Bad Credit Mortgage Lenders
Are there mortgage lenders for borrowers with bad credit? Yes!
Getting a home loan as a borrower with bad credit can come with a few obstacles, but it isn’t impossible to find a mortgage lender who is willing to work with you. Whether you have poor credit, no credit, or excellent credit, you have options.
Can I buy a home with bad credit?
Absolutely!
There are mortgage lenders for borrowers with bad credit, excellent credit and everything in between. There are even lenders who offer home loans to borrowers with no credit at all.
But… you may face a few obstacles in your home-buying journey if you have bad credit. Most mortgage lenders who work with borrowers with bad credit will require (among other things) the following:
Higher down payment
Stricter regulations and borrowing limits
Proof of longer-term employment (2+ years at a stable job)
Addition of a mortgage insurance premium
Lowest credit score to buy a house
Credit scores range from 300 to 850.
300 – 579Very Poor580 – 669Fair670 – 739Good740 – 799Very Good800 - 850Excellent or Exceptional
Source: Experian
To get a mortgage loan, your credit score will (ideally) be 580+.
However, there are exceptions to this. In some cases, you’ll be able qualify with a credit score as low as 500. Rarely, you may qualify with no credit score at all.
Getting approved for a mortgage with bad (or no) credit
It is very possible to get approved for a mortgage loan, even with bad credit. However, certain mortgage lenders will not work with borrowers with poor or no credit. Traditional lenders, for example, require borrowers to have a credit score of at least 620.
What kind of interest rate can I get with a bad credit score?
It depends on the mortgage lender and the borrower’s credit score.
The lower your credit score, the higher you can expect your interest rates (and monthly payments) to be. Interest rates for most mortgage loans vary from around 3.5% up to nearly 5%.
To calculate possible mortgage interest rates and total cost of the loan, check out this calculator.
Keep in mind that the higher your interest, the more money you’ll be putting towards your mortgage loan. If you can put a higher down payment towards your loan, that will also help reduce short-term (and long-term) costs.
What credit score do I need as a first-time buyer?
Just like with borrowers with poor credit, a first-time buyer should have a credit score of 500+ (at least). Boosting your credit score to 580+ will help you get the best rates for your mortgage loan.
Individuals with a credit score of 680+ have much higher approval odds for most types of mortgage loans.
Home loan options for borrowers with bad credit
So, then, what are your options?
There are several main types of mortgage loans out there:
Conventional or traditional loans
FHA mortgage loans
VA mortgage loans
USDA mortgage loans
Non-QM (or non-qualified) mortgage loans
With nearly any type of mortgage loan, putting more cash down will help counter a poor credit score. Depending on the loan type, you may also need to demonstrate your employment history, income and related assets.
Conventional mortgage loans
These are the most standard type of mortgage loan out there. They are intended for people who are looking for a traditional mortgage. Things to know:
Offered through private lenders (not government-backed)
Lenders can set their own interest rates and terms
May have higher interest rates than government loans
As low as 2.9% interest rate for fixed loans
Minimum credit score: 620
May require private mortgage insurance (PMI) if down payment is less than 20%
Higher credit score = lower interest and smaller down payment
FHA mortgage loans
FHA mortgage loans are primarily offered by mortgage lenders to borrowers with poor or bad credit. Check out their official site here. Things to know:
Ideal for borrowers with bad/no credit and low income
Ideal for first-time buyers
10% minimum down payment for 500 credit score
3.5% minimum down payment for 580+ credit score
Income can come from various sources
May allow cosigner to be someone not living on the property
May require mortgage insurance premium
No risk-based pricing, meaning even with lower credit, the interest rate may not change
These are government-backed loans
Tip: Check out your eligibility for an FHA loan with an online calculator.
Note: FHA mortgage lenders have more flexibility in their rates, meaning a borrower who does not meet the standard FHA requirements may still qualify for a loan. If you have purchased a home in the past 3 years, you may not qualify for an FHA loan.
