Bad Credit Home Loans: How to Buy a House with a Low Credit Score
You can qualify for bad credit home loans, but the program and the lender both matter. For first-time homebuyers with bad credit, FHA can go to 500 with 10% down, VA has no set score floor, and conventional usually starts at 620. FHA can go to 500 with 10% down, VA has no set score floor, and conventional usually starts at 620. The real hurdle is lender overlays, debt-to-income, and down payment strength, so shop multiple lenders before you apply.
A stronger file can offset weak credit: stable income, lower revolving balances, and a larger down payment often move approval from maybe to yes.
Loan Options by Score
- FHA: 580 gets 3.5% down; 500-579 needs 10%, with UFMIP 1.75% and annual MIP 0.55%.
- VA: No set minimum score, but many lenders overlay 580-620 and charge 2.15% to 3.3% funding.
- USDA: 640 is the common benchmark, though some lenders approve lower scores with stronger compensating factors.
- Conventional: 620 is the usual floor, and pricing improves as your score rises above that baseline.
How To Qualify
- Income: Show two years of steady employment or equivalent self-employment history, with consistent deposits and documentation.
- DTI: Aim below 45% to 50%; some FHA and VA approvals stretch higher with strong residual income.
- Down payment: More cash lowers risk, and a larger down payment can offset weaker credit in manual underwriting.
- Credit cleanup: Review reports for errors, pay down revolving balances, and avoid new late payments before underwriting.
Best Next Moves
- Shop lenders: Ask each lender for its actual minimum score, because overlays often differ from agency rules.
- Get preapproved: Preapproval shows your real budget, expected payment, and which loan programs fit your file.
- Use counseling: Free housing counseling can help you prioritize debts, disputes, and savings before you submit.
- Consider co-borrower: A stronger co-borrower can improve approval odds, but both incomes and debts enter the file.
Common Misconceptions
- Myth: Bad credit means every mortgage program is off the table until your score reaches 700.
- Reality: FHA, VA, and sometimes USDA can approve lower scores when income, DTI, and reserves are solid.
- Fix: Target lenders that underwrite to your score tier, then compare overlays, pricing, and required reserves.
- Myth: A pre-qualification letter proves you are fully approved and ready to close.
Frequently Asked Questions
Can I get a home loan with bad credit?
What credit score do I need for an FHA loan?
How can I qualify faster with bad credit?
The Bottom Line Up Front
You can buy a house with bad credit. FHA works down to 500, VA has no score floor, and conventional starts at 620. The real barrier is not the program — it is the lender. Every lender adds overlays above agency minimums, and the gap between the strictest and most flexible lender at the same credit score can mean the difference between denial and approval. Shop at least three lenders, ask each one what their actual minimum score is (not the program minimum), and find one that underwrites to your tier.
Home Loan Options at Every Credit Level
Your credit score determines which programs are available and what they cost. The tiers are distinct: 620+ opens everything, 580–619 narrows to FHA and VA, and below 580 the options thin significantly but do not disappear. For details, see our guide to improve your credit score fast.
At every tier, the lender’s overlay matters as much as the program rules. An FHA lender with a 580 overlay and one with a 640 overlay are offering the same government program with very different access. The lender is the variable you can control by shopping.
| Credit Score | Available Programs | Down Payment | Key Tradeoffs |
|---|---|---|---|
| 720+ | All — best pricing tier | 3–20%+ | Lowest rates, lowest PMI, all property types |
| 680–719 | All — moderate pricing | 3–20%+ | Slight LLPA hit on conventional; FHA competitive |
| 620–679 | Conventional, FHA, VA, USDA | 3–10% | Heavy LLPAs on conventional; FHA often cheaper |
| 580–619 | FHA, VA | 3.5% (FHA) / $0 (VA) | Conventional locked out; manual UW may be needed |
| 500–579 | FHA (10% down) | 10% | Very few lenders; manual underwriting required |
| Below 500 | Portfolio / hard money only | 20–30%+ | No conforming programs; high rates, high fees |
Lender Reality Check
A “denied” decision at one lender does not mean the program denied you. It means that lender’s overlay denied you. The same file submitted to a lender with a 580 overlay instead of a 640 overlay can go from rejection to approval with no changes to the borrower’s profile. Always ask: “Is this an FHA/VA rule or your company’s overlay?”
