Can you buy a house with bad credit

can you buy a house with bad credit

Owning a home is an exciting dream for many Americans. If you want to buy a home, you may have questions about the qualification process for mortgages, which are installment loans that can be fixed rate loans or variable loans. But is it possible to buy a house with bad credit or no credit? About 108 million consumers have a low or no credit score, and so you are not alone!1 Keep reading to learn more about mortgage lender choices and how to finance a house with a bad credit score. 

What Is the Minimum Credit Score Requirement for a Mortgage Loan?

A bad credit score can make it difficult for someone to qualify for home financing. You may be ready to purchase a home, but fear of ineligibility may hold you back. Many consumers want to know the minimum credit score requirements for a mortgage, but there isn’t one universal one; every lender may work differently from one another.  

Most lenders prefer working with individuals with a “good” credit score. However, getting a home loan with bad credit is entirely possible! But before you start house hunting, keep in mind that it may be challenging to secure a high loan amount and low-interest rates with bad credit. Keep your expectations realistic, but do not settle for less than what you want. 

Buying a home is a critical life decision consumers should make with care. As long as you take the time to compare lenders and loan offers and mortgage lender options, you may be able to buy your perfect house even with bad credit!

Understanding Your Credit Score

Before you look into lending options for a mortgage, it will be helpful to better understand your credit score. You’ll have a few scores out there from the major credit bureaus, which you can check on by requesting a credit report from each respective bureau. 

There are five categories with most credit scoring models; the following is for a FICO Score, which is the most commonly used credit scoring model: 

  • Excellent Credit Score — 800-850
  • Very Good Credit Score — 740-799
  • Good Credit Score — 670-739
  • Fair Credit Score — 580-669
  • Poor Credit Score — 300-579

These credit scores are calculated based on a person’s credit history, which is all the actions that they take on with their credit accounts. Positive actions, such as paying bills on time, can lead to a good credit score, while negative actions can lead to a bad one. 

What Is Bad Credit?

Bad credit will vary when looking at different credit scoring models, but from the model above, anything below 579 with a FICO Score may be considered poor. Bad credit comes from a few different actions that person takes with their credit accounts; here are some examples:

  • Making late payments on their credit accounts, such as a personal loan or credit card. 
  • Defaulting on credit accounts. 
  • Having a credit utilization ratio of over 30%. 
  • Having a high debt-to-income ratio. 
  • Only having “bad credit.” 
  • Not having enough diversity with your credit accounts. 

How Bad Credit Can Impact Your Mortgage Search 

Although it’s possible to buy a house with bad credit, it can have substantial consequences, especially when looking at mortgages. With bad credit, it can be difficult to get approved for a mortgage, and even if you do, you may not get a substantial loan amount through a conventional loan or otherwise.

Finding a Mortgage With Bad Credit

Here are some tips on finding a mortgage to purchase a house with bad credit:

  • Save for a Larger Down Payment — Lenders may be more willing to approve your mortgage application if you can put down a larger down payment. This reduces the lender’s risk.
  • Shop Around — Different lenders have different criteria and tolerance for risk. Some may be more willing to work with individuals with low credit scores, especially if there are extenuating circumstances.
  • Consider a Co-Signer — If you have a trusted family member or friend with good credit, they might be willing to co-sign the mortgage for you. This means they’re agreeing to be responsible for the loan if you default. However, this is a significant responsibility, so it’s essential to discuss the implications with the potential co-signer.
  • Look into Subprime Mortgages — Some lenders specialize in offering mortgages to individuals with bad credit. These are known as subprime mortgages. While they can be an option, they often come with higher interest rates and fees.
  • Work with a Mortgage Broker — Mortgage brokers have access to a variety of lenders and can help you find one that might be willing to work with you despite your bad credit.
  • Improve Your Credit — If you’re not in a rush to buy a home, consider taking some time to improve your credit score. This can involve paying down debts, ensuring you pay all bills on time, and avoiding new credit inquiries.
  • Consider a Larger Loan Term — Opting for a 30-year mortgage instead of a 15-year one might result in a higher chance of approval, as the monthly payments will be lower. However, you’ll end up paying more in interest over the life of the loan.

