You can qualify for a home loan with bad credit in the US, but the route is narrower and the paperwork heavier. The main door is the FHA loan, which accepts scores as low as 500 if you put 10% down and 580 if you put 3.5% down. VA and USDA loans have no official minimum score at all, and all three programs allow manual underwriting, where a human underwriter weighs compensating factors such as savings and a solid rent history against a weak score.
What you will not find is a guaranteed approval. A low score means stricter debt-to-income limits, more documents, a higher rate and mortgage insurance. This guide explains exactly what each program requires, how manual underwriting works, which compensating factors count and how to decide whether to buy now or spend six months repairing your credit first.
This article is general information, not financial or legal advice. Program rules are set nationally, but individual lenders add their own stricter requirements, so always confirm with the lender.
What Counts as Bad Credit for a Mortgage?
Mortgage lenders pull your FICO score from all three credit bureaus and use the middle one. If you apply with a partner, they normally use the lower of your two middle scores. Broadly, anything below 620 is treated as poor credit for mortgage purposes, 620 to 679 is fair, and pricing improves steadily from there.
The score is only part of the story. Underwriters read the full report: late payments in the last 12 to 24 months, collections, charge-offs, judgments, bankruptcies and foreclosures. A 600 score caused by high card balances is easier to approve than a 600 score with recent missed rent payments.
Which Home Loans Accept Low Credit Scores?
| Loan type | Program minimum score | Minimum down payment | What lenders often require in practice | Extra costs |
|---|---|---|---|---|
| FHA | 580 | 3.5% | 580–620 | Upfront and annual mortgage insurance premiums |
| FHA (low score tier) | 500–579 | 10% | Few lenders offer it; manual underwriting likely | Same FHA insurance premiums |
| VA | None set by the VA | 0% | 580–620 | Funding fee (waived for some disabled veterans) |
| USDA | None set; 640 for automated approval | 0% | Around 580–640, manual underwriting below 640 | Upfront and annual guarantee fees |
| Conventional | Traditionally 620 | 3%–5% | 620–660 | Private mortgage insurance, expensive at low scores |
| Non-QM and bank-statement loans | Set by lender, sometimes 500–580 | Often 10%–20% or more | Varies | Higher rates and fees |
FHA loans: the main route
FHA loans are insured by the Federal Housing Administration, part of HUD, which is what allows lenders to accept lower scores. With a score of 580 or higher you need 3.5% down. With a score of 500 to 579 you need 10% down. Below 500 you are not eligible. The whole down payment can be a documented gift from a family member.
The price of that flexibility is mortgage insurance: an upfront premium of 1.75% of the loan, usually rolled into the balance, plus an annual premium paid monthly. With less than 10% down, the annual premium lasts for the life of the loan unless you later refinance into a conventional mortgage. Many lenders apply “overlays”, their own minimums above FHA’s, so ask specifically whether a lender accepts scores under 580 and offers manual underwriting.
VA loans: no set minimum
If you are an eligible service member, veteran or surviving spouse, the VA loan is usually your best option: no down payment, no monthly mortgage insurance and no VA-imposed minimum score. Lenders set their own floor, commonly between 580 and 620. The VA places heavy weight on residual income, the money left each month after major bills, which can help borrowers whose scores are low but whose budgets are sound. Eligibility details are on va.gov.
USDA loans: rural and suburban buyers
USDA guaranteed loans offer 0% down in eligible rural and many small-town areas, subject to household income limits. The USDA’s automated system generally wants a 640 score. Below that, the loan is not automatically refused; it goes to manual underwriting, where you need a clean recent payment history and good compensating factors.
Conventional and non-QM loans
Conventional loans have traditionally required a 620 score. Fannie Mae relaxed its hard score floor in its automated underwriting system in late 2025, but most lenders still apply a minimum of around 620, and pricing and private mortgage insurance at that level are costly. Non-QM lenders will lend at lower scores or soon after a major credit event, but expect large down payments and high rates. Compare the full cost using our guide on how to get a mortgage loan with low interest rates as a benchmark.
What Is Manual Underwriting and How Does It Help?
Most mortgage applications run through automated underwriting software. If the software returns a “refer” result, or if you have no credit score, the file can be underwritten manually by a person following FHA, VA or USDA guidelines. It is slower and stricter on ratios, but it lets the underwriter consider the story behind the score.
For FHA manual underwriting, the standard debt-to-income limits are 31% of gross income for the housing payment and 43% for total debts. Those limits rise to 37% and 47% with one compensating factor, and to 40% and 50% with two. Borrowers with scores under 580 are generally held to the base limits. Underwriters will also want 12 months of verified on-time rent and an explanation for every derogatory item.
