy 3: Pay Points to Buy Down the Rate

Mortgage points let you prepay interest for a lower rate. One point (1% of loan amount) typically reduces your rate by 0.25%.

On a $250,000 loan, paying $5,000 (2 points) could drop your rate from 7.75% to 7.25%, saving $88/month.

Strategy 4: Look for Seller Concessions

Ask the seller to contribute toward closing costs or rate buydown. In balanced or buyer’s markets, sellers often agree.

The Martinez family negotiated $8,000 in seller concessions on their $280,000 purchase. They used it to buy down their rate by 0.5%.

Strategy 5: Consider an Adjustable-Rate Mortgage

ARMs offer lower initial rates that adjust after a set period (typically 5 or 7 years). If you plan to sell or refinance before the adjustment, you save money.

Risk: If you can’t refinance when the rate adjusts, payments could increase substantially.

Rebuilding Credit After You Buy

Buying with bad credit isn’t the end of the story. Focus on rebuilding so you can refinance later.

Year 1-2: Build Perfect Payment History

Your mortgage payment is now your biggest opportunity. Pay on time every month—set up autopay to ensure this.

Year 2-3: Reduce Other Debts

Pay down credit cards and other loans. Lower overall debt improves your score and DTI for refinancing.

Year 3+: Consider Refinancing

After 12-24 months of on-time mortgage payments and credit improvement, refinancing becomes possible.

Derek Adams bought his home with a 605 score at 7.5%. He made every payment on time, paid off his credit cards and watched his score climb to 695 over two years. He refinanced at 6.25%, saving $184/month.

Frequently Asked Questions

Can I buy a house with a 500 credit score?

Yes, through FHA loans with a 10% down payment. You’ll need to find a lender willing to work at this score level—not all FHA lenders go below 580. Expect the highest interest rates and thorough documentation requirements.

How much does bad credit affect mortgage rates?

Bad credit typically adds 0.5% to 1.5% to your interest rate compared to excellent credit. On a $300,000 loan, that’s $100-$300 extra per month or $36,000-$108,000 over 30 years.

Should I wait to improve my credit or buy now?

It depends on your market and timeline. If you can improve your score 50+ points in 6-12 months, waiting often saves money long-term. If you’re in a rising market or paying high rent, buying now and refinancing later may make sense. Run the numbers for your specific situation.

What if I have collections on my credit report?

Collections hurt your score but don’t automatically disqualify you. FHA loans allow some collections without payment. Larger collections may need to be paid or in a payment plan. Medical collections are treated more leniently than other types.

Can I get a conventional loan with bad credit?

Conventional loans require minimum 620 scores. Below that, FHA or alternative loan types are your options. At exactly 620, you’ll qualify but pay higher rates and possibly need a larger down payment.

Does paying off collections improve my score?

Surprisingly, paying old collections doesn’t always help immediately—the account stays on your report. Newer credit scoring models (FICO 9, VantageScore 3.0) ignore paid collections. Ask about “pay for delete” where the creditor removes the account after payment.

How can I improve my credit score quickly?

The fastest improvements come from reducing credit card utilization (pay balances below 30% of limits) and disputing errors on your report. Becoming an authorized user on someone’s old, well-managed card can also help. Expect 1-3 months for changes to reflect.

Is a co-signer a good idea?

Co-signers help you qualify but create risk for both parties. The co-signer is fully responsible if you default. Their credit is affected by your payment history. Consider this carefully and have honest conversations about the commitment involved.

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