How to Buy a Home with a Bad Credit Score

You checked a credit app, saw a number in the 500s or low 600s, and figured the door to a house just closed. Maybe the number took a hit from a divorce, a medical bill, or a stretch of pandemic-era collections. It's a common place to give up. A low score does narrow your options and raise your cost, but it rarely shuts you out completely. Lenders weigh more than one number: in addition to your credit score, your debt-to-income ratio, your recent payment history, and your cash on hand all carry real weight in the decision.[1] Another thing that’s worth considering: The score a lender pulls is usually not the one showing in your phone app, and that gap is the most common surprise that stalls buyers at pre-approval.

If you want help strategizing and touring homes that fit your budget, a buyer’s agent who regularly works with credit-challenged buyers can be a difference-maker. We can connect you with a top local agent when you’re ready.

What do lenders consider a 'bad' credit score?

A credit score is a three-digit number ranging from 300 to 850 and is issued by the three major credit bureaus: Experian, Equifax, and TransUnion. A FICO score is a method of calculating your credit score. It was developed by the Fair Isaac Corporation (FICO) and takes into account your payment history, accounts owed, length of credit history, new credit, and credit mix.

FICO, used by most mortgage lenders, sorts scores into five bands: 300–579 poor, 580–669 fair, 670–739 good, 740–799 very good, and 800–850 exceptional.[2] Your score is built from five things, weighted roughly like this: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%).[3] Those are general-population weights; the exact mix shifts with your profile. Lenders typically pull all three bureaus and underwrite based on your middle score.

Translation: If your middle score is below 580, many lenders view you as higher risk; 580–669 is “fair” and may still qualify — especially with the right loan type and a stronger overall file (lower debts, verified rent history, and some savings). (VantageScore is showing up more often, but FICO still dominates mortgage decisions.)

That middle-score guideline is the hinge for everything that follows. David Naimey, a loan officer at Society Mortgage, says lenders look at all three bureau scores and underwrite off the middle one, not the highest and not an average. Naimey adds that the score tells a lender how you've handled money in the past, but it isn't the whole story: the loan program, your down payment, and your debts all move the final answer.

Why your Credit Karma score isn't your mortgage score

Here's the surprise that catches people at pre-approval. The score in your phone app is almost never the score your lender uses. Mortgage lenders pull a tri-merge report, meaning one report that combines all three bureaus, and they underwrite off mortgage-specific FICO models (FICO 2, 4, and 5) that price more conservatively than the FICO 8 or VantageScore models consumer apps show.[4]

The gap is real, and it's often large. Jeffrey Hensel, a broker associate at North Coast Financial, says the spread between a consumer-app score and a lender-pulled mortgage FICO is sometimes 30 points and sometimes 60. That difference can change your whole deal. One buyer walked in expecting a 640, and the lender's mortgage FICO came back 577, which moved the required down payment from 3.5% to 10%.

Chad Silver, founder and CEO of Silver Tax Group, explains why the numbers diverge: apps like Credit Karma report VantageScore, while lenders pull FICO 2, 4, and 5 and underwrite off the middle of three. The good news in that mechanic is that it cuts both ways. Silver notes that getting your cards under 30% utilization can move a mortgage FICO within a single statement cycle.

And if a paid-down balance hasn't caught up to your score yet, there's a faster route. Paul Ferrara, a senior wealth counsellor at Avenue, points to a rapid rescore: once balances are truly paid down, a lender can push the update through the bureaus in three to five business days rather than waiting a full cycle.

One development worth noting briefly: FHFA and HUD opened VantageScore 4.0 to Fannie Mae, Freddie Mac, and FHA loans on April 22, 2026, but it's a limited rollout to approved lenders, and Classic FICO on a tri-merge is still what most mid-2026 borrowers will run into.[5] Until that changes, the middle-score rule above is the one to plan around.

"Credit is the first thing we look at, and the score determines if we proceed with moving forward and obtaining income documents," says Makenzie Wall, a loan officer at Society Mortgage. "The items on the credit report, like any late payments, foreclosures, and bankruptcies, also play a role."

Home loan options for borrowers with low credit scores

Figures reflect agency guidelines as of August 2026: FHA credit and down-payment tiers per HUD Handbook 4000.1 §II.A; VA credit policy per the VA Lenders Handbook (Pamphlet 26-7) Ch. 4; USDA credit and ratio policy per HB-1-3555 Ch. 10 and Ch. 11; conventional minimum-score removal per Fannie Mae SEL-2025-09.[6] [7] [8] [9]

Quick takeaways

• FHA is the most widely used path when scores are under ~660 (trade-off: upfront + annual mortgage insurance). 
• VA can be the best overall value if you’re eligible (often lower rates, no monthly MI). 
• USDA can work with modest credit if you meet the rural location and income rules; many lenders want 620–640.

