Buying a House With Bad Credit: Programs, Loans, and Minimum Scores
Minimum Credit Scores by Loan Type
Your credit score determines which loan programs you qualify for, what interest rate you’ll pay, and how much you’ll need for a down payment. Here’s the breakdown for 2026:
| Loan Type | Minimum Score | Down Payment | Key Notes |
|---|---|---|---|
| FHA | 500-579 | 10% minimum | Manual underwriting required below 580; most lenders want 580+ |
| FHA | 580+ | 3.5% minimum | Standard FHA — the most accessible option for lower-credit buyers |
| Conventional | 620+ | 3-5% minimum | PMI required below 20% down; higher rates at lower scores |
| VA | No VA minimum | 0% | VA doesn’t set a minimum, but most lenders require 620+ |
| USDA | 640+ | 0% | Income and location restrictions; some lenders accept 620 |
| Jumbo | 700+ | 10-20% | Strict requirements — not viable for low-credit buyers |
One important distinction: these are program minimums, not individual lender minimums. The FHA allows scores as low as 500, but most FHA lenders set their own floor at 580 or even 620. You may need to shop multiple lenders to find one that will work with your specific score.
Not sure where your score falls? Check your credit report for free at AnnualCreditReport.com (the only federally authorized source). Many banks and credit card companies also show your FICO score for free in their apps.
How Bad Credit Affects Your Mortgage Costs
A lower credit score doesn’t just make it harder to get approved — it makes every month of homeownership more expensive. Lenders charge higher interest rates to borrowers they view as higher-risk, and even a small rate difference adds up fast. Check current mortgage rates to see where the market stands before you start shopping.
Here’s what a credit score difference looks like on a $300,000 loan over 30 years:
| Credit Score | Estimated Rate | Monthly Payment (P&I) | Total Interest Over 30 Years |
|---|---|---|---|
| 760+ | 6.5% | $1,896 | $382,633 |
| 700-759 | 6.9% | $1,975 | $410,891 |
| 660-699 | 7.3% | $2,055 | $439,757 |
| 620-659 | 7.8% | $2,156 | $476,078 |
| 580-619 (FHA) | 8.2% | $2,240 | $506,316 |
The difference between a 760 score and a 580 score on the same $300,000 loan is about $344 per month — that’s $4,128 per year and over $123,000 in additional interest over the life of the loan.
Run your own numbers with our calculate your mortgage payment to see how different rates affect your monthly payment.
Beyond interest rates, lower credit scores also mean:
- Higher mortgage insurance premiums — FHA’s MIP and conventional PMI both cost more at lower scores
- Higher down payment requirements — FHA requires 10% down below 580; conventional requires larger down payments below 680 for best pricing
- Fewer lender options — Some lenders don’t work with scores below 620, limiting your ability to shop for the best deal
- Stricter underwriting — Expect more documentation requests, longer processing times, and less flexibility on other financial factors
Steps to Improve Your Credit Before Buying
If your score is below where you need it, spending 3-12 months on credit improvement can save you tens of thousands of dollars over the life of your mortgage. Here’s what actually moves the needle.
Pay Down Credit Card Balances Below 30%
Credit utilization — the percentage of your available credit you’re using — is the second-biggest factor in your score after payment history. If you have a $10,000 credit limit and a $7,000 balance, your utilization is 70%. Getting that below 30% ($3,000) can boost your score by 20-50 points within one billing cycle.
The lower the better. Utilization below 10% is ideal. And this applies per card and overall. One maxed-out card hurts even if your total utilization is low.
Dispute Errors on Your Credit Report
About 25% of credit reports contain errors that could affect the score. Check all three bureaus (Equifax, Experian, TransUnion) and dispute any accounts you don’t recognize, balances that are wrong, or negative items that should have aged off (most negatives fall off after 7 years).
File disputes directly through each bureau’s website. They have 30 days to investigate and respond. If the creditor can’t verify the information, it must be removed.
Don’t Open New Credit Accounts
Each new credit application creates a hard inquiry, which drops your score 5-10 points temporarily. New accounts also lower your average account age, another scoring factor. If you’re planning to buy within the next 12 months, freeze your credit applications.
Exception: if you have no credit cards at all, opening one secured card and using it responsibly can actually help build a score. But do this at least 12 months before you plan to apply for a mortgage.
Become an Authorized User
If a family member or partner has a credit card with a long history and low balance, ask to be added as an authorized user. Their account history can appear on your credit report, potentially boosting your score. You don’t even need to use the card — just being listed on the account helps.
