Buying a Home with Bad Credit: Is it Possible?

Blog Post Image

Starting the home buying process with bad credit can make it seem nearly impossible to get a loan—not to mention extremely overwhelming. 

Buying a home doesn’t seem realistic to many adults with poor credit. But did you know there is such thing as a bad credit home loan? Your lack of good credit might not be stopping you after all. 

In this post, we’ll break down what a bad credit score is when it comes to buying a home and what you need to do to move forward with the home buying experience. 

What is Considered a Bad Credit Score?

Most lenders use a system called the FICO score to determine your creditworthiness. This is an important number when it comes to buying a home and ranges from 300–850, with 850 being perfect, or excellent credit. 

While there isn't a universal minimum score to qualify for a home loan, many conventional lenders do have their own requirements. And though government-backed loans give mortgage lenders a safety net, these programs still require that you have at least a certain credit score to qualify. 

So, what’s the minimum score you need? At least 500. If your credit score is currently below 500, your primary focus should be saving for a larger down payment and working to increase your creditworthiness. 

How Can I Buy a House with Bad Credit?

When it comes to the actual number, anything less than a 670 FICO® Score is considered ‘bad.’ More specifically, anything less than 580 is classified as ‘subprime.’ The thing about bad credit is that it differs from person to person because everyone has different reasons for having low credit scores. 

Credit scores are not just about the number; they’re also determined by an analysis of your credit report. 

For many adults, the thought of buying a home doesn’t seem realistic because of their low credit. All scenarios are not equal, and lenders will also take other variables into account, such as: 

- Your down payment
- Debt-to-income ratio
- Accounts in collections

When you have bad credit, cash is your friend. The more of it you can use toward a down payment, the better.


Because you may qualify for a lower loan amount. The more of it you can save to put toward a house, the more house you’ll be able to buy. 

The lender you decide to go with will also be a huge deciding factor because each lender will have their own requirements. Don’t be afraid to shop around and speak with different lenders to find a deal that’s right for you. 

In addition to saving up more cash to purchase the home, you need to be aware that you’ll be paying a higher interest rate. The good news is that, as you work to repair your credit score, you can always refinance later. 

Loan Options for Home Buyers With Bad Credit

The two main types of mortgage loans are government-backed mortgages and conventional home loans. 

The difference between the two loans is that conventional loans are not insured or guaranteed by the federal government, but government-backed loans do have this protection. 

Government-backed loans have lower credit score requirements, lower down payment options, and can be more flexible on the debt-to-income ratio. 

Here are the types of loans to check into if you have a low credit score. 


To qualify for a conventional loan, you need a credit score of at least 620; however, if you’re able to provide a larger down payment, your lender may be more flexible. 

FHA Loans: 

Federal Housing Administration (FHA) loans are perfect for first-time homebuyers or buyers who haven’t purchased a home in the last 3 years. The minimum score needed is around 580, with 3.5% down. Some lenders may allow those with at least 10% down to have a credit score between 500 and 579. 

VA Loans: 

Department of Veterans Affairs (VA) loans are available to veterans and active military members. These loans are backed by the VA and help service members and their spouses purchase homes with $0 down. The VA itself doesn’t have a minimum credit score, so you’ll need to speak with a lender to learn their credit requirements. 

USDA Loans:

 Backed by the US Department of Agriculture (USDA), these loans also allow home buyers to purchase with $0, but the house must reside within a qualifying rural area. To obtain a USDA loan, you’ll need a minimum credit score of 640. 

Learn More About Becoming a Homeowner 

You now have more information on how to acquire a home with bad credit. There are many options you can explore, but your specific situation will determine which is best for you. 

To learn if now is the right time for you to buy a home, be sure to contact me to get you connected with one of my preferred mortgage lenders. Together, we’ll create a plan that helps you get on the path to making your dream of homeownership come true.