You may think that because you have bad credit buying a house is out of reach for you. But, there are plenty of trustworthy mortgage lenders with good offers willing to loan to people with poor credit.
So, you might just have to start packing sooner than you thought.
Best Mortgage Lenders for People with Bad Credit
For flexible mortgage options with less stringent credit score requirements, check out LendingTree. Instead of serving as a direct lender, LendingTree aggregates multiple mortgage offers after you fill out a single application.
CitiMortgage has a range of home loan products for people with various credit scores. A unique feature of CitiMortgage is that they consider nontraditional credit situations, such as paying rent and child support on time.
Serving military members and their families, Navy Federal Credit Union makes first-time home buyers their number one priority.
Best Refinance Lenders for Borrowers with Bad Credit
For borrowers with bad credit scores who are considering refinancing their mortgages, we recommend Credible and Connexus.
When considering Credible (NMLS #1681276) for your mortgage refinance, you can get prequalified in under three minutes. Plus, it’s a loan marketplace, so you can actually get three refinance offers to compare from different online mortgage lenders.
By no means just a refinancing company, Connexus is an all-around great credit union with nothing but positive feedback online. With a super strong and user-intuitive web presence, they’re easily one of the trailblazers for next-generation banking.
Best Mortgage Lenders for Customer Support
Decent customer support seems to be what companies struggle with the most these days. People want 24/7 support, but they don’t want to speak with robots. Two companies that have figured out how to meet customer expectations are HomeBridge and Network Capital.
At HomeBridge, you can initiate your mortgage application online, where they have various home loan programs to choose from. You can also learn about the pros and cons of each loan and refinance option through their extensive library of educational content.
Be advised: Network Capital does have its faults. For example, it only does business in the following states:
Best All-Around Mortgage Lenders for Borrowers with Bad Credit
Taking into account the entire user experience, there are two bad credit mortgage lenders that stand out:
New American Funding is just about everywhere and doing everything right. They have 150 branch locations across the U.S. (except New York and Hawaii) and have a solid web presence.
Unlike the other lenders, Carrington Mortgage Services seems to bend over backward to help people with poor credit become homeowners. They’re even willing to work with you if your FICO score is as low as 550.
Tips for Applying for a Home Loan With Bad Credit
Many of the mortgage lenders listed in this article are ideal for borrowers with high credit scores. But if you have a lower credit score, know that it’s still possible for you to qualify for a home loan.
Many mortgage lenders for bad credit are willing to work with borrowers that have lower credit scores. Here are five steps you can take to get started.
1. Take steps to begin improving your credit score
The first place to start is to request a free credit report from each of the credit bureaus. Your credit reports will give you an idea of where you are currently and the steps you can take to improve your credit score.
Make sure you check your credit report for any inaccuracies or derogatory marks. You can request to have any incorrect information removed. If you have any negative marks on your credit report, you can write your lender a goodwill letter and ask to have them removed as well.
The best way to improve your credit score is by paying down credit card debt and making monthly payments on time. Just taking these two action steps alone should help your credit score, since they account for most of your FICO score.
2. Be realistic about what you can afford
If you don’t have good credit, you can still apply for a mortgage. But be very realistic about what you can afford with your current budget.
Since you have a low credit score, lenders will see you as more of a risk for defaulting on your mortgage, so you will have a higher interest rate. However, if you only request the maximum loan amount you need, you’ll have a better chance of getting approved for your loan.
3. Check out alternative loans
Borrowers with imperfect credit may qualify for a bad credit mortgage loan with alternative homebuyer programs. For example, borrowers can get an FHA loan with credit scores as low as 580. The required minimum down payment is 3.5%.
Veterans with bad credit should look into getting a VA loan. These mortgage loans don’t have a minimum down payment requirement and are easier to qualify for than traditional mortgages.
Finally, USDA loans are designed for low-income homebuyers in rural areas. They typically require a credit score of at least 640.
4. Save up for a sizable down payment
If you want to increase your odds of approval, then it’s a good idea to save up for a sizable down payment. At least 20% is ideal for convention loans. It will also save you from having to take out private mortgage insurance (PMI).
A down payment won’t compensate for a bad credit score. However, it could help you make your case with some lenders.
