How to get a house loan with bad credit

how to get a house loan with bad credit

CreditNinja is here to help you figure out how to get a house with bad credit and, more importantly, whether or not buying a home with bad credit is the right choice for you. 

For many people, buying a home is a meaningful and rewarding experience that they’ll never forget. But despite the social pressure you may feel about “growing up” and buying a house, it’s still something you shouldn’t do unless you’re 100% sure you’re financially prepared. After all, the average price of a home in the U.S. is $535,800!1

But is it possible to get a house with bad credit? The quick answer is: yes. It’s not easy, and the lower your score, the more difficult it will be. Lower credit scores will also mean much higher interest rates, which may make it difficult to afford your payments. 

What Is a Bad Credit Score?

It can be challenging for consumers to get a house with bad credit. But what exactly is bad credit?

FICO scores are split into five rankings based on their score range. As you can see below, a good FICO score is typically higher than 670 points. This means that if your score is lower than 669 points, you may be referred to as a “credit risk” by most lenders.   

FICO Score RangeRating
800 – 850Exceptional
740 – 799Very Good
670 – 739Good
580 – 669Fair
300 – 579Poor

Reasons for a Bad Credit Score

People develop bad credit scores for a wide variety of reasons, such as:

  • Unexpected medical expenses
  • Job loss or reduced income
  • High levels of debt
  • Late or missed payments
  • Bankruptcy or foreclosure

No matter the cause, know that you can take steps toward building a good credit score. If you don’t yet have an established credit score, you may be wondering what age you can start building credit. While most start borrowing money at 18 years of age, the actual age you must be to begin building a credit history depends on individual states, lenders, and financial products. 

How to Build Good Credit

If you want to boost your poor credit score, try following these helpful tips!

Avoid Late Payments

Once you are able to take out traditional or online loans, it’s critical to avoid late payments. A late loan payment will typically result in a costly late charge that is a percentage of your principal and interest. Suppose your monthly mortgage payment is $1,000, and your late charge is 5%. In that case, your late charge will be $50.  

But keep in mind that your mortgage lender may offer a grace period. A grace period occurs between the date your mortgage payment is due and the date you incur a late fee.2 As long as you pay within the grace period, you can avoid a late fee and hurting your credit history.  

Become an Authorized User

It’s possible for a person to grow a good credit score by being an authorized user. An authorized user is a person that is added to an existing credit card borrower’s account. Authorized users can develop a payment history by making purchases or doing nothing at all. 

Keep Your Credit Utilization Rate Low

Your credit utilization counts for 30% of your FICO score. Credit utilization is the total amount of revolving credit you are using. Maxing out your credit cards can decrease your credit and reflect poorly on your credit report. However, you can reduce your debt-to-income ratio by decreasing your outstanding credit card debt or increasing your credit limit. And if you want to save money on interest fees, you can look into getting a credit card consolidation loan

Getting a Bad Credit Home Loan

If you have a poor credit history, getting more options besides bad credit loans may be a challenge. And getting a home loan or mortgage may be an even bigger challenge. 

There’s a straightforward reason for this: houses are expensive. Very expensive. And lenders who issue loans to buy houses need to make sure that the customer can repay the loan. When you have bad credit, the lender may not trust that you’ll stick to your financial obligations. 

The first step in your home-buying process is to check your credit score. Several companies track your borrowing history and give you a score based on how financially trustworthy you are: Experian, TransUnion, and Equifax. 

Start by signing up for free accounts on each of their websites and checking your credit score. Remember that the lower your score is, the lower your chances of being approved for a home loan. 

Types of Home Loans Most Homebuyers Use

There are multiple home loans that a prospective homebuyer can use to purchase real estate. Read about some of your home loan options below. 

Type of Home LoanDescription
Conventional MortgagesStandard loans not insured by a government agency. Typically require a 20% down payment and a good credit score. Most mortgage lenders set their own minimum credit score requirements for these loans.
Fixed-Rate MortgagesLoans with an interest rate that remains the same for the entire term, making monthly payments predictable. Offered by most mortgage lenders and often require a certain minimum credit score.
Adjustable-Rate MortgagesLoans with interest rates that can change after an initial fixed period. The rate can go up or down based on market conditions, which can affect monthly payments. A minimum credit score might be required, varying by lender.
FHA LoansLoans insured by the Federal Housing Administration. They allow for smaller down payments and are more lenient on credit scores. Borrowers often need a minimum credit score, but it’s typically lower than conventional mortgages.
USDA LoansLoans backed by the U.S. Department of Agriculture, designed for rural property buyers who meet specific income requirements. Mortgage lenders offer these with varying minimum credit score requirements.
VA LoansLoans backed by the U.S. Department of Veterans Affairs. Available to veterans, active-duty service members, and certain members of the National Guard and Reserves. No down payment required. VA loan credit score requirements vary by lender.
Jumbo LoansLoans that exceed the conforming loan limits set by federal standards. They are used to buy more expensive homes and are not backed by Fannie Mae or Freddie Mac. Requires a larger down payment and an excellent credit score.

