Homeownership Is Possible with Bad Credit
A low credit score is one of the most common barriers to homeownership, but it does not have to be an insurmountable one. While borrowers with credit scores below 620 face higher rates and fewer options, there are legitimate paths to mortgage approval that do not require years of waiting.
In 2026, approximately 16% of Americans have credit scores below 620, yet many of these individuals have stable incomes and the ability to make consistent mortgage payments. The challenge is finding the right loan program and taking the right preparatory steps.
Mortgage Options for Bad Credit
FHA loans (minimum score 500). FHA loans are the most accessible option for borrowers with poor credit. With a score of 580 or above, you need only 3.5% down. Scores between 500 and 579 require a 10% down payment. FHA loans are available through most lenders and offer competitive rates even for lower-credit borrowers.
VA loans (no minimum score from VA). If you are eligible for a VA loan, the Department of Veterans Affairs does not set a minimum credit score. Individual lenders typically require 580-620, but some VA-approved lenders go lower for borrowers with strong compensating factors like low debt ratios or significant cash reserves.
- FHA loan minimum score: 500 (with 10% down) or 580 (with 3.5% down)
- VA loan: No VA minimum; lenders typically require 580-620
- USDA loan minimum: Typically 640, but manual underwriting possible at lower scores
- Conventional loan minimum: 620, with better rates at 680+
- Non-QM loans: Available with scores as low as 500 but at higher rates
Steps to Improve Your Chances
Before applying, take time to strengthen your application in areas you can control.
Pay down existing debt. Your debt-to-income ratio matters as much as your credit score. Reducing credit card balances and other debts can improve both your DTI ratio and your credit score simultaneously. Paying credit card balances below 30% of their limits can boost your score by 20-40 points within a billing cycle.
Dispute errors on your credit report. Studies show that one in five credit reports contains errors that negatively affect scores. Review all three bureau reports at AnnualCreditReport.com and dispute any inaccuracies. Removing a single erroneous collection account can raise your score by 50-100 points.
"The fastest way to improve a credit score before a mortgage application is to pay down credit card balances and dispute errors. I have seen clients gain 60 points in 60 days using these two strategies alone." — John Ulzheimer, credit expert and former FICO executive
Compensating Factors That Help
Lenders consider your entire financial profile, not just your credit score. Strong compensating factors can help offset a low score. These include a large down payment of 10% or more, significant cash reserves after closing, stable employment history of two or more years, low debt-to-income ratio below 36%, and a history of on-time rent payments that can be documented.
What to Expect with Bad Credit
Be prepared for higher interest rates, typically 0.5-1.5% above what a borrower with excellent credit would receive. You will also likely pay higher mortgage insurance premiums and may face additional documentation requirements. Despite these costs, homeownership can still build long-term wealth and provide stability that makes the higher upfront costs worthwhile.