The national average FICO score is 714, and it has slipped for two years running, the first back-to-back annual decline in over a decade.[10] If your number is well under that, the average can feel discouraging. It shouldn't be the thing that stops you, because several loan programs are built for scores below it.

Conventional loans

Conventional pricing rewards good credit, and it gets noticeably better at 680 and up. But the old hard floor is gone: for loans run through Fannie Mae's Desktop Underwriter on or after November 16, 2025, there's no fixed 620 representative-score minimum.[9] The automated system now weighs your full financial picture instead of rejecting you at a single number. Two caveats keep this realistic for a lower-score buyer: you still need a valid tri-merge report with at least one score, and most lenders keep their own overlays that push real approvals to 620 and above. Manual underwriting still carries score minimums.

Government-backed loans are insured or guaranteed by a federal agency, which lowers the lender's risk. That's why they tend to allow lower scores and smaller down payments than conventional loans. A higher score still earns you a lower rate, so the same loan costs less over time as your credit improves. To make the mortgage-insurance column concrete, the figures below run on a $300,000 purchase price.

VA loans

For veterans, active-duty service members, and eligible spouses, the VA loan is often the best value on the table. The U.S. Department of Veterans Affairs sets no minimum credit score, though most lenders look for roughly 620.[7] There's no down payment and no monthly mortgage insurance. In place of monthly insurance, you pay a one-time funding fee: 2.15% of the loan for most first-time users with less than 5% down, or $6,450 on a $300,000 zero-down loan. It rises to 3.30% for subsequent use, and it's waived entirely if you receive VA compensation for a service-connected disability.[11]

FHA loans

FHA is the workhorse for credit-challenged buyers. With a score of 580 or higher you can put down 3.5%; between 500 and 579 you'll need 10% down; and below 500 you're not eligible for FHA financing.[12] The trade-off is mortgage insurance on both ends. You pay 1.75% upfront, which is $5,066 on a $289,500 loan (a $300,000 home with 3.5% down), plus an annual premium of 0.55%, about $133 a month at that loan size.[13] With less than 10% down, that annual premium stays for the life of the loan; put 10% down and it drops off after 11 years. Score isn't the whole test either: a steady income and manageable debts go a long way toward an approval.

USDA loans

If you're buying in an eligible rural or suburban area and you're within the income limits, USDA offers zero down. There's no USDA-set score minimum, though lenders typically want about 640, and debt-ratio waivers require a validated 680+ score for all applicants.[8] The guarantee fee is 1.00% upfront ($3,000 on a $300,000 loan) plus 0.35% annually, about $88 a month, for the life of the loan.[14]

What each loan costs you

FICO score	APR	Monthly principal & interest	Extra you pay over 5 years	Extra you pay over 30 years
760–850	6.70%	$1,878	—	—
700–759	6.95%	$1,926	$2,880	$17,280
680–699	7.07%	$1,950	$4,320	$25,920
660–679	7.11%	$1,958	$4,800	$28,800
640–659	7.21%	$1,977	$5,940	$35,640
620–639	7.36%	$2,007	$7,740	$46,440

Figures assume a 30-year fixed conventional loan of $291,000 (a $300,000 purchase with 3% down), the same purchase price used elsewhere in this article. APRs are national averages from myFICO's Loan Savings Calculator as of May 27, 2026. The "extra you pay" columns compare each band against a 760+ borrower and cover principal and interest only — they don't include the mortgage insurance a lower-score borrower is also more likely to carry. Your own rate will depend on your lender, loan program, down payment, and debt-to-income ratio.

Program minimums vs. what lenders actually require

The published number and the lender's answer are two different things, and the gap trips up a lot of buyers. Government loan programs technically set no minimum credit score at all. The 580, 560, or 520 cutoffs you keep hitting are lender guideline overlays, meaning extra requirements a lender stacks on top of the agency rules.

Adam Smith, a mortgage broker at CORE Finance Group, explains why overlays exist. What a borrower sees as a 580 or 560 or 520 requirement is the lender protecting itself, because of how mortgages move on the secondary market. If the lender can't sell the loan up the chain, it's the one holding the risk, so it sets a higher bar than the agency does. Some lenders carry lighter overlays than others. Smith also names the catch-22 at the bottom of the range: FHA or a lender might say they'll lend at a 520 score, but the conditions pile up, often 10% down and, on a manual underwrite, no late payments in the past 12 months. And if you've made every payment for a year straight, your score probably isn't 520 anymore.