Make sure the account has a perfect payment history. Being added to an account with late payments will hurt your score, not help it.
Realistic Credit Improvement Timeline
| Action | Potential Score Boost | Time to See Results |
|---|---|---|
| Pay down credit cards below 30% | 20-50 points | 1-2 billing cycles |
| Dispute and remove errors | 10-40 points | 30-45 days per dispute |
| Stop applying for new credit | 5-10 points | 3-6 months (as inquiries age) |
| Authorized user addition | 10-30 points | 1-2 billing cycles |
| 6+ months of on-time payments | 20-40 points | 6-12 months |
A buyer with a 560 score can realistically reach 620-640 within 6-12 months with dedicated effort. That jump opens up conventional loan programs, better rates, and lower insurance costs. It’s almost always worth the wait.
FHA Loans: The Go-To Option for Lower Credit
If your credit score is between 580 and 659, an FHA loan is likely your best path to homeownership. Here’s why.
Lower minimum credit score. FHA accepts 580 with 3.5% down — the lowest combination of any major loan program. Below 580, you can still qualify with 10% down, though finding a lender willing to go that low takes extra effort.
More forgiving on financial history. FHA is more flexible with past bankruptcies, foreclosures, and collections than conventional loans. You can qualify 2 years after a Chapter 7 bankruptcy and 1 year into a Chapter 13 repayment plan (with court approval).
Gift funds allowed. Your entire 3.5% down payment can come from a gift from a family member, employer, or other approved source. Conventional loans have stricter gift rules at low down payment levels.
The trade-off: Mortgage Insurance Premium (MIP). FHA loans require both an upfront MIP (1.75% of the loan amount, usually rolled into the loan) and an annual MIP (0.55% for most borrowers in 2026). On a $300,000 loan, that’s $5,250 upfront and about $137.50/month.
Unlike conventional PMI, FHA’s annual MIP lasts the life of the loan if you put less than 10% down. To remove it, you’d need to refinance into a conventional loan once your credit score and equity improve — which is a strategy many first-time buyers use.
FHA Manual Underwriting for Scores Below 620
When your credit score falls below 620, automated underwriting systems (the software that evaluates loan applications) will usually deny your application. But FHA allows manual underwriting — where a human underwriter reviews your complete financial picture instead of relying solely on algorithms.
Manual underwriting looks at compensating factors: stable employment (2+ years same employer), cash reserves (3-6 months of payments), minimal debt, strong rent payment history (12+ months with no lates), and a reasonable explanation for past credit problems.
Not all FHA lenders do manual underwriting. You’ll need to specifically seek out lenders who offer this option — smaller banks, credit unions, and specialist lenders are more likely to consider it.
Alternative Paths to Homeownership With Bad Credit
If a traditional mortgage isn’t available right now, these alternatives can get you into a home while you work on improving your credit.
Rent-to-Own Agreements
A lease-option agreement lets you rent a home with the option to buy it at a predetermined price after 1-3 years. A portion of your monthly rent may be credited toward the eventual purchase price.
Pros: locks in a price, gives you time to build credit, lets you “try before you buy.” Cons: higher-than-market rent, non-refundable option fees ($3,000-$10,000 typical), and you lose your credits if you don’t buy. Get a lawyer to review any rent-to-own contract before signing.
Co-Signer or Co-Borrower
A co-signer with good credit guarantees the loan if you default. A co-borrower is a full partner on the loan, sharing both the responsibility and (usually) appearing on the deed.
This can work for family-supported purchases, but understand the risk: if you miss payments, the co-signer’s credit is damaged. Their debt-to-income ratio is also affected, which could limit their own borrowing ability. FHA and conventional loans both allow co-signers with different rules about occupancy and documentation.
USDA Rural Loans
If you’re buying in an eligible rural area (which includes many suburban communities — check USDA’s eligibility map), USDA loans offer 0% down with no minimum score set by the program itself. Most USDA lenders want 640+, but some will go to 620 with compensating factors.
Income limits apply — your household income can’t exceed 115% of the area median. But if you qualify, USDA is one of the most affordable loan programs available, with lower mortgage insurance costs than FHA.
State Down Payment Assistance Programs
Every state offers at least one down payment assistance (DPA) program for low-to-moderate income buyers. These programs provide grants or low-interest second loans to cover your down payment and sometimes closing costs.
Credit score requirements vary by program — many accept 620+, some go as low as 580. Income limits and purchase price caps apply. Check your state’s housing finance agency website for current programs and eligibility.
