How do I buy a home with bad credit in U.S.?
Want to buy a house with bad credit? Learn how to qualify for FHA, VA, and USDA loans, improve your credit score, and secure a mortgage with low down payment options.
How to Buy a Home with Bad Credit in the U.S.: A Complete Guide
Buying a home with bad credit is challenging but not impossible. Many lenders offer options for borrowers with lower credit scores, and there are government-backed programs that can help. Here’s how to improve your chances of getting a mortgage with bad credit.
Step 1: Check & Understand Your Credit Score
✔ Credit Score Ranges:
- Excellent (750+) – Best interest rates & loan options
- Good (700-749) – Competitive loan rates
- Fair (620-699) – Qualifies for most mortgages
- Poor (580-619) – Limited loan options
- Very Poor (Below 580) – Requires special loan programs
Check your credit score for free at AnnualCreditReport.com.
Step 2: Improve Your Credit Before Applying
✔ Pay down debt – Lower your credit utilization.
✔ Dispute errors – Fix mistakes on your credit report.
✔ Make on-time payments – Avoid late or missed payments.
✔ Avoid new debt – Don’t open new credit accounts before applying.
Even a small credit score boost can lower your mortgage rate.
Step 3: Explore Bad Credit Home Loan Options
There are several mortgage programs designed for borrowers with lower credit scores:
✔ FHA Loans – Backed by the Federal Housing Administration
- Minimum credit score: 500 (with 10% down) or 580 (with 3.5% down)
- Great for first-time homebuyers
✔ VA Loans – For eligible military members & veterans
- No minimum credit score required (but lenders prefer 580+)
- No down payment required
✔ USDA Loans – For homes in rural & suburban areas
- Minimum credit score: 640
- No down payment required
✔ Conventional Loans (Freddie Mac & Fannie Mae)
- Minimum credit score: 620
- Requires private mortgage insurance (PMI) with <20% down
✔ Subprime & Non-Traditional Loans
- Available through specialized lenders
- Higher interest rates and down payments
FHA and VA loans offer the best chances for bad credit borrowers.
Step 4: Save for a Larger Down Payment
✔ A higher down payment (10%-20%) reduces lender risk.
✔ It can help offset a lower credit score.
✔ Some lenders may approve you with a lower rate if you provide more upfront.
Consider down payment assistance programs in your state.
Step 5: Get Pre-Approved for a Mortgage
✔ Find a lender specializing in bad credit home loans.
✔ Get a pre-approval letter to show sellers you’re serious.
✔ Compare interest rates, fees, and loan terms.
Shop around with multiple lenders to find the best deal.
Step 6: Work with a Real Estate Agent
✔ Find an agent experienced with first-time or bad credit buyers.
✔ They can help negotiate better terms with sellers.
✔ Look for homes in areas with down payment assistance programs.
Some sellers may be open to financing options like rent-to-own.
Step 7: Close on Your New Home
✔ Finalize loan paperwork & home appraisal.
✔ Pay closing costs (2-5% of home price).
✔ Move into your new home!
Make on-time mortgage payments to rebuild your credit over time.
Final Tips for Buying a Home with Bad Credit
Improve your credit before applying for a mortgage. Save for a larger down payment to lower loan risk. Explore FHA, VA, and USDA loans for better approval odds. Compare multiple lenders & mortgage rates. Work with a real estate agent to find the best home deals.