Think you can’t buy a house because of bad credit? It’s tough—but not impossible. With the right plan, you can still get approved for a mortgage and become a homeowner.
This guide walks you through exactly how to buy a house with bad credit. From improving your credit score to finding lenders who work with low-credit borrowers, you’ll learn what it takes to make it happen—step by
10 Steps to Buy a House With Bad Credit
Bad credit doesn’t mean you can’t buy a home—it just means you’ll need a smarter plan. From checking your credit score and fixing errors to comparing mortgage options and saving for a bigger down payment, there are real steps you can take to move forward.
Here’s how to make homeownership possible, even with less-than-perfect credit.
1. Know Your Credit Scores
Before applying for a mortgage, get a clear picture of where your credit stands. Many people assume their credit is “bad” based on old mistakes, but that’s not always the case. Knowing your actual credit scores and what’s bringing them down is the first step to improving them.
What counts as a bad credit score?
Here’s how credit scores typically break down:
- Excellent: 781 and above
- Good: 661–780
- Fair: 601–660
- Poor: 501–600
- Bad: 500 and below
If your FICO score is 620 or lower, it’s considered a bad credit score. Most lenders will view you as a subprime borrower, which often means higher interest rates, stricter loan terms, and fewer mortgage options.
Related: Best Mortgage Loans for Bad Credit in 2025
Key Factors That Influence Your Credit Scores
Lenders look at five main factors to calculate your credit scores:
- Payment history (35%) – Late payments and collection accounts hurt your credit score the most.
- Amounts owed (30%) – High credit card balances can lower your credit score, even if you’re making payments.
- Length of credit history (15%) – The longer your credit accounts have been open, the better.
- Credit mix (10%) – Lenders like to see a healthy balance of revolving credit (like credit cards) and installment loans (like auto loans or personal loans). Having both types can improve your credit score.
- New credit (10%) – Opening several new accounts at once can raise red flags with lenders.
How to Check Your Credit Scores for Free
You have a few easy ways to check your credit scores:
- Many banks and credit card companies offer free access through your online account.
- If you were denied for a mortgage, the lender is required to tell you the credit score they used.
- You can also use credit monitoring tools like IdentityIQ or Identity Guard to check your scores and track changes over time.
Knowing your credit score—and what’s hurting it—can help you take the right steps before applying for a mortgage.
2. Fix Credit Report Errors Before Applying
Errors on your credit report can seriously hurt your chances of getting approved for a mortgage. In fact, a study by the Federal Trade Commission found that 1 in 5 credit reports contains mistakes—many of which can drag down your credit score and label you as a risky borrower.
Start by getting a free copy of your credit report from all three credit bureaus (Experian, Equifax, and TransUnion). Review everything carefully. If you spot incorrect account information, duplicate debts, or late payments that don’t belong, take action right away.
How to Dispute Credit Report Errors
- Print a copy of your credit report and highlight any inaccurate items.
- Write a dispute letter to each credit bureau reporting the error. Use this free template.
- Include supporting documents and send everything by certified mail.
- Follow up after 30 days if you haven’t received a response.
Keep in mind, it can take a few months for updated information to show up, so start the process well before you apply for a mortgage.
What if everything is accurate?
If your credit report is correct, but your credit score is still low, you may be dealing with negative marks from past financial problems. In this case, try:
- Pay-for-delete agreements – Offer to settle an account in exchange for the creditor removing the negative item from your credit report. Always get the agreement in writing.
- Goodwill letters – If the account is already paid, write to the creditor explaining your situation and ask for a goodwill adjustment to remove the negative mark.
Neither option is guaranteed, but persistence can pay off—especially when you’re working toward mortgage approval.
3. Estimate the Real Cost of a Mortgage With Bad Credit
Getting a mortgage with a bad credit score usually means paying more over time. Lenders charge higher interest rates to subprime borrowers because of the increased risk of default. That higher rate can add tens of thousands of dollars to your loan—even if your monthly payment still looks manageable.
To see the impact, here’s a breakdown of estimated costs for a 30-year fixed-rate mortgage of $250,000, based on your credit score:
| Credit Score | Estimated Rate (2025) | Monthly Payment | Interest Paid Over 30 Years | Total Loan Cost |
|---|---|---|---|---|
| Excellent (760+) | 6.75% | $1,621 | $332,519 | $582,519 |
| Good (700–759) | 7.25% | $1,705 | $364,059 | $614,059 |
| Fair (620–699) | 7.75% | $1,790 | $394,507 | $644,507 |
| Poor (<620) | 8.50% | $1,919 | $441,016 | $691,016 |
Note: These figures are estimates and do not include property taxes, homeowners insurance, or private mortgage insurance (PMI), which could significantly increase your monthly cost.
The good news? Your interest rate isn’t locked for life. If you improve your credit score after buying your home, you may be able to refinance into a lower rate later—saving thousands over the life of the loan.
