How to Get a Mortgage With Bad Credit

The higher your credit score, the more likely you are to get approved for a home loan. But that doesn't mean qualifying with a lower score is impossible. Here, we'll show you how to get a mortgage with low credit.

Before we talk about how to get a mortgage with poor credit, let's review what that actually means. Credit scores range from a low of 300 to a perfect score of 850. Within that range, here's how FICO (the most popular scoring model) classifies different scores:

If you're wondering, "What credit score do I need to qualify for a mortgage?" you generally need a score of 620 or higher for a conventional mortgage. This is a type of mortgage not backed by a government agency. If your score is lower, your options may be limited -- but they still exist. Keep in mind that 620 is smack in the middle of the "fair" range. So you may be thinking: "Why wouldn't I manage to snag a conventional mortgage with a credit score of 600 or 590?"

The reason is that a home loan is a major undertaking and usually not a small amount of money. As such, lenders may be more careful about extending credit to you in mortgage form.

There are different ways to buy a home if your credit is low, including some for borrowers with credit scores below 620. Look at our list of the best mortgage lenders for bad credit and check out the following options:

1. FHA loans. The Federal Housing Administration tries to help would-be home buyers secure mortgages even if their credit isn't great. You can qualify for an FHA loan with a credit score as low as 580. You'll be required to put 3.5% down on your home's purchase price. If your credit score is between 500 and 579, it's still possible to qualify, but you'll need a 10% down payment or higher. Check out our best lenders for FHA loans.
2. VA loans. VA loans are guaranteed by the Department of Veterans Affairs. As the name implies, they're available to active-duty military members and veterans alike. You'll usually need a credit score of 620 or higher to qualify, but some VA lenders will approve home loans for a credit score as low as 580. With a VA loan, you may be eligible for a 0% down payment.
3. USDA loans. USDA loans are backed by the U.S. Department of Agriculture and are designed to help lower-income borrowers buy homes in rural areas. Most lenders in this program require a credit score of 640 or above to qualify, but it's possible to get a USDA loan with a lower score as well. Like a VA loan, you may be eligible for a 0% down payment with a USDA loan. Our experts' list of the best lenders for USDA loans can help.
4. Fannie Mae HomeReady? loans. These conventional mortgages are specifically designed for lower-income borrowers. You'll need a credit score of 620 or above to qualify, and you may be eligible for as little as 3% down on your home.
5. Freddie Mac Home Possible? loans. The Home Possible program helps make conventional loans accessible to first-time home buyers with moderate incomes. With this program, you may qualify for as little as 3% down on your home. What makes it unique is that you may be eligible for a loan even if you have no credit score at all.

If you're going into your mortgage search with low credit, it pays to approach the process strategically:

• Look into loans designed for borrowers with poor credit. Start with the list above to see which is the best fit for you.
• Shop around with lenders that offer the specific loan you're looking for. If you're interested in an FHA loan, for example, reach out to at least four or five FHA lenders to see what offers they come back with.
• Contact community banks. Some offer more flexibility than national banks when it comes to borrowing for a home.
• Look at online banks and credit unions. You might find more borrowing options.
• Sign up to work with a mortgage broker. They can match you with lenders based on your credit score.
• Find someone with strong credit to cosign your mortgage. This can make it easier to get approved for a mortgage. But remember, you're asking someone to take a financial risk when they cosign for you so make sure you know how much house you can afford.

Having poor credit could make your home loan more expensive. The best available rates are generally for borrowers with the highest scores. If your credit needs work and you move forward with your mortgage application anyway, you could get stuck with a higher interest rate than necessary for the length of your loan.

Case in point: If you have a credit score of 760 or above, as of this writing, you might qualify for an APR of 3.080% on a 30-year fixed $200,000 mortgage. That would leave you with a monthly payment of $852 for principal and interest, and you'll pay a total of $106,825 in interest over the life of your loan. But if your credit score is a 620, your interest rate could jump to 4.669%. That, in turn, will give you a monthly payment of $1,033 for principal and interest and leave you paying a total of $172,037 in interest over the life of your loan.

But rates aside, if your credit score is low, you may want to think about why that is before getting a mortgage. Is it simply a matter of not having a lengthy credit history? Or is it because you're not in a strong place financially and have frequently been late with bills or run up a high tab on your credit cards? If it's the latter, then it might be a good idea to delay your mortgage application and work to improve not just your score, but also your entire financial picture.

One of the best ways to increase your chances of getting approved for a mortgage is to find out how to rebuild your credit. Here's how:

• Pay all of your incoming bills on time.
• Pay down a chunk of revolving credit (namely, your credit card balances) to lower your credit utilization ratio.
• Check your credit report for errors, like debts you never actually racked up. You can get a free copy of your report every year from each of the three major credit bureaus -- Experian, Equifax, and TransUnion.

But remember, it's not just your credit score that's evaluated when you apply for a mortgage. You'll also want to work on:

• Lowering your debt-to-income ratio, which is the measure of outstanding monthly debts you're liable for relative to the income you earn
• Boosting your savings for a higher down payment
• Increasing your income -- the higher it is, the more comfortable a lender is likely to be with loaning you money
• Securing a steady paycheck if yours is more variable

Poor credit doesn't have to prevent you from buying a home, and there are plenty of loan options out there for borrowers whose scores need improving. But before you rush to take out a mortgage, it could pay to invest a little time and get your credit score to a healthier place. Doing so could open even more borrowing options -- and more affordable ones at that.

Still have questions?

Here are some other questions we've answered:

• How to Buy a House With No Credit
• How to Save for a House: 5 Steps to Preparing for Homeownership
• How to Apply for a Mortgage