Mortgage Loan

How to Get a Mortgage Loan With Bad Credit A Complete Guide

Getting approved for a mortgage loan when you have bad credit may seem daunting, but it is possible with the right strategy and loan program. Your credit score plays a major role in determining if you qualify for a home loan and the interest rate you’ll pay. But having less than stellar credit doesn’t have to stop you from achieving the dream of homeownership



Mortgage Loan

In this comprehensive guide, we’ll explain everything you need to know about getting a mortgage loan with bad credit. You’ll learn how your credit score affects mortgage approval, what documentation you need, programs that work for bad credit borrowers, and proven tips for improving your chances. We also compare the most popular bad credit mortgage options.

How Your Credit Score Affects Mortgage Eligibility

Traditional mortgage lenders review your credit report and score to determine if you qualify for a home loan. Generally, the minimum credit score requirement is 620. Borrowers with scores below that threshold are usually considered subprime borrowers and will have a tough time getting approved.

Here’s an overview of credit score requirements for mainstream mortgage programs:

  • Conventional loans – Require a minimum credit score between 620-640. The higher your score, the better your interest rate.
  • FHA loans – Minimum credit score is usually 580. Enable borrowers with weaker credit to qualify.
  • VA loans – No defined minimum credit score, but most lenders want to see at least a 620 FICO. Provide loans to eligible veterans and military members.
  • USDA loans – No minimum credit score. Consider borrower’s full financial profile. Offer 100% financing with no down payment in rural areas.

As you can see, qualifying for a mortgage is certainly possible even if your credit score is on the lower end. The key is applying with the right lender for a program suited for borrowers with challenged credit.

Mortgage Application Tips for Bad Credit Borrowers

When applying for a bad credit mortgage loan, expect to provide significant documentation to support your application. Lenders want reassurance you can manage this sizable debt obligation.

Here are key tips for getting your loan approved:

Provide Evidence of a Down Payment

While low down payment options exist, lenders still want to see you have “skin in the game” by investing some of your own cash. The industry standard is a down payment of at least 3% to 5% of the purchase price. Have documentation ready verifying your sources of funds.

Show Significant Cash Reserves

In addition to your down payment, it’s essential to show substantial money reserves to cover emergencies post-purchase. Aim for at least 6 months of mortgage payments and living expenses in the bank. Provide recent bank statements as proof.

Demonstrate a Strong Rental History

If your credit reflects late payments, show evidence that you’ve paid your monthly rent on time over the past couple years. Get receipts or a letter from your landlord or property manager confirming you have no late payments or delinquencies.

Explain Past Credit Issues

Be prepared to write a letter of explanation for any dings on your credit report — whether late payments, charge-offs, collections or foreclosure. Provide relevant details and how you resolved those financial you have learned from the past.

Improve Your Credit Before Applying

Finally, spend several months prior to applying actively trying to improve your credit. Higher scores equal better mortgage rates and loan approval odds. Removing errors on your report or reducing debts can significantly boost your profile.

With the right approach and loan program, obtaining mortgage approval with challenged credit is achievable. The programs below can help get you started.

Bad Credit Mortgage Loan Options

Several loan programs aim to help borrowers with less than perfect credit access home financing. Consider which option aligns best with your unique financial situation.

FHA Loans

FHA loans are popular with bad credit borrowers because they only require a minimum 580 credit score to qualify. They also enable low down payments of just 3.5%. You can finance both purchase and refinance transactions.


  • Minimum 580 credit score
  • Down payments as low as 3.5%
  • Allows non-traditional credit if insufficient history


  • Requires mortgage insurance premiums
  • Max loan limits lower than conventional loans

VA Loans

If you’re an active military member or veteran, VA loans offer terrific home financing benefits, especially for bad credit borrowers. There’s no defined minimum credit score requirement — simply prove you have sufficient income and assets to meet obligations. You’re also not required to make a down payment.


