How to Get a Mortgage With Bad Credit

Learn how to get a mortgage with bad credit using these tips.

If you want to know how to get a mortgage with bad credit, you’ll first want to know if your credit score is actually considered bad. A “poor” FICO score is 579 or lower.

Loans for people with bad credit, though higher in costs, are available through various lenders. Here are some ways to work with lenders that offer what are known as bad credit loans at subprime rates.

FHA Loans for Bad Credit

There are many banks that offer what are known as FHA loans. These loans, insured by the Federal Housing Administration, aim to increase homeownership among Americans. A quick google search for “FHA loans for bad credit” will yield many bank options in the search results. (Make sure Google knows your location to increase local search results.)

FHA loans are available to people with a credit score as low as 500. If your credit score is between 500 and 580, you’ll need at least 10 percent down.

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Manual Underwriting

If your credit score is bad because you lack sufficient credit history or just have never really used credit in your life, you might be a candidate for manual underwriting. This means a human will review your file and consider other mortgage-qualifying factors aside from your seemingly poor credit score.

Banks that offer these loans will still want documentation on your work and income history along with alternative credit tradelines like cell phone bills, utility bills or rent payments.

Portfolio Loans

Portfolio loans are common in smaller, local community banks and credit unions. With a portfolio loan application, you’ll have more leeway to explain why your credit score is low or the circumstances surrounding your recent bankruptcy filing on your credit report.

The underwriters will consider this additional information and make a decision based on circumstances beyond your FICO credit score.

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VA Home Loans

Veterans Administration loans are designed to help service members, veterans and eligible surviving spouses become homeowners.

Though lenders offering VA home loans typically want to see credit scores of 620 and above, it is not unheard of for some lenders to extend loans to borrowers with scores as low as 580. You may have to shop around to find a bank that will offer a VA loan for those with lower credit scores, but it’s not impossible to do.

Interest Rates Based on Credit Scores

This table from My FICO estimates the interest rate and monthly payment on a 30-year fixed mortgage, based on the purchase of a $200,000 home for varying credit scores:

FICO ScoreAPRMonthly Payment
760-8504.131%$970
700-7594.353%$996
680-6994.530%$1,017
660-6794.744%$1,043
640-6595.174%$1,095
620-6395.720%$1,163

As you can see, those with higher credit scores will get the best rates and pay the least for mortgages over the lives of their loans.

Though it’s possible to get a mortgage with bad credit, another alternative is to take some time to improve your credit score. The money you’ll save as a creditworthy candidate will be well worth the wait and effort.

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