Key takeaways:
A low credit score doesn’t automatically prevent you from buying a home.
Government-backed loans can make homeownership more accessible for buyers with lower credit.
Strong financial habits, like paying down debt and saving more upfront, can improve your chances of approval.
If your credit score isn’t where you want it to be, buying a house might feel like something you have to put off. But that’s not always the case. There are still ways to move forward, whether that’s improving your credit, saving for a larger down payment, or exploring loan programs that are more flexible. The key is knowing what’s realistic for your situation and what steps can help you get there.
What do lenders consider bad credit?
Mortgage lenders use credit score ranges to assess risk when reviewing a home loan application, often based on guidelines set by programs like FHA loans. A score between 580 and 669 is typically considered “fair” and may be seen as higher risk, while a score of 579 or lower is generally classified as “poor” credit. While this can make qualifying more challenging, it doesn’t necessarily put homeownership out of reach.
Credit Scores
Poor credit
300 – 579
Fair credit
580 – 669
Good credit
670 – 739
Very good credit
740 – 799
Exceptional credit
800 – 850
Process of buying a house with bad credit
Buying a house with a low credit score is possible if you follow a few simple steps:
Know your credit score
Improve your odds of getting approved
Take steps to improve your credit score
Explore loan programs for buyers with bad credit
Understanding your current credit situation and following these steps can improve your credit and put you in a better position to get approved for a mortgage.
Step 1: Know your credit score
First, find out your credit score by getting a credit report. You can access free reports from Equifax, Experian, and TransUnion at least once per year through AnnualCreditReport.com.
Step 2: Improve your odds of getting approved
Get pre-approved for a mortgage: One of the first items on your to-do list should be getting a mortgage pre-approval. Pre-approvals show the amount a lender may be willing to let you borrow and at what interest rate.
Increase your down payment: Lenders may be more cautious when lending to borrowers with lower credit scores because they are perceived as high-risk. The easiest way to combat this is to increase your down payment, which will make more mortgage deals available.
Avoid applying for new credit: New credit applications will indicate to lenders that you are stretching yourself financially. Any new financing agreements or loans could serve as red flags when applying for a mortgage, so avoid them if you can.
Make sure all your income can be verified: Lenders will always want to verify your income when you apply for a loan. Be sure to provide documentation such as pay stubs, W-2s, or bank statements covering recent months, depending on lender requirements..
Step 3: Take steps to improve your credit score
Focus on these financial habits to help boost your credit score if it’s lower than 580:
Improve your payment history
Pay down your overall debt to increase your debt-to-income ratio
Decrease your credit utilization
Check your credit report and dispute any errors
Remove yourself from any co-borrowing accounts
Step 4: Explore loan programs for buyers with bad credit
You may be surprised by how many options you have when it comes to buying a home with a lower credit score. Some of them may allow you to buy a house with a 600 credit score or less, depending on the lender
FHA loans
Backed by the Federal Housing Administration, FHA loans are among the most accessible options for buyers with credit scores as low as 500 (with lender approval and additional requirements).
Credit score of 580+: qualify with as little as 3.5% down
Credit score of 500-579: minimum 10% down required
Higher LTV ratios (up to 96.5%) allowed
Example: Buying a $500,000 home with a 96.5% LTV means you’d need a 3.5% down payment ($17,500) and could borrow up to $482,500.
VA Loans
Eligible military service members, veterans, and some surviving spouses may qualify for VA loans. While the VA does not set a minimum credit score, many lenders look for scores around 620 or higher.
USDA loans
United States Department of Agriculture (USDA) loans are available for homebuyers who are lower-income and considering buying in rural areas. In most cases, the minimum credit score required to take out a USDA loan is 620.
No down payment required
No private mortgage insurance (PMI)
Lower interest rates
Fannie Mae HomeReady loans
HomeReady loans help moderate-income borrowers by providing expanded eligibility for home loans in low-income communities. HomeReady requires a minimum credit score of 620 to qualify and isn’t exclusive to first-time homebuyers.
3% down payment
Ability to use additional income from roommates to qualify for the loan
Non-qualified (non-QM) mortgage
Non-QM loans don’t follow traditional lending rules and may work for those with scores as low as 500:
Easier qualification process
Higher interest rates
Often used by self-employed borrowers or those with irregular income
FAQs about buying a house with bad credit
Can you buy a house with a 500 credit score?
Yes, it’s possible to buy a house with a 500 credit score, but your options will be limited. Some lenders may approve you for an FHA loan at this level, typically with a larger down payment and stricter requirements. Approval isn’t guaranteed, and you’ll likely face higher interest rates, so strengthening your overall financial profile can make a big difference.
Can you buy a house with no credit history?
The absence of a credit history won’t stop you from buying a house. Credit score isn’t the only factor that lenders look at when considering whether or not to approve an application. Some lenders may consider alternative credit data, along with factors like a larger down payment, low debt-to-income ratio, and strong cash reserves.
How much more will a bad credit score cost you?
A lower credit score typically means a higher interest rate, which increases both your monthly payment and the total cost of the loan. Even a small difference in rate can add up to tens of thousands of dollars over the life of a 30-year mortgage. The exact cost depends on your score, loan type, and market conditions, but in general, the lower your score, the more you’ll pay to borrow.
Should I focus on improving my credit score before buying a house?
This depends on your financial situation and timeline. In many cases, increasing your credit score can help you secure better loan terms and lower interest rates. At the same time, housing markets change, and home values may rise over time. Weigh the potential savings from improving your credit against your timing goals and overall financial readiness before deciding.