5. Consider applying with a qualified cosigner
And finally, you can look into applying with a qualified cosigner. When you apply with a cosigner, that person agrees to take legal responsibility and repay the loan if you can’t. And since that person’s credit score is tied to the loan as well, it increases your odds of approval.
However, cosigning a loan is a risky move. So, you only want to ask someone to do this if you’re confident you can make your monthly mortgage payments. Otherwise, you’re putting that individual’s financial future at risk.
How to Compare Mortgage Lenders for Bad Credit
Finding the best mortgage lenders for bad credit to fit your financial situation requires careful consideration. You need to be sure about what you need from any bad credit home loan. Along with mortgage rates and loan terms, here are the other major factors to consider when comparing mortgage lenders for bad credit:
Minimum Credit Score Requirements
Credit score requirements will vary depending on the mortgage lender and the specific loan product. There are many mortgage lenders who will work with a low credit score, including all the lenders we’ve analyzed above.
In most cases, the maximum debt-to-income ratio that lenders will work with is around 43%. However, with so many online lenders today you will still find mortgage companies that have higher than normal debt-to-income limits.
Make sure you’re clear on where your debt-to-income ratio stands. Then, take some time to see if you can improve it before applying for a loan formally.
Down Payment Requirements
The reality is, if you have a bad credit score you’ll likely be required to save a larger minimum down payment. Generally speaking, those with a lower credit score who still qualify for lending will need a down payment of 10%.
However, regardless of what your credit history looks like, it’s useful to shop around. This is because most mortgage lenders will consider a range of factors when evaluating your loan application.
Home Buyer Assistance Programs
When considering different mortgage products, make sure to look for any home buyer assistance programs. Many companies have their own programs with benefits. They can range from a lower minimum credit score requirement, lower down payment percentages, or credits toward closing costs.
The most common mortgage fees include origination fees, application fees, underwriting fees, processing fees, and administrative fees. Some lenders don’t charge these fees, but don’t forget to check what they do charge.
According to FICO, which is the biggest credit scoring company, anything below 580 is considered poor credit. Here’s a quick run through of the entire credit scoring range:
- 300 – 579 – Poor credit
- 580 – 669 – Fair credit
- 670 – 739 – Good credit
- 740 – 799 – Very good credit
- 800 – 850 – Exceptional credit
However, the definition of ‘bad credit’ can vary between lenders, as they won’t all stick rigidly to FICO scoring. So keep this in mind as you look for loan products to apply for, and make use of online loan quotes that don’t run hard credit checks.
Absolutely, it is possible to qualify for a mortgage even if you’ve got a low credit score. Your credit score is always an important factor for mortgage lenders. However, alternative credit data such as stable employment and saving a large down payment can sometimes help offset a bad credit score.
Some mortgage products, for example, an FHA loan, comes with lower minimum credit score requirements than conventional loans. However, if possible you should always try to build your credit score before taking out a loan. This can help you significantly improve your mortgage options. It can land you a better interest rate and lower monthly payment, potentially saving you thousands of dollars.
There are several types of mortgage products available for those with poor credit:
Government backed loan programs, such as Federal Housing Administration (FHA) loans, are among the most popular option for bad credit borrowers. The majority of people will need a minimum credit score of 580 to qualify, as well as a minimum down payment of 3.5%. However, if you can make a 10% down payment, you could be eligible for an FHA mortgage with a credit score as low as 500.
While VA loans don’t have any formal minimum credit score requirements, the reality is that the ideal credit minimum varies between lenders. If you do go for a VA loan, keep in mind that many lenders prefer to lend to those with at least good credit. However, others will be more sympathetic to lower credit scores.
Another of the popular government backed loans, USDA loans typically require a credit score of at least 640. However, that doesn’t mean it’s impossible to qualify for a USDA-backed loan with a poor credit score. It just means your application will have to be processed manually, and may require consideration of alternative credit data.
If your score is high enough, you can use a USDA loan to purchase a home with no down payment.
The answer to this question will differ widely depending on the loan program and mortgage lender you choose. Conventional loans usually have a minimum credit score of 620, and for jumbo loans it’s 680. However, FHA, VA, and USDA loans have lower minimum credit score requirements and might make more sense for you if your credit is poor.
For lenders who are happy to allow bad credit mortgages, a credit score of 500 is generally the lowest that lenders will work with. Your interest rate will be high and you’re likely to need a large down payment to get a mortgage with a score this low.