What Documents Do You Need for a Mortgage With Bad Credit

What you need to take out a loan varies by lender, but all loans require financial documents and information. Here are some documents that you may need when inquiring for a mortgage loan with bad credit:

Document CategorySpecific Documents/Details
Proof of Identity– Photo ID (e.g., driver’s license, passport)
– Social Security card or number
Proof of Legal Residency– Green card, visa, or other relevant documents for non-citizens
Proof of Income– Recent pay stubs (usually the last 30 days)
– W-2 forms from the past two years
– If self-employed: Two years of tax returns, profit and loss statements, etc.
Proof of Employment– Recent pay stubs
– Employment verification letter
Credit History– Lender will obtain your credit report
Personal Assets– Bank statements (usually the last 2-3 months)
– Retirement accounts
– Other investment statements
Debt Information– List of all current debts
– Recent statements for each debt
Down Payment– Documentation about the source of your down payment
Property Information– Purchase agreement or contract
– Property tax assessments
– Recent utility bills
Rental History– Past rental agreements
– Contact information for previous landlords
Explanation Letter– Letter explaining reasons for bad credit
Additional Income– Alimony or child support payments
– Proof of any other sources of income
Proof of Reserves– Proof of savings equivalent to a few months of mortgage payments
Bankruptcy/Foreclosure– Related documents and details if you’ve declared bankruptcy or faced foreclosure

What Factors Do Mortgage Lenders Consider for Loan Amount?

Several factors determine your mortgage amounts, such as your credit score, yearly household income, and down payment. 

Credit Score

When a person applies for conventional loans, the lender will examine their credit report. A credit report showcases a person’s financial history in great detail. Lenders may not trust you to pay off a high mortgage on time if you have an unreliable payment history. But if you recently started ensuring every monthly payment is on time, lenders may consider you more creditworthy. 

A lower credit score will limit your financing options since lenders tend to avoid financial risks. If your credit score range is fair or poor, it may be worthwhile to consider an FHA loan instead of a conventional loan.

Yearly Household Income

If you have a steady income, you may not need to meet the minimum credit score requirements for conventional loans! Your ability to make on-time payments can help you get a decent loan to buy a house. 

Ensure you include all income available to you to give your lender a clear picture of your financial situation. For example, you may work a traditional full-time job, but perhaps you also earn supplemental income from side jobs. 

Down Payment

If you intend to buy a house, you will need to provide an upfront down payment based on a small percentage of the purchase price. The minimum requirement for a down payment on a house varies per lender. 

You may have heard that mortgage lenders expect at least 20% of the home cost as a down payment. But you can get a mortgage with a 3% down payment! However, you have a better chance of getting loan approval with a decent down payment. And if you use a low down payment amount, your mortgage will have higher monthly mortgage payments.

What Are FHA Loans?

The Federal Housing Administration (FHA) offers mortgage insurance on loans (mortgage insurance helps reduce risk for lenders) so consumers can afford the cost of buying a house! The FHA is a part of the U.S. Department of Housing and Urban Development. Since 1932, FHA loans have helped thousands of people get better loan deals. 

An FHA loan can help you get low closing costs, flexible qualification requirements, and smaller down payments with a low credit score. If your credit score exceeds 580, your down payment can be as low as 3.5% of the purchase price! And you can buy a house with a 10% down payment if your credit score is between 500 and 579. 

FHA loans also protect lenders since the FHA pays a claim when a borrower defaults on a loan. This financial protection encourages lenders to extend more loan offers to prospective homebuyers. FHA loans can help homebuyers with low credit scores secure family homes throughout the United States. 

Do I Qualify for an FHA Loan?