DPA can be combined with FHA loans, making it possible to buy with very little cash out of pocket. A first-time buyer using FHA + DPA might need as little as $1,000-$2,000 of their own money for a $200,000 home.
FHA 203(k) Renovation Loan
If you can’t find a move-in ready home in your budget, the FHA 203(k) lets you finance both the purchase and renovation in one loan. This opens up fixer-uppers that other low-credit buyers can’t touch because they don’t have cash for repairs.
The same FHA credit requirements apply (580+ for 3.5% down). The renovation must be done by licensed contractors, and there’s additional paperwork and oversight. But it can be a way to buy a cheaper property and improve it, building equity in the process.
What to Avoid While You’re Working on Your Credit
These mistakes can undo months of progress. Avoid them at all costs if you’re planning to buy in the next 12 months.
- Don’t close old credit cards — Even if you’re not using them, old accounts boost your average account age and available credit. Closing them hurts both metrics.
- Don’t pay collections without a strategy — Paying a collection account can actually lower your score temporarily by resetting the “last activity” date. Look into “pay for delete” agreements where the creditor removes the item entirely in exchange for payment.
- Don’t apply for new credit — No store cards, no auto loans, no personal loans. Every hard inquiry costs points you can’t afford to lose.
- Don’t miss any payments — One 30-day late payment can drop your score 60-100 points and stay on your report for 7 years. Set everything to autopay if you have to.
- Don’t ignore your credit report — Check it monthly. Errors appear, fraud happens, and the sooner you catch problems, the sooner you can fix them.
Getting Pre-Approved With Lower Credit: What to Expect
Walking into the home buying process with a lower credit score means a different pre-approval experience. Here’s what to prepare for.
More documentation. Lenders will want to see explanations for credit problems — medical bills, job loss, divorce — along with evidence that those issues are resolved. Two years of tax returns, bank statements showing savings discipline, and a stable employment history help your case.
Higher scrutiny. Your debt-to-income ratio, cash reserves, and employment stability will be examined more closely. Strong compensating factors (low DTI, significant savings, 2+ years at same job) can offset a lower score.
Smaller loan amounts. Your maximum pre-approval amount will be lower at higher interest rates because the higher payment reduces the amount you can borrow while staying within DTI limits. Use the calculate monthly costs to see how rate changes affect your purchasing power.
Multiple lender shopping. Don’t accept the first offer. Get quotes from at least 3-4 lenders within a 14-day window (multiple mortgage inquiries within 14-45 days count as a single inquiry on your credit report). Different lenders serve different credit tiers, and rate quotes can vary by 0.5% or more.
Once pre-approved, the process of making an offer and closing works the same regardless of your credit score. Your pre-approval letter shows sellers you’re qualified, and from there, the transaction follows the standard path.
Frequently Asked Questions
What is the absolute lowest credit score to buy a house?
The FHA program allows scores as low as 500 with a 10% down payment. In practice, finding a lender willing to approve a 500 score is very difficult — most FHA lenders set their minimum at 580 or higher. Below 580, you’ll need to find a specialty lender that does manual underwriting, and you’ll need strong compensating factors like low debt, stable employment, and significant savings.
Should I wait to improve my credit or buy now?
It depends on the numbers. Calculate the difference in monthly payment between your current rate and the rate you’d get with a higher score. If waiting 6-12 months saves you $200/month ($2,400/year), waiting is almost certainly worth it. If the difference is $50/month and home prices in your area are rising, buying now and refinancing later might make more sense. Run both scenarios through the run the numbers.
Can I buy a house after bankruptcy?
Yes. The waiting periods are: Chapter 7 bankruptcy — 2 years for FHA, 4 years for conventional. Chapter 13 bankruptcy — 1 year into repayment plan for FHA (with court approval), 2 years after discharge for conventional. During the waiting period, work on rebuilding your credit so you qualify for the best possible terms when the waiting period ends.
Does a larger down payment help offset bad credit?
Yes, but not as much as you might hope. A larger down payment reduces the lender’s risk and can result in slightly better rates. More importantly, it reduces your loan amount, which means a lower monthly payment. On FHA loans, putting 10%+ down means the MIP drops off after 11 years instead of lasting the life of the loan. But you still need to meet the minimum credit score threshold — a big down payment doesn’t substitute for that.
Will checking my own credit score hurt it?
No. Checking your own credit is a “soft inquiry” and has zero effect on your score. You can check daily if you want. Only “hard inquiries” — when a lender checks your credit as part of a loan or credit application — affect your score. And even those only cost 5-10 points and recover within a few months.