Bad Mortgage Credit: How to Buy a Home Even With Poor Credit
Having bad mortgage credit can feel like a dead end when you want to buy a home. Many people believe that a low credit score automatically disqualifies them from getting a mortgage, but that’s not always true. While bad credit does make the process more challenging, it does not make homeownership impossible.
In this comprehensive guide, we’ll explain what bad mortgage credit really means, how it affects your ability to get a home loan, and—most importantly—what options are available to help you qualify for a mortgage even with poor credit.
What Is Bad Mortgage Credit?
Bad mortgage credit typically refers to a credit score that falls below the minimum requirements set by most lenders. In the United States, credit scores generally range from 300 to 850 and are classified as follows:
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Excellent: 750 and above
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Good: 700–749
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Fair: 650–699
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Poor: 600–649
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Bad: Below 600
Most conventional mortgage lenders prefer borrowers with a credit score of 620 or higher. If your score is below that threshold, lenders may view you as a higher risk.
How Bad Credit Impacts Mortgage Approval
Bad credit affects your mortgage application in several ways:
1. Higher Interest Rates
Lenders offset risk by charging higher interest rates to borrowers with poor credit. Even a 1–2% increase can significantly raise your monthly payment and total loan cost.
2. Larger Down Payment
Borrowers with bad mortgage credit are often required to put down a larger down payment, sometimes 10%–20% or more.
3. Limited Loan Options
Many conventional lenders may deny your application outright, leaving you with fewer mortgage products to choose from.
4. Stricter Loan Terms
You may face tougher underwriting standards, including proof of stable income, lower debt-to-income ratios, and additional documentation.
Can You Get a Mortgage With Bad Credit?
Yes, you can get a mortgage with bad credit. Several loan programs are specifically designed to help borrowers with lower credit scores.
Let’s explore the best options.
Best Mortgage Options for Bad Credit Borrowers
1. FHA Loans (Federal Housing Administration)
FHA loans are one of the most popular choices for people with bad mortgage credit.
Key benefits:
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Credit score as low as 500 (with 10% down)
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580 score qualifies for 3.5% down
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Flexible income requirements
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Lower down payments
Drawback:
Mortgage insurance premiums (MIP) are required for the life of the loan.
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2. VA Loans (For Veterans and Active Military)
If you’re eligible, VA loans are one of the best options available—even with bad credit.
Advantages:
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No minimum credit score set by VA
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Zero down payment
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No private mortgage insurance (PMI)
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Competitive interest rates
Note:
Individual lenders may still set their own credit score requirements.
3. USDA Loans (Rural Homebuyers)
USDA loans are designed for low-to-moderate-income borrowers in eligible rural areas.
Features:
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No down payment
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Lower interest rates
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Credit scores around 580–620 may qualify
4. Subprime Mortgage Loans
Subprime mortgages are offered to borrowers with bad credit histories.
Pros:
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Easier approval
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Flexible credit requirements
Cons:
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Very high interest rates
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Risk of adjustable rates
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Higher fees
These loans should be considered carefully and typically as a last resort.
Common Causes of Bad Mortgage Credit
Understanding why your credit is low can help you fix it.
Late or Missed Payments
Payment history makes up 35% of your credit score.
High Credit Utilization
Using more than 30% of your available credit hurts your score.
Collections and Charge-Offs
Unpaid debts reported to collections can severely damage credit.
Foreclosure or Bankruptcy
These remain on your credit report for several years but don’t permanently prevent homeownership.
How to Improve Your Credit Before Applying for a Mortgage
Improving your credit—even slightly—can save you thousands of dollars.
1. Check Your Credit Report
Review reports from all three bureaus:
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Experian
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Equifax
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TransUnion
Dispute any errors immediately.
2. Pay Bills on Time
Set up automatic payments to avoid late fees.
3. Reduce Credit Card Balances
Lowering your credit utilization can quickly raise your score.
4. Avoid New Credit Applications
Too many hard inquiries can lower your score.
5. Work With a Credit Counselor
Certified credit counselors can help create a debt-repayment plan.
Minimum Credit Score for Mortgage Approval
| Loan Type | Minimum Credit Score |
|---|---|
| FHA Loan | 500–580 |
| VA Loan | No official minimum |
| USDA Loan | 580–620 |
| Conventional Loan | 620+ |
| Jumbo Loan | 680–700 |
Tips to Get Approved With Bad Mortgage Credit
Save for a Larger Down Payment
A higher down payment reduces lender risk and improves approval chances.
Lower Your Debt-to-Income Ratio (DTI)
Most lenders prefer a DTI below 43%.
Show Stable Income
Consistent employment for at least two years is a big advantage.
Add a Co-Signer
A co-borrower with good credit can help you qualify.
Shop Around
Different lenders have different requirements—don’t settle for the first rejection.
Mistakes to Avoid When You Have Bad Credit
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Applying for multiple loans at once
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Ignoring your credit report
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Taking payday loans before closing
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Hiding debts or financial issues
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Choosing adjustable-rate loans without understanding the risks
Is Renting Better Than Buying With Bad Credit?
Not necessarily. Renting may feel safer, but rising rents mean you could end up paying more long-term. If you qualify for a manageable mortgage and plan to refinance later, buying can still be a smart move.
Refinancing After Improving Your Credit
Many homeowners with bad mortgage credit buy first, then refinance once their credit improves.
Benefits include:
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Lower interest rates
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Reduced monthly payments
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Removal of mortgage insurance
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Better loan terms
Even a 50–100 point credit score increase can unlock better refinancing options.
Final Thoughts: Don’t Let Bad Mortgage Credit Stop You
Bad mortgage credit does not mean you can’t own a home. With the right loan program, careful planning, and smart financial habits, homeownership is still within reach.
The key is to:
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Understand your credit
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Explore flexible loan options
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Improve your financial profile
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Work with experienced lenders
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