How to Buy a Home With Bad Credit (2024 Update)

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By Steve Nicastro Updated November 30, 2023


Thinking about buying a home but worried your "bad" credit score might hold you back? The three major credit bureaus might label your credit as "poor" or "subprime" if your score sits at 580 or lower. But here's some good news: Buying a home may not be out of reach for you. 

Before you start house hunting, check your credit report first. It shows you exactly what lenders are seeing and what you need to fix to boost your credit scores. Just a small bump in your credit score could mean the difference between rejection and approval.

Next, you can dig into research on mortgage lenders that provide options for those with less-than-perfect credit.

It's also smart to connect with a specialized local buyer's agent who works with clients who have low credit scores. They'll provide expert guidance and strategies to improve your chances of mortgage approval, even with credit challenges. Begin your journey by finding a top agent in your neighborhood today.

What do lenders consider a "bad" credit score?

Excellent800 - 850
Very Good740 - 799
Good670 - 739
Fair580 - 669
Poor300 - 579

Lenders take a close look at your FICO score on your mortgage application, considering the middle of your three scores, according to David Naimey, a loan officer at Society Mortgage

In fact, a low credit score is the reason for about 25% of all mortgage application denials.

"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."

This three-digit number ranges from 300 to 850 and is issued by the three major credit bureaus: Experian, Equifax, and Transunion. It gives lenders a good idea of how you've handled money in the past, but it's not always accurate. 

Your credit score is considered "poor" or "subprime" if it dips below 580. Even if you're making good money or can put down a large down payment, lenders might still reject your application. It likely means extra hurdles when trying to qualify for financing. 

If your score sits in the 580 to 669 range, the credit bureaus would call that "fair." That's a fancy way of saying lenders might view these borrowers as a gamble, but less risky than those with "poor" credit.

Pro tip: Boosting your credit score before jumping into a mortgage pre-approval is usually a wise move. Plus, your score could be lower than it should be due to errors or outdated information on your credit report.

Home loan options for borrowers with low credit scores

Loan typeCredit score minimum
*Most VA mortgage lenders require a minimum FICO of 620.

The quest for a mortgage might feel out of reach, especially when the median credit score for new mortgages is a lofty 769, according to the Federal Reserve Bank of New York, while Fannie Mae places the average score for first-time home buyers at 746.  

These numbers might seem discouraging if your credit score doesn't quite reach these heights. But there's a variety of mortgage options that could be within your reach. 

VA loans. For veterans, active-duty service members, and eligible spouses, a VA loan is particularly appealing because the Veterans Administration doesn't set a minimum credit score. While lenders often look for scores around 620, the absence of a VA-mandated minimum may open doors for many who have served our country.

FHA loans. First-time home buyers, or those lacking a robust credit history, might find an option in FHA loans

The Federal Housing Administration allows for scores as low as 500 if you can make a larger down payment (10% or more). And it's not just about the score: If you've got a steady income and manageable debts, you're in a good position to qualify.

Conventional loans. The conventional loan route typically favors borrowers with good credit (scores starting at 670). But the technical minimum is 620. That's right in the “fair” credit zone, according to Equifax. So a conventional loan might not be as out of reach as you think.

Bad credit? What to do before applying for a mortgage

1. Check for errors on your credit report

Start by getting your credit report from all three credit bureaus at

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 

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.

Focus on paying down credit card balances first to boost your credit score, and then focus on paying off any medical collections, says David Naimey, a loan officer at Society Mortgage. 

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. 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 budgeting tools, like You Need a Budget or Empower's Personal Capital, can help you track your income and expenses and create a savings goal. 

You can also research down payment assistance programs or grants that could provide the financial boost needed to transition from prospective buyer to homeowner. 

4. Take a homebuyer education course

Knowledge is power, particularly with home-buying. Consider taking a home buyer education course through 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," he says. 

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.

⚡Make your home-buying dreams a reality!

Ready to make your home-buying dreams a reality? The first step is to find a top local realtor who's an expert negotiator with proven experience in your market.

Enter your zip code below to compare the best agents from trusted brands like Keller Williams, Berkshire Hathaway, and Coldwell Banker, then choose the best fit for you. It's 100% free and there's no obligation.

This article was reviewed by David Naimey, a loan officer at Society Mortgage.

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