4. Consider an FHA Loan
An FHA Loan is a great option for anyone who wants to buy a house with bad credit. These loans are issued by private lenders, but the loan is guaranteed by the Federal Housing Administration. This guarantee protects the mortgage lender from borrowers that eventually default on their mortgage.
FHA loans come with less stringent requirements so they are easier to apply for than a conventional mortgage. However, FHA loans tend to have higher interest rates and closing costs than conventional mortgages.
FHA Loan Requirements
That being said, there are a few requirements you’ll need to meet:
- You need a minimum credit score of 580.
- You must have proof of a stable monthly income.
- If your credit score is 580 or higher, you’ll need a minimum down payment of at least 3.5%.
- If your credit score is 500 or higher you’ll need a minimum down payment of at least 10%.
- The home you’re purchasing must be your primary residence.
There are other requirements you’ll need to meet to qualify for an FHA loan. These loans are capped at a certain amount, though this will vary depending on where you live.
You’ll also have to work with an FHA approved lender and pay private mortgage insurance (PMI), which will increase your monthly payment.
See also: FHA Loan Requirements for 2025
5. Consider a VA Loan
If you’re a veteran who has bad credit, then you may be eligible to take out a VA loan. VA loans are issued through private lenders, but the mortgage is backed by the U.S. Department of Veterans Affairs.
The program is designed to help veterans get back on their feet and has served as a lifeline for many struggling veterans. And VA loans have many advantages.
There is no down payment required, and you don’t have to purchase PMI. Additionally, there is no minimum credit score requirement. The interest rates are very competitive, and it’s fairly easy to apply for a VA loan.
VA Loan Requirements
However, there are a few requirements you’ll need to meet first:
- Active duty military or a veteran who was honorably discharged.
- You’ve served for at least 90 consecutive days during active wartime.
- You’ve served for at least 180 consecutive days during active peacetime.
- More than six years in the National Guard.
If your spouse died in the line of duty, you may qualify for the VA loan program as well.
See also: VA Home Loans: Everything You Need to Know
6. Consider a USDA Loan
The USDA typically offers these no-down-payment mortgage loans in rural areas and lower-density suburbs. To qualify for a USDA loan, borrowers must meet income limits based on their household size and the median income of their county. You must also have a minimum credit score of 580.
See also: Guide for First-Time Homebuyers with Bad Credit
7. Explore Other Lending Options
If you don’t qualify for an FHA, VA, or USDA loan, there are still lenders that specialize in working with borrowers who have bad credit. Consider credit unions, local community banks, or online lenders that offer flexible mortgage options. Some lenders focus specifically on manual underwriting, which can be helpful if you have steady income and low debt but a poor credit score.
You can also check out platforms like Credible or Rocket Mortgage, which make it easier to compare loan offers based on your credit profile. These tools let you see multiple options without committing to one lender upfront.
If you’ve had a long-standing relationship with your current bank or credit union, it’s worth applying there as well. They may be more willing to work with you based on your banking history—even if your credit score isn’t ideal.
8. Save for a Larger Down Payment
If you have a bad credit score, a larger down payment can work in your favor. It lowers the lender’s risk and increases your chances of getting approved. It also reduces the loan amount, which means lower monthly payments and less interest paid over time.
Aim for at least 20% if you’re applying for a conventional loan—that can help you avoid private mortgage insurance (PMI). But even 10% to 15% can make a meaningful difference if you’re applying for a loan designed for lower credit borrowers.
Lenders also want to see that you have cash reserves. Saving three to six months’ worth of expenses shows that you can handle financial emergencies, even with a low credit score.
See also: Save for a Down Payment on a House
9. Compare Rates From Multiple Lenders
Getting the best mortgage rate matters—especially if you have a bad credit score. Fortunately, rate shopping doesn’t significantly hurt your credit when done correctly. FICO scoring models count multiple mortgage inquiries made within a 30-day window as a single inquiry.
That gives you the flexibility to apply with several lenders and compare offers without damaging your credit. Just make sure to complete all applications within the same 30-day period.
10. Close With Confidence—Or Keep Preparing
If you’ve made it this far—congrats. You’ve pulled your credit reports, compared loan options, saved for a down payment, and shopped around for the best rate. Even with a bad credit score, that kind of preparation puts you in a strong position to become a homeowner.
But if things didn’t work out this time, that’s okay too. Keep building your credit, paying bills on time, and adding to your savings. Every step forward gets you closer to mortgage approval.
Final Thoughts
Buying a house with a bad credit score isn’t easy, but it’s absolutely possible. It just takes more planning, more patience, and a willingness to work through each step intentionally. The good news is that lenders care about more than just your credit score—they also look at your income, payment history, and financial stability.
Even if you’re not ready today, the effort you put in now will pay off later. Whether you buy in six months or next year, you’ll be in a better position—and you’ll have the confidence that you did it the right way.
