How to Get a Home Loan with Bad Credit in 2025 – Easy Approval Tips
You Really Buy a Home with Bad Credit? Absolutely!
Let’s be honest having bad credit makes everything harder, especially when it comes to getting approved for a home loan. But here’s the good news: low credit scores don’t automatically mean homeownership is out of reach.
Mortgage lenders look at more than just your credit score, and there are several loan programs designed specifically for buyers with less-than-perfect credit. The key? Knowing your options, preparing wisely, and working with the right lenders.
This guide will show you exactly how to qualify for a mortgage with bad credit, which loan programs work best, and what steps you can take to boost your chances of approval.
Understanding "Bad Credit" in the Eyes of Lenders
Before we dive into solutions, let’s define bad credit in the mortgage world. Lenders typically classify credit scores as follows:
✔ Excellent (740+) – Best rates, easiest approvals
✔ Good (680-739) – Competitive rates, solid approvals
✔ Fair (620-679) – Decent approval chances, slightly higher rates
✔ Poor (Below 620) – More difficult approvals, higher rates
If your credit score is below 620, getting approved can be a challenge, but it’s not impossible. You’ll just need to find the right lender and possibly make some strategic moves before applying.
Best Home Loan Options for Bad Credit Borrowers
1. FHA Loans – Best for Credit Scores as Low as 500
✔ Minimum Credit Score: 500 (with 10% down) or 580 (with 3.5% down)
✔ Why It Works: Backed by the Federal Housing Administration, FHA loans are designed for borrowers with lower credit scores.
Why Choose an FHA Loan?
Lower credit score requirements
Small down payment options
More flexible debt-to-income (DTI) ratio rules
If your credit score is between 500 and 579, you’ll need at least 10% down. If you hit 580 or higher, you may qualify for the low 3.5% down payment option.
2. VA Loans – Best for Veterans & Military Members
✔ Minimum Credit Score: No official minimum (most lenders prefer 580-620)
✔ Why It Works: No down payment, no private mortgage insurance (PMI), and lower interest rates—one of the best loans available if you qualify.
Who’s Eligible?
Active-duty military members
Veterans
Some National Guard and Reserve members
Eligible surviving spouses
With zero down payment required, VA loans are a fantastic option if you’ve served in the military and have low credit or limited savings.
3. USDA Loans – Best for Rural & Suburban Buyers
✔ Minimum Credit Score: 640 (some lenders accept lower with manual underwriting)
✔ Why It Works: 100% financing (no down payment required) for eligible homes in rural and some suburban areas.
Who Qualifies?
Buyers purchasing in USDA-eligible rural or suburban areas
Low-to-moderate-income households
Even if your credit isn’t perfect, USDA loans can be a great way to buy a home with no down payment—as long as you meet location and income requirements.
4. Non-Traditional Loans – Alternative Financing for Bad Credit Borrowers
If none of the above loans work, you might need to explore alternative mortgage options, such as:
✔ Subprime Loans – Higher interest rates but flexible credit requirements
✔ Rent-to-Own Programs – Lease the home first, then buy later
✔ Owner Financing – Negotiate directly with the seller instead of using a bank
While these options aren’t ideal for everyone, they can help you buy a home when traditional loans aren’t an option.
How to Improve Your Mortgage Approval Chances with Bad Credit
Even if your credit is less than stellar, lenders want to see responsible financial behavior. Here’s how you can increase your chances of getting approved:
1. Save for a Larger Down Payment
The more money you can put down, the better. A bigger down payment reduces lender risk, which can offset a lower credit score.
✔ Aim for at least 10-20% down if possible
✔ Consider using gift funds from family if allowed
2. Work on Your Credit Score Before Applying
A few small credit score improvements can make a big difference.
✔ Pay down credit card balances to lower your utilization
✔ Make all payments on time (even one missed payment can hurt)
✔ Don’t open new credit accounts before applying for a mortgage
3. Get a Co-Signer
If your credit is too low to qualify on your own, a co-signer with strong credit can help.
✔ Make sure they understand their financial responsibility
✔ A co-signer doesn’t have to live in the home
4. Look for Lenders That Accept Non-Traditional Credit
Some lenders look beyond your credit score and consider factors like:
✔ Rent payment history
✔ Utility and phone bills
✔ Bank statements showing steady income
If your traditional credit score is low, proving a history of on-time payments for rent and other bills can help.
5. Shop Around for the Right Lender
Not all lenders have the same credit requirements. Some specialize in working with bad credit borrowers.
✔ Rocket Mortgage – Accepts lower credit scores for FHA loans
✔ Carrington Mortgage – Works with borrowers down to a 500 score
✔ New American Funding – Offers manual underwriting for credit challenges
Pro Tip: Get pre-approved with multiple lenders to compare rates and terms.
FAQs About Getting a Mortgage with Bad Credit
1. Can I buy a house with a 500 credit score?
Yes, but you’ll need to apply for an FHA loan and put at least 10% down.
2. What’s the easiest mortgage to get with bad credit?
FHA loans and VA loans (for military members) are the most forgiving.
3. Will my interest rate be higher with bad credit?
Yes, but you can lower it by making a bigger down payment or working with a lender that offers competitive rates.
4. Can I improve my credit while in the mortgage process?
Yes! Paying off debts and reducing credit card balances before closing can help secure better loan terms.
5. Can I refinance later if my credit improves?
Absolutely! Once your credit score increases, refinancing can help you secure a lower interest rate and reduce monthly payments.
Final Thoughts: Yes, You Can Get a Home Loan with Bad Credit!
Bad credit doesn’t have to stand in the way of your homeownership dreams. By choosing the right loan, improving your financial habits, and working with the right lender, you can get approved and buy your home—even in 2025!
Take the Next Step – Get Pre-Approved Today!
