You can get a home loan with bad credit, but it will cost more and require stronger performance in other parts of your application. FHA loans remain the most accessible path, allowing credit scores as low as 500 with a larger down payment. Beyond FHA, several other loan types and strategies can help you qualify, even after major credit events like bankruptcy or foreclosure.
What Counts as “Bad Credit” for a Mortgage
Most conventional lenders require a minimum credit score of 620. If you’re below that threshold, you’re generally locked out of standard Fannie Mae and Freddie Mac loan products, including programs like HomeReady and Home Possible that allow down payments as low as 3%. Those programs are designed for borrowers with limited savings but decent credit, not for borrowers with low scores.
That 620 line is where government-backed loans become essential. FHA, VA, and USDA loans each have their own underwriting standards, and some are significantly more forgiving on credit history. If your score is in the 500 to 619 range, your realistic options narrow to a few specific programs, but they do exist.
FHA Loans: The Most Common Route
FHA loans are insured by the Federal Housing Administration and offered through private lenders. They’re built for borrowers who don’t qualify for conventional financing, and credit score requirements reflect that. If your score is 580 or higher, you can put as little as 3.5% down. If your score falls between 500 and 579, you’ll need at least 10% down.
The tradeoff is mortgage insurance. FHA loans require both an upfront mortgage insurance premium (1.75% of the loan amount, usually rolled into the loan) and an annual premium that gets added to your monthly payment. For most borrowers, this annual premium stays for the life of the loan unless you refinance into a conventional mortgage later. That ongoing cost is real, but it’s the price of access when your credit limits your options.
One important detail: while the FHA sets the floor at 500, individual lenders can set their own minimums higher. Many FHA lenders won’t go below 580, and some draw the line at 620. If you’re in the 500 to 579 range, you may need to shop around specifically for lenders that accept scores that low.
How Manual Underwriting Helps
When your loan application goes through an automated underwriting system and gets rejected, manual underwriting is the backup path. A human underwriter reviews your file directly, weighing factors that software might not fully account for. This is where “compensating factors” come into play, and they can make the difference between approval and denial.
For FHA loans with manual underwriting, a borrower with a 580 or higher credit score typically needs a housing expense ratio (your mortgage payment divided by gross monthly income) of no more than 31%, and a total debt-to-income ratio of no more than 43%. But if you bring compensating factors to the table, those limits can stretch to 40% for housing expenses and 50% for total DTI.
The compensating factors that carry the most weight include:
- Cash reserves: Having at least three months of mortgage payments saved in the bank shows you can absorb a financial disruption. For a three- or four-unit property, you’ll need six months’ worth.
- Minimal discretionary debt: If the only debt you carry month to month is your mortgage payment, and everything else gets paid in full, that signals strong financial discipline regardless of your credit score.
- Low DTI: Keeping your total debt-to-income ratio at or below 36% sends a clear message that you’re not overextended, even if past credit problems dragged your score down.
VA loans also allow manual underwriting for eligible veterans and service members. Lender requirements vary, but expect to need a clean payment history on any existing mortgages (no late payments in the past 12 months) and a DTI no higher than 45%. VA loans have no minimum credit score set by the VA itself, though individual lenders typically require at least 620, and manual underwriting guidelines may set the bar at 660 for purchases.
Non-QM Loans After Major Credit Events
Non-qualified mortgages, called non-QM loans, exist outside the standard lending rules that govern conventional and government-backed mortgages. They’re designed for borrowers who don’t fit traditional underwriting profiles, including people with recent bankruptcies, foreclosures, or other serious credit events.
The biggest advantage of non-QM loans is flexibility. Some don’t require any waiting period after a bankruptcy or foreclosure, which is a significant difference. Conventional loans typically require a two- to seven-year wait after these events, and FHA loans require one to three years depending on the circumstances. A non-QM loan can potentially get you into a home much sooner.
The cost, however, is substantial. Interest rates on non-QM 30-year fixed loans typically run one to two percentage points higher than the prevailing prime rate. On a $300,000 mortgage, that could mean $200 to $400 more per month compared to a conventional loan. Lenders also tend to require larger down payments to offset the risk they’re taking. Think 10% to 20% or more, depending on the severity of your credit issues. Non-QM loans make sense when timing matters and you have the income and savings to absorb the higher costs, but they should be viewed as a bridge. Plan to refinance into a conventional product once your credit recovers.
Steps to Strengthen Your Application
Even with the programs above, a stronger application gets you better terms. Here’s where to focus your effort before you apply.
Pay down revolving debt aggressively. Credit utilization (how much of your available credit you’re using) is one of the fastest-moving components of your credit score. Dropping your utilization below 30%, and ideally below 10%, can boost your score within one to two billing cycles. If you have a credit card with a $5,000 limit and a $4,000 balance, paying that down to $500 could move your score meaningfully in a matter of weeks.
Dispute errors on your credit reports. Pull your reports from all three bureaus through AnnualCreditReport.com. Look for accounts that aren’t yours, balances reported incorrectly, or negative items that should have aged off (most negative marks fall off after seven years). Successful disputes can remove score-dragging errors.
Avoid new credit applications. Each hard inquiry shaves a few points off your score, and new accounts lower your average account age. In the six months before applying for a mortgage, don’t open new credit cards, finance furniture, or take out a car loan.
Build up cash reserves. Beyond the down payment and closing costs, having several months of mortgage payments in savings is one of the strongest compensating factors you can bring to a manual underwriting review. This is money the underwriter can point to as evidence that your credit score doesn’t tell the whole story.
What to Expect on Costs
Bad credit doesn’t just affect whether you get approved. It directly increases what you’ll pay. A borrower with a 580 score will get a noticeably higher interest rate than someone with a 740, even on the same FHA loan product. Over 30 years, even a half-point difference in rate adds up to tens of thousands of dollars in additional interest.
You’ll also face higher upfront costs in some cases. Conventional loans use a pricing grid called loan-level price adjustments that add fees based on credit score and down payment. The lower your score and the smaller your down payment, the more you pay in added fees at closing, either as a lump sum or baked into your rate.
Private mortgage insurance on conventional loans (required when you put less than 20% down) also costs more for borrowers with lower credit scores. FHA mortgage insurance premiums are the same regardless of credit score, which is one reason FHA loans are often the better deal for borrowers below 680.
Shopping Multiple Lenders Matters More
Rate variation between lenders is wider for borrowers with low credit scores than for borrowers with high scores. When you have a 760, most lenders offer you roughly the same rate because the risk is minimal. When you have a 580, lenders price risk differently, and the spread between the best and worst offer you’ll receive can be significant.
Get quotes from at least three to five lenders, including banks, credit unions, and mortgage brokers who work with multiple wholesale lenders. All mortgage inquiries made within a 14- to 45-day window (depending on the scoring model) count as a single hard pull on your credit, so shopping around won’t hurt your score. Ask each lender for a Loan Estimate, the standardized three-page form that breaks down your rate, monthly payment, and closing costs. Comparing these side by side is the clearest way to find the best deal available to you right now.