How to Get a Mortgage with Bad Credit

How to Get a Mortgage with Bad Credit

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Generally speaking, when you have a bad credit score, your loan options tend to suffer. Indeed, having a poor credit score slows down the process because your financial documents will need to be examined more closely and the lender will likely need additional approvals.


So, it should come as no surprise that trying to buy a home and procure the requisite mortgage with a spotty credit history is indeed a tricky task. Is it even possible to receive a mortgage when your FICO score is low? Wouldn’t you be subject to higher interest rates like you would on revolving credit—like consumer credit cards?
Well, nothing’s impossible. In fact, by following the suggestions below, you increase your chances of procuring a mortgage, even if you don’t have good credit.

What Do Mortgage Lenders Consider A Bad Credit Score?

There isn’t a low-credit benchmark that prevents people from receiving loans. With that said, most mortgage lenders set their own standards.  Although government-backed loans give some lenders added security, these companies are still quite cautious when it comes to FICO scores and related requirements. Regardless, a score below 500 means you won’t have much luck finding someone to lend you money for your home.

Can You Buy A House with Bad Credit?

It’s not illegal to buy a home with bad credit. However, the chances of doing so are reduced. Of course, institutions have different standards (eg Experian deems 670 as the threshold).
Other deciding factors matter beyond your credit score. Namely, amassing enough money for a down payment, decreasing your debt load, increasing your income, and avoiding problems with collectors.
Provided you’re dealing with bad credit, liquid cash is a lifesaver. Poor credit might limit your available loan amounts, and having the personal funds available can make up the difference. Mortgage loans for prospective homeowners with poor credit are a possibility, but they come with considerably less competitive interest rates. Your best bet is starting a plan to repair your credit, which might entail a debt consolidation loan or a credit-builder loan.

How does my credit score affect my mortgage rates?

Mortgage lenders will check your credit score when considering your loan application. As you’d expect, lower rates are offered to those with higher scores. Conversely, anyone with scores in the mid-600s or lower will either be rejected or offered sky-high mortgage rates.
No matter how eager you are to buy a home, you shouldn’t jump at less-than-favorable rates. Ultimately, they’ll make it much harder to keep up with mortgage payments.

What should I do in order to get a mortgage with bad credit?

Here are some best practices and recommendations to improve your chances of procuring a mortgage with bad credit.

Work on your credit score

Sure it’s easier said than done, and it’s not a short-term solution. Regardless, the rates made available to you with a rejuvenated credit score will be exponentially more favorable.  Speak to your financial advisor about how to repair your credit. We’ve already mentioned debt consolidation and credit building loans. Though there are a plethora of tactics to help you improve your FICO score.

Make a large down payment

Paying more upfront in the form of a down payment reduces much of the lender’s exposure. Put simply, more significant down payments cut into the loan-to-value ratio, increasing the likelihood of mortgage approval. Ratios below 60% make qualifying for a lower loan amount quite simple.

Find a bad credit lender

There are lenders out there who cater to high-risk borrowers. While they might provide reasonable rates given your score, they’re still relatively expensive compared with more standard options. It’s a valid option if you need a home now, but you might be better off rebuilding your credit.

Joint or Cosigner mortgage

Friends or family members with good credit could be a lifesaver when seeking a mortgage with bad credit. In the event you find someone to serve as a cosigner, they’re responsible for the debt if you default. Moreover, late payments will damage your co-signer’s credit as much as they do yours.

Closing Points

Mortgages are a tremendous undertaking that will shape your financial future for the next few decades. Provided your credit score is low, you must be honest about whether you’re ready for this responsibility.
Ultimately, it might prove more fruitful to wait and find stable financial footing before moving forward. However, if you’re not willing to let your bad credit get in the way of your buying a new home, there are other options available.


Your credit score can have a big impact on your financial future. Sign up for Experian to get your credit score and credit report for free! Join millions of other Americans and get the tools you need to help understand, manage, and master your credit—in under 3 minutes. Checking your credit score with Experian won’t hurt your score.

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