In order to get an FHA loan to buy a house with bad credit, you must meet the qualification requirements. The qualification requirements for FHA loans are generally easy to meet, as shown below:

  • Have a steady income.
  • Have proof of employment.
  • Have a debt-to-income ratio lower than 43%.
  • The home you buy must become your primary residence.

What Are VA Loans?

The Department of Veterans Affairs offers a VA loan program, which provides no-down payment mortgage loans for veterans and active-duty military members. Private lenders are willing to provide these loans to individuals with low credit scores because the VA loan program guarantees a portion of the loan. 

VA loans can help home buyers avoid providing thousands of dollars upfront as a down payment. Veterans and active military members can also receive low-interest rates and limited closing costs. Most conventional loans require private mortgage insurance (PMI) if the down payment is less than 20% of the home’s purchase price. But you do not need to get PMI if you qualify for a VA loan! 

Do I Qualify for a VA Loan?

Eligibility for a VA home loan depends on your length of service or service commitment. If you are an active service member, you must have served at least 90 continuous days. If you are a veteran or reserve member, eligibility depends on when you served in the military. For example, suppose you served anytime from the Gulf War period (August 2, 1999) to the present. In that case, you are eligible if you served for:

  • At least 24 continuous months or 
  • The entire period (at least 90 days), you were ordered for active duty or 
  • At least 90 days if you were discharged for hardship or force reduction or
  • Less than 90 days if you were discharged for a service-connected disability

Check the Department of Veterans Affairs website for additional details on specific service requirements. 

How Much House Can I Afford With Low Credit?

It’s essential to consider your purchase budget before buying a house with bad credit. Spending more on a house than you can afford is one of the most common financial pitfalls to avoid. To calculate how much house you can afford, you must know your gross annual household income and monthly debts. Once you know how much money you have available, you can follow the 28/36 rule when house hunting. 

The 28/36 Rule 

According to financial experts, the best house-hunting budget is the 28/36 debt-to-income rule. This rule stipulates that your household budget should not exceed 28% of your monthly income, and your monthly debts should not exceed 36% of your income. If you make $6,000 monthly, you should spend less than $1,680 on house-related expenses and $2,160 on debts. 

The 28/36 budget rule ensures you have enough money to pay off payday loans and other debts without minimizing your available funds. Following a budget plan can help you better balance necessary and unnecessary spending. 


How long does a negative mark stay on my credit reports with the credit bureaus?

Typically, negative items like late payments, foreclosures, or bankruptcies can stay on your credit report for 7 to 10 years. However, their impact on your credit score diminishes over time.

Are there any government programs to help first-time homebuyers with bad credit?

Absolutely! Apart from FHA and VA mortgage options, there’s also the USDA loan for rural homebuyers. Many states also offer assistance programs for first-time buyers, which can include down payment assistance or favorable loan terms, even if your credit isn’t perfect.

Can I still get a mortgage if I’ve declared bankruptcy in the past?

Yes, it’s possible. While bankruptcy can significantly impact your credit score, it doesn’t disqualify you forever.

Are there any non-traditional ways to prove my creditworthiness to lenders?

Some lenders might consider non-traditional credit data. This can include timely rent payments and utility bills. It’s always worth asking a potential lender about this.

The Bottom Line With CreditNinja

At CreditNinja, we want you to know that a house purchase can be possible despite having bad credit! By doing thorough research on lenders and comparing loan offers, you can get an affordable mortgage to purchase your dream home! You can also work on boosting your low credit score at any time. Start by paying your bills on time and reducing your total debt. Over time with continuous effort, you will start to see your FICO score grow! To learn more about all of these topics, check out CreditNinja’s blogs!


  1. Credit scores: Millions of Americans ‘are stuck in a Catch-22’ | Yahoo News
  2. The FHA History | HUD
  3. FHA Loan Requirements | FHA
  4. VA Home Loans | VA Loans
  5. How much house can I afford? | Redfin

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