  • No minimum credit score
  • No down payment required
  • Easy to qualify if you have veteran status


  • Only for eligible veterans/military members
  • Requires funding fee (upfront premium)

USDA Loans

Offered in designated rural zones across America, USDA loans are 100% financing solutions available to bad credit borrowers in these areas. You receive a competitive fixed interest rate and pay no money down — huge perks if your credit needs improvement.


  • 100% financing, no down payment
  • Available in rural locales nationwide
  • No minimum credit score defined


  • Limited to specific rural census tracts
  • Potential for upfront guarantee fee

Fannie Mae HomeReady Loans

HomeReady mortgages allow flexible credit guidelines and low down payments for eligible borrowers with impaired credit. To qualify, your income has to be at or below 80% of area median income limits in that location.


  • Down payments as low as 3%
  • More flexible debt-to-income allowances


  • Must meet income eligibility limits
  • Require homebuyer education

Subprime Mortgages

Subprime lenders exist that cater specifically to customers will very poor credit profiles. They offer programs for borrowers with scores as low as 500-550. But you’ll pay much higher interest rates and often aggressive terms.


  • Credits scores as low as 500 may qualify
  • May approve other bad accounts like foreclosure/bankruptcy


  • Sky-high interest rates
  • Large upfront fees common
  • Higher default risks if setbacks occur

While you may qualify and get approved faster, subprime loans should be a last resort due to their predatory structure. Exhaust other, more affordable bad credit options first!

8 Tips For Improving Your Odds of Mortgage Approval

Beyond submitting a solid loan application, you can further influence getting your home loan approved by:

  1. Increasing your credit score – Actively work over 6+ months pre-application to boost your score past minimum thresholds. Every 10 points helps reduce rates.
  2. Lowering your debt-to-income ratio – Lenders allow up to 50%. Get your DTI below this through committed payments of debts and reduced spending.
  3. Making a larger down payment – While low down payment programs exist, bigger investments often equate to quicker approvals.
  4. Participating in homebuyer counseling – Upfront classes demonstrate commitment and ability to take on ownership duties.
  5. Getting pre-approved – Gives you leverage as a serious buyer; locks in rate for 60-90 days as you search.
  6. Having reserves post-close – Proving 12 months of payment coverage makes lenders more comfortable.
  7. Providing strong income documentation – Solid pay history and evidence of steady employment/income sources are key.
  8. Asking for reconsideration – If denied, immediately find out why and discuss appeals options with your loan officer. Additional data or re-structured terms could get you approved!

FAQs: Mortgages With Bad Credit

Still have lingering questions? Here we answer some commonly asked queries about obtaining a home loan when you have poor credit.

How bad does your credit have to be to not get approved?

Each lender sets their own underwriting policies, but generally having a FICO score below 500 makes approval extremely challenging unless you use a specialized subprime company. Most mainstream programs require at least a 580 score.

Does getting pre-approved hurt your credit if denied?

No. Mortgage pre-approvals only involve soft inquiries that don’t impact your score — even if you don’t ultimately get approved. But limit applications within a short window to reduce extensive inquiries.

How long does a bad credit mortgage approval take?

Wait times can vary widely depending on your financial profile. Typically allow around 30 days from completed application to closing. More difficulties mean more requested data and delays up to 60+ days. Stronger cases can potentially close in a couple weeks.

Can I get approved with an open bankruptcy or foreclosure?

Yes — specialized programs exist to work with borrowers currently in active bankruptcy or close to finalizing a prior foreclosure. You often have wait periods before applying post-discharge/sale — for instance, 2 years after Chapter 7 bankruptcy closure. Careful timing helps!

What interest rates can I expect with lower/bad credit?

The lower your credit score, the higher interest rate you’ll likely pay — especially through conventional financing channels. Here’s a general overview:

  • Excellent Credit (720+): ~3% – 5%
  • Good Credit (690 – 719): ~5% – 8%
  • Fair Credit (620 – 689): ~8% – 12%
  • Poor Credit (580 – 619): ~12% – 15%
  • Very Poor (500 – 579): ~15% – 18%

Government loans (FHA, USDA, VA) often have improved rates over conventional sources across all score ranges — saving borrowers thousands over the loan term!

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