Best Mortgages for People with Bad Credit

Written by Steven PorrelloSeptember 19th, 20224 minute read

If your credit score is lower than 670, or you’ve had a recent foreclosure or bankruptcy, lenders may consider you a subprime borrower. That could make it difficult for you to get a mortgage — but not impossible!

👉 Jump to section: Mortgages at a glance | Bad credit history? How to improve your next loan application | Summary

Most lenders know that a bad credit score doesn’t paint the entire picture of your financial history. Some government-backed loans might approve a mortgage with a low credit score — as low as 500 for an FHA loan. The trade-off might be a higher interest rate or more expensive closing costs. But certain compensating factors, such as more cash in your savings or a higher paying job, could improve your chances of securing favorable rates.

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At a glance: Mortgage eligibility for poor credit profiles

Mortgage type

Credit score requirement
500–580
None
None
620

Waiting period

Chapter 7 bankruptcy
1 year
2 years
3 years
4 years
Chapter 13 bankruptcy
1–2 years
1 year
1 year
5–7 years
Foreclosure
3 years
2 years
3 years
7 years

Bankruptcy discharge means your debt is forgiven. The discharge date starts after you finish a 3- to 5-year repayment plan, which can take 4–6 months after bankruptcy is filed.

Bankruptcy dismissal means your application for bankruptcy was denied or ended, so you're still responsible for your debt.

If your foreclosure was due to extenuating circumstances — such an illness, disability, death of an income-earning partner — then your waiting period may be shortened to one year (three years for conventional loans).

FHA loans for bad credit

The Federal Housing Administration (FHA) offers loans with low entry requirements, such as a credit score of 580, a 3.5% down payment, and a debt-to-income ratio of 43%. You can only use the FHA loan to buy a primary residence, and you must demonstrate at least two years of continuous employment to be eligible.

» SEE: FHA Loan Requirements 2022: How to Qualify

What is the lowest credit score for FHA loans?

The FHA program allows buyers to have credit scores as low as 500. But you must have a 10% down payment if your credit score is between 500 and 580. Anything less than 10% and your lender will likely require a score of at least 580.

Requirements for FHA loan approval after...

...Chapter 7 bankruptcy
✔️ Waiting period of 2–3 years after discharge
...Chapter 13 bankruptcy
✔️ Lender verification of statements showing you made 12 months of continuous, on-time payments
✔️ Written letter of explanation stating why you filed for bankruptcy
✔️ Written approval from your bankruptcy attorney to proceed
...Foreclosure
✔️ Waiting period of 3 years, after
  1. Title of the foreclosed home is transferred out of your name (for homes bought with conventional loan), OR
  2. FHA repays your lender the full loan amount (for homes bought with FHA loan)

» CHECK: Your status on CAIVRS

USDA loans for bad credit

The U.S. Department of Agriculture (USDA) offers loans to home buyers in rural areas. While there’s no down payment or credit score requirement, home buyers do need a DTI below 41% and at least two years of continuous employment.

» SEE: USDA Loan Requirements (2022)

What is the lowest credit score for USDA loans?

Although USDA loans don’t have a minimum credit score, most lenders want buyers to have a score of 640 or above. With a score below 640, your application will undergo a vigorous underwriting process to determine compensating factors.

Requirements for USDA loan approval after...

...Chapter 7 bankruptcy
✔️ Waiting period of 2–3 years after discharge or dismissal
...Chapter 13 bankruptcy
✔️ Lender verification of statements showing you made 12 months of continuous, on-time payments
✔️Written permission from your bankruptcy’s bank trustee to proceed
...Foreclosure
✔️ Waiting period of 3 years after the title of your home is deeded out of your name

VA home loans for bad credit

Backed by the U.S. Department of Veterans Affairs, a VA loan is available to active and retired service members and their spouses. VA loans have no down payment or credit score requirements.

You’re eligible for a VA loan if:

  • You served 90 continuous days during wartime or 181 days during peacetime.
  • You completed six years in the National Guard or Reserves.
  • You’re the surviving spouse of a service member who died in the line of duty.

» SEE: What Are the Qualifications for a VA Loan?

What is the lowest credit score for VA loans?

Most VA lenders would like to see a credit score above 620. Like USDA lenders, however, if your credit score is below 620, you might be able to balance the low score with compensating factors.

Requirements for VA loan approval after...

...Chapter 7 bankruptcy
✔️ Waiting period of 2 years after discharge
...Chapter 13 bankruptcy
✔️ 12 months of continuous, on-time payments
✔️ A credit score of 580–640
✔️ Written approval from the court trustee
...Foreclosure
✔️ Waiting period of 2 years after the title of your home is deeded out of your name

Conventional mortgages for bad credit

Conventional mortgages are nongovernmental loans backed by Fannie Mae or Freddie Mac.

» SEE: Conventional Loan Requirements in 2022 (In-depth Guide)

What is the lowest credit score for conventional loans?

Most lenders want to see a minimum credit score of 620. Since these mortgages are not insured by a government agency, you’re unlikely to get approved if your score is significantly below 620.

Requirements for conventional loan approval after...

...Chapter 7 bankruptcy
✔️ Waiting period of 4 years after discharge
...Chapter 13 bankruptcy
✔️ Waiting period of 2 years after discharge, OR
✔️ Waiting period of 4 years after dismissal
...Foreclosure
✔️ Waiting period of 3–7 years after the title of your home is deeded out of your name

How can you improve your mortgage application with bad credit?

1. Lower your debt-to-income ratio (DTI)

Your debt-to-income ratio measures how much monthly income you bring in against how much monthly debt you’re obligated to pay. A lower DTI means you are more likely to have the income needed to pay your monthly mortgage.

If your DTI is above 43%, consider getting a cosigner or coborrower to help bring it down.

2. Put more money down up front

A larger down payment might also allow you to have a credit score lower than what’s accepted. For instance, you can have a credit score as low as 500 when you make a 10% down payment on an FHA loan.

If possible, consider using gift funds toward your down payment.

3. Buy a less expensive house

The homes you’re looking at might be outside your true price range. When you buy less home, you could lower your DTI and have more down payment. Both of these could balance out a lower credit score.

🌟 Compensating factors your underwriter may look for:

Larger down payment. If you’re paying a significant amount upfront (say, between 10% and 20%), you might get away with a lower credit score.

Deep cash reserves (i.e., money in your savings). Your lender may approve a credit score lower than 640 if you have at least three months of mortgage payments in a savings account.

High residual income. This is income that remains after you cover your basic expenses and debts, like housing, utilities, food, transportation, clothing, and insurance premiums. If you have high residual income, your lender may approve a score lower than 640.


Summary

  • You can get a mortgage even if you have bad credit, a foreclosure, or have declared bankruptcy.
  • Most lenders want to see scores above 640 but may be willing to accept scores as low as 500 with compensating factors, such as higher income, more down payment, or deeper cash reserves.
  • If you’ve had a foreclosure or bankruptcy (Chapter 7 or Chapter 13), you'll have to wait a certain amount of time before applying for a new loan, and you typically need to show a history of paying debt on time.

👋 Next steps: Talk to an expert!


Connecting with an experienced local agent is a good way to kickstart your home buying process. Agents can help you set a budget and recommend trusted lenders so you can compare rates, get preapproved, and start touring houses.

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