Best Mortgage Lenders for Bad Credit for December 2023

It may not be easy to land a mortgage when you have a low credit score, but it's certainly not impossible. While conventional loans typically require a minimum credit score of 620, many government-backed loans allow scores as low as 580 -- and sometimes even lower than that, especially if you have a hefty down payment or low debt-to-income (DTI) ratio.??

If your credit score falls below the 620 mark, read on to learn our shortlist of best mortgage companies for poor credit and how to get a mortgage with a low credit score.?

While some lenders issue conventional loans to home buyers with bad credit, more likely than not, home buyers will need to secure financing from a governmental agency, such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the U.S. Department of Agriculture (USDA). Loans backed by these government agencies often have more flexible underwriting standards and will allow lower credit scores than conventional mortgages.?

Let's take a look at each of these mortgages and see which might be right for you.

FHA loans

FHA loans are issued by private lenders but backed by the Federal Housing Administration. You can qualify for one with a credit score of 580 and a down payment of 3.5% or with a score as low as 500 and a minimum 10% down payment (some lenders require a higher minimum credit score). There are no minimum income requirements, although lenders must determine if the home buyer has sufficient income to repay the loan.

Compare lenders: Best FHA Lenders

Compare rates: Today's FHA Mortgage Rates

VA loans

VA loans are also issued by private lenders, but this time the Department of Veterans Affairs guarantees the loan rather than the FHA. There is no minimum credit score requirement imposed by the VA, but each lender has a cutoff. There's also no down payment required unless the home appraises for less than you're paying for it.

To be eligible, you'll need a Certificate of Eligibility (COE), which you'll get by meeting one of the following military service requirements:?

• You're currently a service member and have completed 90 consecutive days of active duty service.
• You're a veteran and have served 90 consecutive days during wartime or 181 consecutive days during peacetime.?
• You're a National Guard or Reserve Member and have served 90 days of active service or six years of honorable service.
• You're a surviving spouse of a service member who died in active service or from service-related injuries.?

Compare lenders: Best VA Loan Lenders

Compare rates: Today's VA Loan Rates

USDA loans

The U.S. Department of Agriculture also offers mortgages for home buyers with poor credit.?

Section 502 Direct Loans are made by the USDA directly and are open only to borrowers with limited incomes who are buying properties in rural areas. The USDA also guarantees loans to borrowers with low incomes, although the income limits are higher for these loans made by private lenders.?

No down payment is required for USDA loans, interest rates are often below what you'd be charged on a conventional loan, and you might qualify even with poor credit. While the USDA itself doesn't set a minimum credit score, USDA lenders may have their own requirements.

Compare lenders: Best USDA Mortgage Lenders

Prospective home buyers with bad credit should take the following steps to pursue a mortgage:

1. Improve your credit score. This could include reducing debt, correcting errors on your credit record, and asking creditors to remove black marks from your credit history. From now until the end of 2023, you're allowed one free weekly credit report from each of the three major crediting bureaus (usually each will send you one free report per year). You can order all three reports at once by visiting a site like AnnualCreditReport.com.
2. Research home loan options for bad credit borrowers. Many lenders cater to borrowers with low credit scores. Government-backed loans including FHA, VA, and USDA loans are also available even with low credit scores. Look into each option.
3. Save up for a down payment. Mortgage lenders view borrowers with larger down payments as a lower risk. This is primarily because they know you're putting "more skin in the game," and have more to lose if the home goes into foreclosure.
4. Shop around and compare loan options. Get quotes from multiple lenders to get the most affordable home loan rate. It's even more important to shop around for mortgage rates when your credit score is low, as some lenders offer better rates for bad credit borrowers than others. Do not assume that all lenders offer a similar rate.

Buying a home for the first time can be a daunting process, especially when dealing with poor credit. However, contrary to popular belief, having bad credit does not automatically disqualify a first-time home buyer from purchasing a home. In fact, many programs can help first-time home buyers with less-than-perfect credit find their dream home. There are even some options for how to buy a house with no credit.

While there are conventional loans for borrowers with imperfect credit, many would do better with government-backed loans. Government agencies guarantee loans in part to help people become first-time homeowners. These include FHA loans, VA loans, and USDA loans.

Each of these government-guaranteed loans comes with relaxed requirements for the credit score needed for a mortgage. FHA loans require a credit score of only 500 with a 10% down payment, and other loans have no credit score requirement at all (though individual lenders may impose their own requirements).

While you can get a mortgage with bad credit, your mortgage will be less expensive and you'll have a broader choice of lenders if you raise your score. Depending on your financial situation, it may be worth waiting to improve your credit score before applying for a mortgage. There are seven simple steps you can take to help you rebuild credit.

1. Pay all your bills on time. Payment history is the most important component of your score. Almost any creditor, including landlords and storage unit owners, can report you if you're late on payments.
2. Make sure your positive payment records are included in your credit history. If you've paid your rent, utilities, or other bills on time, try to get them included. Services such as Experian Boost can help you get some of these accounts reported for free that otherwise wouldn't be.
3. Keep your credit utilization ratio low. Maxed-out cards can be very damaging to your credit score. Try to keep your credit utilization ratio below 30% of your credit line to avoid hurting your score.
4. Avoid closing old credit card accounts. The length of your credit history is an important factor in determining your credit score. The older your accounts, the higher your score.
5. Aim to have a mix of different kinds of credit. Lenders like to see you've managed different kinds of debt, including credit cards and other revolving debt, as well as car and personal loans.
6. Try to get old black marks removed from your credit history. Sometimes creditors are willing to remove a late payment from your credit report if you've mostly been a good customer. You can write a goodwill letter or call your creditor to ask.
7. Be smart about rate shopping. While it's a smart idea to shop for a mortgage or other home loan, you want to avoid getting too many hard inquiries on your credit report. Look for poor credit mortgage lenders that pre-approve you and provide details of loan terms with a soft credit check only.

Research: The Largest Mortgage Lenders