VA mortgage loans
A VA mortgage loan is meant primarily for active military borrowers or veterans. This includes eligible spouses or partners, affiliated individuals and other service members. Things to know:
No technical minimum credit score, but most lenders require 580 or 620+
No risk-based pricing adjustments
Require proof of 90+ days of active service or 181+ days of active service during peacetime
Government-backed loans
USDA mortgage loans
USDA loans are ideal for borrowers looking to purchase a home in a rural area. The property does need to be in a USDA eligible location. Things to know:
Can qualify with 0% down payment
Minimum credit score is between 580 and 640
Government-backed loans
Non-QM mortgage loans
Non-QM loans are meant for borrowers with bad or no credit history. They are best for individuals who do not otherwise qualify for a conventional loan or another type of government-backed loan. Things to know:
Require down payments of 20-30%
Foreign borrowers can qualify
Flexible terms and rates
Some mortgage lenders will lend to borrowers with credit below 500 but may require 35%+ down payment
Best mortgage lenders for borrowers with bad credit
Our list of top mortgage lenders for borrowers with bad credit (updated 12/23/2020):
Carrington Mortgage Services, LLC
3.5% down payment minimum
500+ credit score required
Available in 50 states
15- and 30-year FHA loans
Offers direct-to-consumer lending
3.5% down payment
FHA loan
Seller contribution up to 6%
Nonprime loan options
Offered to borrowers with poor credit
Not licensed in all 50 states
Non-prime loans from $100k-$3M
Licensed in some parts of the USA
No need for a social security number
Reports to Equifax specifically
Borrowers can pay online
Low credit score required
First National Bank of America
Customized non-QM mortgage loan
Accept W2, pay stubs, and tax returns as proof of income
15% down payment
500+ credit score required
Can finance property with no credit score
Non-QM mortgage loan
550+ credit score required
10% minimum down payment
Alternative income okay
Interest rates as low as 4.25%
Mainly focus on investment properties
620+ credit score required / 680+ preferred
Must take homeownership education
Low income borrowers okay
HomeReady program
Offers a personalized, instant quote
Preapproval in 3 minutes
100% online application
No lender fees
620+ credit score
Debt-to-ratio income limitations
15- or 30-year fixed mortgage loans
Can prequalify to avoid a hard inquiry
Fast online application process
620+ credit score for conventional mortgage loan
600+ credit score for FHA, VA, and USDA loans
Minimum 2.306% APR
FHA loan
3.5% down payment for 580+ credit score
10% down payment for 500 credit score
VA mortgage has no minimum down
580 minimum credit score for 3.5% down payment
500 credit score ok with 10% down payment
FHA loan
NetworkCapital Funding Corporation
$0 lender fees
Streamlined application process
680+ credit score required
3.5% down payment
15-day minimum closing
Offers government-backed and non-government loans
Private mortgage lender
550+ credit score
3.5% down payment
FHA mortgage loan
Minimum FHA credit score: 580
Minimum credit score for VA loan: 600
3% minimum down payment
780+ credit score
25% down payment for home loan of $1.5M+
620 credit score ok with 3% down payment
VA loans
No PMI required
Preapproved
0% down payment
Offer FHA, USDA, and VA loans
680+ credit score for conventional mortgage
640 credit score ok for first-time buyers
3.5% down payment
3% down payment for fixed mortgage loan
FHA, USDA, and VA loans
Flexible income requirements
500 credit score minimum
3.5% down payment with 580+ score
10% down payment with 500-579 score
Alternative income ok
FHA mortgage offered in 11 states
Getting a mortgage loan with bad credit but good income
Although your credit score is a leading factor in many lenders’ decision to work with you – or not –, it is not always required. In fact, there are a few mortgage lenders who do not do a credit check at all.
If you are relying on your income, you may have to pay a higher down payment than usual. This shows mortgage lenders that you are committed and less likely to default on your loan. You will also be required to show proof of income, particularly steady employment at one company or job.
Remember, mortgage lenders consider various factors besides credit score in their decision-making:
Down payment
Employment history
Debt-to-income ratio
Past bankruptcies, accounts in collections, short sales, etc.
Getting a construction or commercial loan as a borrower with bad credit
You may find it is easier to get a loan for commercial or construction purposes, even if you have poor or no credit. With these types of loans, the expected cashflow from the business may be sufficient.