Because overlays vary, the real answer to "can I get approved" depends on who you ask. The same file can come back "Refer" at one lender and "Approve" at the next, which is the whole argument for shopping more than one lender or working with a broker who already knows which shops take lower scores.

None of that means a lower score is a dead end. Smith explains that in the 580 to 620 range you're probably looking at a government loan, and absent VA eligibility or a USDA-eligible property, that usually means FHA. A 600 score on a standard FHA loan with the minimum down isn't unusual, and that borrower is credit-qualified. From there it's income, DTI, and the other guidelines that decide the file, not the score. The straight talk for a 520 borrower is that the road is harder and often means more cash down. But "harder" is not "impossible," and knowing which gate is blocking you is the first step to clearing it.

Bad credit? What to do before applying for a mortgage

Before the checklist, one expectation to set: fixing credit takes time. Meaningful improvement is usually measured in months, sometimes longer, and no legitimate process makes it instant[15]. The steps below are the ones that move the needle, roughly in the order they pay off.

1. Check for errors on your credit report

Start by getting your credit report from all three credit bureaus at AnnualCreditReport.com. 

It's not uncommon to find mistakes, and these can unfairly lower your score. From late payments that were actually made on time to debts that aren't even yours, the errors can be significant.

If you spot any inaccuracies, contact the credit bureaus and the creditor immediately to dispute them. Resolving these issues can help ensure that your credit score accurately reflects your financial history.

» Learn how to dispute an error on your credit report. Make checking your reports a habit rather than a one-time task; you can pull all three free every week at AnnualCreditReport.com, and catching a new error early keeps it from surfacing mid-application.[15]

2. Pay down debts

Your FICO score is heavily influenced by how you handle your credit cards, student loans, car loans, and other debts. Your payment history and amounts owed are the most significant factors in your FICO score.

Pay down credit card balances first. That lowers your utilization ratio, the share of your available credit you're using. Utilization is the largest single piece of the "amounts owed" category, which accounts for 30% of your FICO score.[3] Getting your cards under 30% can move a mortgage FICO within a statement cycle or two. After the cards, Naimey suggests turning to any medical collections next.

You also can consider setting up automatic payments for your debts to keep yourself on track and prevent missed payments, which hurt your credit. 

If you're overwhelmed by high-interest debt, the Financial Counseling Association of America (FCAA) can offer assistance. The FCAA helps consumers reduce their interest rates significantly through debt management plans, leading to big savings over time.

3. Budget for your down payment 

A large down payment can help you secure a mortgage, especially if you have less-than-perfect credit. Additionally, a down payment of 20% or more can help you avoid the cost of mortgage insurance, reducing your monthly mortgage payments. You'll need to budget carefully to fund the down payment, closing costs, and other home-buying costs. 

Assess your finances to determine how big a down payment you can afford on your home purchase. Free tools can help you track income and expenses and set a savings goal — Empower's Personal Capital dashboard costs nothing, and most banks now build budgeting into their app. You Need a Budget (YNAB) is well regarded but runs $14.99 a month or $109 a year after a 34-day trial, which is worth weighing against the down payment you're trying to build.

You can also research down payment assistance programs or grants that could provide the financial boost needed to become a homeowner. One catch to check first: many DPA programs set their own credit floor at 620 or higher, above FHA's own 580, so the program built to help you can be the one that turns you away. The FAQ below covers this in more detail.

4. Take a homebuyer education course

Consider taking a home buyer education course through the Department of Housing and Urban Development (HUD) or Fannie Mae. 

Fannie Mae and Freddie Mac offer first-time home buyer programs requiring the borrower to complete a home buyer education course, says Jeremy Szozda, a loan officer at Society Mortgage. "This ensures that first-time home buyers have as much information as possible and do not get taken advantage of during the loan process."

These courses offer valuable insights into the home-buying process, can help you plan financially for the purchase, and may even provide completion certificates that can be helpful when dealing with lenders.

5. Get a co-signer

Teaming up with a co-signer could be a smart move to strengthen your mortgage application and boost your approval chances. A co-signer with a stronger credit score can be your ally, providing lenders with the assurance they need to approve your loan. 

Having a co-signer means someone else is responsible for the mortgage alongside you. Should you face any financial difficulties that prevent you from making payments, your co-signer will need to step in.

Co-signing a mortgage is a big commitment. It's best to only choose a co-signer you have confidence in and who has the financial capability to assume this responsibility.