Tips for First-Time Home Buyers

Buying a house for the first time may be a stressful situation. It can be a complicated process with a lot of factors to consider. Here are a few quick tips for first-time homebuyers:

  1. Check your credit score, and check it often — As we mentioned above, this is the first step for any large purchase that requires a loan. If you don’t know your credit score, you won’t know what types of loans and interest rates you’ll qualify for. 
  2. Improve your credit score — If your credit score is low, you’ll need to work on improving it. Bad credit can ruin your job search and prevent you from securing decent interest rates. Some of the main things to focus on when boosting your credit score are: paying off debt, making payments on time, and lowering your credit card usage. 
  3. Start a savings account — Having money to use as a down payment on a home may mean lower monthly payments. If you know you’ll want to purchase a home in the next few years, start saving now. 
  4. Look into assistance programs — Several state and local programs throughout the country aim to help first-time home buyers. You may find a program that will help you make a down payment, give you a low-interest mortgage, or give you a no-interest loan to make your down payment or pay your closing costs. Start by searching the internet for “first-time homebuyer programs” in your area. 

What Is an FHA House Loan?

FHA stands for the Federal Housing Administration. An FHA loan is a home loan or mortgage that the FHA insures and is issued by an FHA-approved lender. These loans are designed to help first-time homebuyers with moderate to low incomes and credit scores. 

If you have a low-to-moderate income or your credit score is low, it would be wise to look into an FHA loan for buying a home. These loans allow the borrower to make a smaller down payment than what is usually required. 

With an FHA loan and other state or local assistance programs, you may be able to get a great deal for a home loan, even if you have bad credit. 

Do Zero-Down House Loans Exist?

One term you may hear throughout your home-buying research is “zero-down mortgage” or “zero-down loan.” This refers to the amount of money you’re offering up as a down payment. 

A down payment is simply the amount of money that you pay upfront to purchase the home. It’s usually expressed as a percentage of the total cost of the home. So a 10% down payment on a $200,000 home would be $20,000. 

A larger down payment means you start with a larger stake in the home. Simply put, you own more of it than you would with no down payment or a small down payment. 

While it may be easier for you initially to find a zero-down mortgage, it may also mean much higher interest rates and monthly payments. Zero-down mortgages do exist, but they may not be a wise financial choice. 

What Is a Guaranteed Approval Mortgage?

A guaranteed-approval mortgage would mean that the lender is guaranteeing that you’ll be approved and given a loan, despite a low credit score. While this may sound appealing, it’s not realistic, and a credible lender probably won’t guarantee approval. 

This is a term you might hear whether you’re searching for a mortgage or another type of personal loan. However, a trustworthy lender likely won’t guarantee approval because they would base their decision on several factors. 

Lenders will look at your credit score, your borrowing history, your current debts, the state of your bank account, and more. That being said, there’s no way for a credible lender to know whether they can approve you for a loan until you submit your application and all the necessary information. 

Frequently Asked Questions About Buying a House With Bad Credit

What’s the minimum credit score required for FHA loans?

While FHA loans make it possible for Americans to get a house with bad credit scores, there’s still a minimum credit score requirement. Typically, lenders that offer FHA loans look for a score of at least 580 to qualify for the 3.5% down payment option.

How does a bad credit report affect my mortgage loan interest rates?

A lower credit score can result in higher interest rates on your mortgage loan. Lenders see bad credit as a risk, so they might charge more in interest to compensate for that risk.

Is private mortgage insurance (PMI) mandatory for borrowers with bad credit?

PMI, or private mortgage insurance, is often required for conventional loans when the down payment is less than 20%. If you have bad credit, you might be asked to carry PMI, even if your down payment exceeds this amount, to protect the lender against potential default.

Can I qualify for a VA loan with bad credit?

VA loans, backed by the Department of Veterans Affairs, are more forgiving when it comes to credit scores. While there’s no set minimum credit score for VA loans, individual lenders might have their own requirements. It’s always a good idea to check with multiple lenders.

How do monthly mortgage payments differ for bad credit borrowers?

Monthly mortgage payments can be higher for those with bad credit due to potentially higher interest rates and the addition of mortgage insurance. It’s essential to factor this into your budget when considering a home purchase.

Are there any alternatives to conventional loans for borrowers with poor credit?

Yes, besides FHA and VA loans, there are other government-backed loan programs and certain private lenders that might offer solutions tailored to those with lower credit scores.

How often should I review my credit report before applying for a home loan?

It’s a good practice to review your credit report at least once a year. If you’re planning to apply for a mortgage loan, consider checking it a few months in advance. This gives you time to address any discrepancies and understand your credit standing.

A Summary from CreditNinja

If you are trying to buy a house with bad credit, know that it is possible! But it’s crucial to look for a home loan offer that works with your budget and does not put a strain on your finances.  

And if you are interested in building credit, know that we offer plenty of tips in the CreditNinja Dojo! You can learn how to build credit as a college student or adult! We offer numerous articles on personal finance topics so consumers can arm themselves with financial knowledge. 


  1. 120 Home Buying And Mortgage Facts For 2023 │ Rocket Mortgage
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