Understanding your credit score
There are 3 credit bureaus: Experian, TransUnion, and Equifax. Mortgage lenders typically use your credit score from these bureaus to decide whether or not to approve you for a loan.
Before you apply for a mortgage, it can be helpful to know what impacts your credit score. There are 5 key factors that make up your FICO score:
Payment history: 35% of your score
Credit utilization: 30% of your score
Credit history/age of credit accounts: 15% of your score
New credit (anything less than 6 months old): 10% of your score
Mix of credit: 10% of your score
Interested in understanding your credit score better? Check out this post.
5 ways to improve a poor credit score fast
If you are looking to qualify for a conventional mortgage or another type or loan based on credit, you need to raise your credit score… And the sooner you can do this, the better.
Bring your accounts up to date
Missed or late payments have one of the biggest impacts on your credit score. Unfortunately, a payment that was 30+ days late can take up to 7 years to come off your report.
Fortunately, older missed payments have less of an impact on your score than newer, on-time payments do. Make your payments on time.
Increase your available credit, but avoid hard inquiries
Your credit-to-debt ratio matters (30% of your score, after all). If you want to improve your credit score, start by adding some new accounts – specifically lines of credit (credit cards). The great thing with this is that you don’t have to actually use the credit cards; you only need to have them for this to work.
Having older open accounts can help with the overall credit age and mix of credit as well. Confirm with certain lenders that they will not automatically close accounts due to them not being used though. Certain store credit cards especially will close your account if there is no activity.
However, many lenders will make what is known as a “hard inquiry” into your credit report when deciding whether to lend money to you or approve your application. Too many hard inquiries can temporarily decrease your credit score, so go for lines of credit that offer a “pre-qualify” option instead. That way, you can minimize the number of hard inquiries.
Pay down your debt
Try to use no more than 30% of your total available credit. If you are currently maxing out your cards or have several accounts with a higher utilization rate, paying them down will help your credit.
More importantly, pay off any accounts that may currently be in collections.
Double-check your credit score for any errors
Even credit bureaus and financial institutions make mistakes (shocking, right?). Check over your score to make sure you don’t have any derogatory marks that aren’t accurate.
Be prepared to dispute any errors – online, phone, by mail.
Make a budget
This is important for your personal finances – even if you aren’t looking to get a mortgage loan. Alternatively, consider speaking with a financial advisor or online mortgage lender to prepare you for a loan.
How quickly can I improve my credit score?
The good news is that you can start improving your credit score right now. The bad news is that it usually takes at least 3-6 months to start seeing positive results.
There are no “quick fixes,” so be careful of any online sites or companies claiming they can fix your credit score right away. It takes time and consistent good habits to build up your credit, especially if you are working from the ground up.
You can request a copy of your credit report from one of the three credit bureau’s official sites for free once a year. Or you can check out sites like Credit Karma for an overview of your score, though it may be slightly different from your official score.
I was rejected from a mortgage loan before – what do I do?
If you were rejected from a loan in the past, you can always try again. It doesn’t hurt to check your credit score and continue making small improvements to your credit and personal finances. You may need to wait a year or so, but a lot can happen to your “credit-worthiness” in a year.
Not only that, but regulations can change as well – the current policy for FHA loans came about in 2017. If you were not eligible for a mortgage in the past, you may be now.
Final thoughts
Not all mortgage lenders are created equal. When choosing one, think about which type of loan is best for you, not which one you can qualify for.
If you need to take some time to raise your credit score or save up for a higher down payment before getting a mortgage, do so. If you are ready to buy real estate now and don’t want to wait, then make sure you’re prepared for the monthly and overall costs.
Government-backed mortgage loans – non-QM, FHA, VA, and USDA – require a lower credit score than conventional loans. But they may also require a higher down payment if your credit score is close to their minimum requirements.
Improving your score can mean saving thousands or tens of thousands of dollars on your mortgage. However, you can also refinance your mortgage later to get better rates, once your credit improves.
Each year, there are more FHA mortgage lenders for borrowers with bad credit or no credit at all. So, even if you have poor credit, an FHA loan is likely your best bet.