How to get a mortgage loan with bad credit

Homeownership is a goal for many Americans, but it can feel out of reach if your credit score isn’t ideal. Traditional lenders may be more cautious, and interest rates can be higher, which makes monthly payments harder to manage. Here’s a guide to getting a mortgage with lower credit, including tips to improve your finances before applying and programs designed to help first-time buyers achieve their dream of owning a home.

How do you get a mortgage loan with bad credit?

Buying a home with bad credit may seem impossible, but you don’t need to give up on your dream. Before applying for a home loan, follow these four simple steps to improve your finances and approval odds.

Improve your financial health

Financial health is one of the biggest factors lenders look at when analyzing a loan application. These factors include your credit score, income, and debt-to-income ratio. By focusing your efforts on improving these factors, you may be able to turn a decline into an approval.

• Look for credit report errors. Start by reviewing your credit report to look for errors and opportunities to improve your score. A study by Consumer Reports found that one in four borrowers had an error significant enough to damage their FICO scores.
• Make all payments on time. Your payment history is one of the biggest factors in your credit score. Be sure to make all payments on time by establishing automatic payments or setting reminders on your calendar.
• Lower your utilization ratio. Analyzing the balances on your accounts can uncover opportunities to boost your score. Identify any credit cards with balances above 30% of their credit limit. Taking out a debt consolidation loan or paying them down can lower your credit utilization ratio. A lower utilization ratio typically leads to a good credit score.
• Reduce your debt-to-income (DTI) ratio. Paying off your accounts or reducing your balance can lower your minimum monthly payments and lead to a higher credit score. Lenders compare your income to your monthly obligations to calculate your DTI ratio. The DTI ratio, including your new mortgage, must be below a certain threshold in order to get approved.
• Boost income. Getting a promotion, finding a higher-paying job, or starting a side hustle can increase your monthly income. A higher income makes it easier to get approved for a loan. The additional income can also help you save up for a down payment or pay down your debts much faster.

Consider a co-signer

Adding a co-signer to your home loan application can improve your approval odds. A co-signer's credit score and income not only can get you approved, but they may also help you qualify for other mortgage programs that offer better loan terms and lower interest rates.

The co-signer can be anyone you know, including your spouse, family members, or friends. While their generosity can lead to approval for your loan, they are also liable for your mortgage if you stop making payments. Additionally, your mortgage will count against their DTI ratio and credit score when they apply for loans for their personal use. For these reasons, most co-signers prefer borrowers to refinance the loan and remove them as a co-signer as soon as possible.

Have a larger down payment

Having a large down payment reduces the amount of money you need to borrow and your home's loan-to-value (LTV) ratio. A lower mortgage amount reduces your monthly payment, making it easier to qualify based on your income and debts.

Additionally, a larger down payment reduces your loan amount and the risk to the lender in case of a foreclosure. For this reason, lenders may be more willing to lend to borrowers, even when they have bad credit.

If you don't have enough money for a down payment, you may be able to qualify based on a gift from family or from a community organization that specializes in low-to-moderate income borrowers.

Shop around and prequalify

Every lender has different loan programs and minimum requirements. Borrowers should shop around and compare quotes to increase their approval odds and to find the best loan terms they can qualify for. You can search out different lenders on your own by visiting banks, calling around, or visiting mortgage lender websites. A mortgage broker can analyze your situation and offer quotes from different lenders based on your financial situation.

Most lenders will request your authorization to pull your credit report before they'll tell you what rate and terms you qualify for. Even though you may have bad credit, it is still wise to minimize hard credit inquiries so your credit score doesn't go even lower. Fortunately, the three main credit bureaus treat all mortgage inquiries within a 14-day window as one inquiry, which will minimize the impact on your score.

Home loan options for first-time buyers with bad credit

If you have bad credit, there are several home loan programs that help first-time homebuyers get approved for a mortgage. Each mortgage program has different qualification criteria, so review them with a loan officer before applying to ensure you've found the best fit.

FHA loans

Loans through the Federal Housing Administration (FHA) help first-time homebuyers get approved for a mortgage when they have bad credit, a smaller down payment, or both. FHA loans require down payments as little as 3.5% of the purchase price with credit scores as low as 580. Borrowers with even lower credit scores can qualify for a mortgage with a down payment of 10% or more.

If you don't have enough money saved up, the FHA allows others to gift you the money you need for the down payment and closing costs. These gifts can come from family, friends, an employer, or a charitable organization. You may also work with a government agency that assists low- to moderate-income families and first-time home buyers.

The FHA is a part of the US Housing and Urban Development (HUD). HUD has special homebuying programs for qualifying borrowers. These special mortgage options include the Good Neighbor Next Door (for teachers, officers, and firefighters), loans for public housing residents, and the Indian Home Loan Guarantee Program.

USDA loans

The US Department of Agriculture (USDA) backs mortgages for borrowers looking to finance a home in eligible rural areas. Low- and moderate-income borrowers can get approved for a home loan through different loan, grant, and loan guarantee programs. USDA loans have a fixed interest rate that is set by the agency. As of October 1, 2025, the interest rate is 5.125%, which is currently lower than rates available from most mortgage lenders.

To make payments more affordable, borrowers can stretch payments up to 33 years, which is three years longer than conventional 30-year mortgages. Very low income borrowers may qualify for a 38-year payback period.

There is no down payment requirement for most USDA loans. This makes it easier for borrowers to qualify for a home loan, since they don't need to bring as much money to the table at their loan closing.

VA loans

Active-duty military personnel, veterans, and spouses can purchase a home with a Veterans Administration (VA) loan. This loan program is exclusive to these borrowers and offers generous terms to help them purchase a home. VA loans do not require a down payment, have competitive interest rates, and have limited closing costs. Unlike some loan programs, VA loans do not charge private mortgage insurance (PMI), which drives up the monthly mortgage payment for borrowers.

The VA does not require a minimum credit score. However, you must meet the lending criteria of the lender issuing your mortgage. For this reason, it pays to shop around because other lenders may approve your request even if you don't meet the minimum credit score requirements of another lender. Some lenders are willing to approve borrowers with credit scores as low as 550.

Private loans

When conventional loans aren't an option, getting a loan from a private lender, hard money lender, or credit score lender may be an option. These mortgages tend to have higher interest rates and origination fees than a traditional mortgage, but they often approve borrowers with bad credit, hard to verify income, and other financial issues. A private loan tends to be a short-term option until a borrower can qualify through traditional home loan programs.

The bottom line

Getting a mortgage loan with bad credit is challenging, but not impossible. Multiple loan programs allow borrowers with poor credit to get approved at competitive rates and fees. When you can't get approved for a conventional loan, you have options. Consider taking out a private loan, getting a co-signer, or improving your financial profile before applying. Even if you have to take out a less-than-desirable loan at first, you can always refinance it to get better loan terms as your credit score improves.