Ways to strengthen a weak application

Even if your score isn’t where you want it, these levers can move a lender from “maybe” to “yes”:

• Document on-time rent. Fannie Mae's Desktop Underwriter now folds 12 months of verified rent payments into its risk assessment, and Fannie's own research found that 17% of would-be first-time buyers who didn't get an initial favorable recommendation could have received an Approve/Eligible with rent history counted.[16] Freddie Mac's Loan Product Advisor has considered on-time rent for first-time buyers since 2022.[17] If you've paid rent on time, ask your lender to factor it in. 
• Shop the right lenders. Policies vary. Some lenders do manual underwriting or have programs tailored for lower scores, while others are strict about cutoffs. 

Dawn Cameron, senior loan officer at CMG Home Loans, says that the DTI a lender will accept depends on the lender. "Some lenders can go as high as 50 with a conventional loan," she explains. "FHA is the agency that allows a DTI of 57. With a VA loan, there really is not a maximum. It uses other factors, such as residual income."

Run your own DTI before a lender does

Your score gets all the attention, but debt-to-income is the barrier that kills more files more often, and it's the one you can calculate yourself tonight. Back-end DTI is every monthly debt payment on your credit report plus your proposed full housing payment, divided by your gross monthly income. The part most people have backward: it's driven by your monthly payments, not by how big the balances look.

Run it with real numbers. Say you earn $6,000 a month gross, with a $450 car payment, $150 in credit card minimums, and a $200 student loan payment. That's $800 a month in debts before housing.

• At 43%, the conventional comfort zone, your total allowed debt is $2,580, leaving $1,780 for the full housing payment.
• At 50%, a realistic conventional stretch, that's $3,000 total and $2,200 for housing.
• At 57%, FHA's automated ceiling with compensating factors, it's $3,420 total and $2,620 for housing.
• Pay off that $450 car, and your housing room at 43% jumps from $1,780 to $2,230.

Those two ceilings aren't a contradiction, they're the same rule at different settings. As Cameron notes, some conventional lenders go to 50 and FHA's system allows up to 57 with compensating factors; Rami Sneineh of Insurance Navy points out that FHA and VA files realistically land in the 50–55% range day to day. The 57% is the top of the automated range, not the everyday number. And "housing payment" here means PITI, meaning principal, interest, taxes, insurance, and mortgage insurance, so the loan amount your room supports is smaller than the payment alone suggests.

Now the part that saves people the most: which debt to attack. The instinct is to knock out the biggest balance, and that's usually wrong. Ashley Harris, director of homebuyer experience at Neighbors Bank, gives the clearest example: paying off a $15,000 balance might erase only a $150 monthly payment, while clearing two smaller debts could free up $225. At August 2026 rates, that $75-a-month difference is roughly $11,700 in borrowing power.[18] DTI runs on monthly obligations, so target the payments, not the balance. Hensel puts the whole idea in one line: pay off credit cards, not regular loans.

There's a counterpoint worth hearing before you start writing checks. Sneineh says the most common mistake he sees is a buyer paying off a car or student loan expecting DTI relief that never shows up, or grinding for a year to squeak under 43% when FHA or VA would have lent at 50–55% the whole time. Sometimes the responsible-sounding move is the wrong one.

Smith's client file makes the point in dollars. The client was shopping for houses he didn't qualify for and planned to fix it by putting $100,000 down. Smith's read: paying off a car and a credit card totaling $50,000 would cut roughly $1,000 a month off the payment he could carry. At August 2026 rates, that's about $155,000 in additional loan capacity from the same pile of cash.[18] Killing the monthly obligations beat bringing more cash.

Credit repair red flags, and one line you can't cross

If you look for help fixing your credit, know what a scam sounds like. The FTC's guidance is blunt: no one can legally remove accurate, current negative information from your report, and any company that promises to is not being straight with you.[15] Walk away from anyone who guarantees a specific score or timeline, tells you to dispute information you know is accurate, charges large fees before doing any work, or tells you not to contact the bureaus yourself.[19] Everything a paid service does, you can do yourself for free. Before you pay anyone, look for a nonprofit credit counselor, and use HUD's directory to find one.[20]

One line you can't cross: don't try to hide debts or overstate income to get approved. Coaching floats around buyer forums about telling a lender that a spouse "pays all the bills." Knowingly making false statements on a mortgage application to a federally regulated lender is a federal crime.[21] It isn't worth it, and underwriters are trained to catch it.

The bottom line on buying with bad credit

Buying with bad credit is harder, not impossible. Find out which score a lender will really pull, match yourself to the right loan program, run your own DTI, and go after the monthly payments dragging you down. Do those four things and you turn "the door is closed" into a plan with a date on it.

Frequently asked questions

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