Buying with no credit score
No score is not the same as a bad score. If you are a recent immigrant or have always paid cash, FHA and some other programs allow nontraditional credit: 12 months of on-time payments for rent, utilities, phone, insurance or similar bills. Note that HUD restricted FHA loans to US citizens and permanent residents in 2025, so work visa holders generally need a conventional loan instead, as covered in our guide to buying your first home in the USA.
Which Compensating Factors Strengthen Your Application?
- Cash reserves. Savings equal to at least three monthly mortgage payments after closing.
- Minimal payment shock. A new housing payment close to the rent you have been paying reliably.
- Residual income. Healthy money left over each month after all obligations.
- No discretionary debt. Little or no credit card or installment debt.
- Additional income that is real but not counted in the ratios, such as recent overtime, a second job or a partner’s income.
- Larger down payment than the minimum, which lowers the lender’s risk.
A co-borrower adds income to the application, but lenders typically price on the lower score.
How Long After Bankruptcy or Foreclosure Can You Get a Mortgage?
Major credit events trigger mandatory waiting periods. These are the typical minimums, and re-established clean credit is expected during the wait:
- Chapter 7 bankruptcy: 2 years from discharge for FHA and VA, 3 years for USDA, 4 years for conventional.
- Chapter 13 bankruptcy: FHA and VA may approve after 12 months of on-time plan payments with court permission.
- Foreclosure: 3 years for FHA and USDA, 2 years for VA, 7 years for conventional.
FHA does not automatically require you to pay off old collection accounts, although large unpaid balances may be factored into your debt-to-income ratio, and court judgments and federal debts such as delinquent taxes or student loans must be resolved or in a repayment plan.
How to Qualify for a Home Loan with Bad Credit: Step by Step
- Pull all three credit reports free at AnnualCreditReport.com and dispute errors.
- Bring every account current and keep it that way. The most recent 12 months matter most.
- Pay down credit cards below 30% of their limits. This is the fastest legitimate score boost.
- Do not close old accounts or open new ones. If your file is thin, a credit-builder product can help; see how to use a loan to build your credit score.
- Save for more than the minimum. Budget for the down payment, closing costs of 2% to 5% and reserves. Look into down payment assistance programs, noting that many set their own minimum score, often 620 or 640.
- Document your rent. Pay by bank transfer or check so you can show 12 months of on-time payments.
- Talk to a HUD-approved housing counselor. The service is free or low cost and can include a personalized action plan. Find one through hud.gov.
- Shop lenders that do manual underwriting. Ask mortgage brokers, credit unions and FHA-focused lenders directly about their minimum score and overlays. Get several Loan Estimates within a two-week window.
- Write honest letters of explanation for each derogatory item, then take on no new debt before closing.
Should You Buy Now or Improve Your Credit First?
Buying now starts your equity building, and you can refinance later when your score improves. The cost is a higher rate, FHA mortgage insurance and thinner margins if anything goes wrong.
Waiting six to twelve months makes sense if your score is just under a threshold such as 580 or 620, if your late payments are recent, or if you have no reserves. Moving from the high 500s into the mid 600s can lower your rate and widen your choice of lenders and assistance programs considerably.
What Scams and Traps Should You Avoid?
- “Guaranteed approval” mortgages. No legitimate lender guarantees approval before reviewing your file.
- Credit repair companies promising to erase accurate negative items or create a “new credit identity”. The second is a federal crime.
- Risky rent-to-own and contract-for-deed deals where you pay a premium, carry repair costs and can lose everything after one missed payment. Have an attorney review any such contract.
You can check a loan officer’s license on the NMLS Consumer Access website and report problems to the CFPB at consumerfinance.gov.
Frequently Asked Questions
Can I get a home loan with a 500 credit score?
It is possible through FHA with a 10% down payment, but few lenders offer it and you should expect manual underwriting, strict debt-to-income limits and a clean last 12 months. Raising your score to 580 cuts the required down payment to 3.5% and opens far more lenders.
Will a larger down payment make up for bad credit?
It helps, because it lowers the lender’s risk and counts as a compensating factor, but it does not override program minimums or recent serious delinquencies.
Do all lenders follow the same minimum scores?
No. FHA, VA and USDA set baseline rules, and each lender can add overlays on top. That is why one lender may decline you while another approves the same file. A mortgage broker can save time by knowing which lenders accept lower scores.
Does bad credit also affect my homeowners insurance?
In most states insurers use credit-based insurance scores when pricing policies, so poor credit can raise your premium. Since your lender requires insurance before closing, get quotes early and factor the cost into your budget.
Bottom Line
Getting a home loan with bad credit is realistic if you target the right program: FHA from a 500 score with 10% down or 580 with 3.5%, VA if you have served, USDA if you are buying in an eligible area. Strengthen the file with reserves, documented rent and low debts, seek out lenders that manually underwrite, and use a HUD-approved counselor. If you are only a few points short of a key threshold, a few months of focused credit repair is usually the cheapest move of all.