FHA Loans for Bad Credit Borrowers
FHA is the most accessible conforming program for low credit scores. The 580 threshold for 3.5% down and the 500 threshold for 10% down are agency rules — not suggestions. The challenge is finding lenders that actually underwrite to those floors.
At the 580–619 range, most lenders will process FHA applications through automated underwriting (TOTAL Scorecard). Below 580, manual underwriting is required, and fewer lenders offer it. If you are in the 500–579 range, search specifically for “manual underwriting FHA lenders” — this is a specialty skill that not all loan officers possess.
VA Loans for Veterans with Bad Credit
VA is the best bad-credit mortgage program for eligible borrowers. The VA itself sets no minimum credit score — approval depends on AUS findings and residual income, not a hard score floor.
In practice, most VA lenders set overlays between 580 and 640. The zero-down, zero-PMI combination makes VA dramatically cheaper than FHA at the same credit score. A veteran at 590 credit should pursue VA before considering FHA — the monthly payment difference on a $300,000 loan can exceed $300.
Improving Your Credit Score Before Applying
If your score is close to a threshold — 580 for FHA, 620 for conventional — spending 60–90 days on targeted credit improvement can save you thousands in rate and PMI over the life of the loan.
The fastest lever is credit utilization. Paying revolving balances below 30% of their limits can boost scores 20–50 points within a single billing cycle. Disputing errors on your credit report — particularly inaccurate collections or duplicate accounts — can add another 10–40 points over 30–60 days. Avoid opening new accounts or applying for credit during this window.
Deal Saver
If your score is 570–590, consider a rapid rescore through your lender. After you pay down a credit card or remove an error, the lender can request an expedited score update from the bureaus — often delivered in 48–72 hours instead of waiting for the next billing cycle. This can push you above the 580 FHA threshold before your rate lock expires.
Waiting Periods After Major Credit Events
bankruptcy, foreclosure, and short sale each carry mandatory waiting periods before you can qualify for a new mortgage. These are program minimums — some lenders add additional time as overlays.
Chapter 7 bankruptcy: 2 years (FHA/VA), 4 years (conventional). Chapter 13: 1 year into plan with court approval (FHA), 2 years from discharge (conventional). Foreclosure: 2 years (VA), 3 years (FHA), 7 years (conventional with exceptions at 3 years with extenuating circumstances).
File Guidance
If you had a foreclosure or bankruptcy, start rebuilding credit immediately. Secured credit cards, authorized user accounts, and credit-builder loans create positive tradelines that demonstrate repayment capacity. By the time the waiting period ends, your credit should be in the 620+ range if you manage the rebuild systematically.
The Bottom Line
Bad credit narrows your options but does not eliminate them. FHA to 500, VA with no floor, and targeted credit improvement in 60–90 days are all real paths. The biggest mistake is assuming one denial means the door is closed — it usually means you talked to the wrong lender. Shop at least three, ask about their actual minimums versus program minimums, and find one that underwrites to your score tier.
Frequently Asked Questions
What is the minimum credit score for a mortgage?
500 for FHA with 10% down. 580 for FHA with 3.5% down. 620 for conventional. 640 for USDA. VA has no minimum but lender overlays typically start at 580–620.
Can I get a mortgage right after bankruptcy?
Not immediately. Waiting periods apply: 2 years after Chapter 7 discharge for FHA/VA, 4 years for conventional. Chapter 13 allows FHA/VA applications 1 year into the plan with court approval. Start rebuilding credit during the waiting period.
Is FHA or VA better for bad credit?
VA is better if you are eligible — zero down, no mortgage insurance, and no hard score floor. FHA is the fallback for non-veterans and is still strong: 580 credit, 3.5% down, 100% gift funds. VA saves $200–$400/month in MI compared to FHA at the same credit score.
Do bad credit borrowers pay higher interest rates?
Yes. Credit score directly affects rate through LLPAs on conventional and through lender risk pricing on all programs. The gap between a 620 and a 740 borrower can be 0.5%–1.5% in rate — on a $300K loan, that is $100–$300/month in higher payments.
How long does it take to fix bad credit for a mortgage?
Focused credit repair can improve scores 50–100 points in 90 days by targeting utilization and errors. Crossing major thresholds (500→580, 580→620) typically takes 3–6 months with consistent effort. Plan accordingly before house hunting.
Resources Used
Last updated: April 18, 2026 · Reviewed by The Lenders Network Editorial Team