Yes, You Can Buy a Home with Bad Credit
A less-than-perfect credit score doesn’t mean homeownership is out of reach. While buying a home with bad credit requires more preparation and potentially different financing, millions of Americans purchase homes each year with credit scores below the ideal range.
Loan Options for Lower Credit Scores
FHA loans are the primary option for buyers with credit challenges. With scores as low as 580, you can qualify with just 3.5% down. Scores between 500 and 579 require 10% down but are still eligible. FHA loans are specifically designed to expand homeownership access. Compare FHA with other options in our loan comparison guide.
VA loans have no official minimum credit score from the VA, though individual lenders typically require 580 to 620. For eligible veterans, VA loans offer excellent terms even with lower credit.
USDA loans in eligible rural areas typically require a 640 score but may allow lower scores with compensating factors like low debt-to-income ratios or significant savings.
Non-QM loans from portfolio lenders may accept lower scores with compensating factors like larger down payments, significant assets, or strong income. These typically carry higher rates but provide options when traditional financing isn’t available.
Steps to Improve Your Position
Start improving your credit now. Even a few months of focused effort can meaningfully boost your score. Our credit improvement guide provides a detailed action plan.
Save a larger down payment. A bigger down payment compensates for credit risk in lenders’ eyes and may qualify you for better terms. It also reduces your loan amount and monthly payment.
Explain credit issues in writing. Lenders can consider extenuating circumstances—medical emergencies, job loss, divorce—that caused credit problems. A well-written letter of explanation with supporting documentation can help your case.
Find a co-signer or co-borrower. A creditworthy co-borrower can strengthen your application, though they share legal responsibility for the loan.
What to Expect
Buying with lower credit means higher interest rates—potentially 1% to 2% above what a strong-credit borrower receives. On a $300,000 mortgage, that’s $200 to $400 more per month. However, you can refinance once your credit improves, capturing a better rate without having to wait to enter the housing market.
You may also face higher mortgage insurance costs and more documentation requirements. Patience and preparation are essential—the process may take longer, but the goal is achievable.
Take the First Step
Connect with an agent through NearbyRealtors who can refer you to lenders experienced in working with credit-challenged buyers. The right professional team makes homeownership possible, even when credit isn’t perfect.