You’re Not Alone (and No, You’re Not Doomed)
You’ve pulled your credit score and it whispered, “Oof.” We get it. Maybe it’s the ghost of an old credit card, a few missed payments, or that time you financed a flat-screen during a Black Friday frenzy. Whatever the reason, bad credit can feel like an impenetrable wall between you and homeownership.
But here’s the truth bomb: you can absolutely buy a home with bad credit. It’s not always easy, but it’s far from impossible—and there are more options than you might think.
What Exactly Is “Bad” Credit?
Let’s break it down:
- Credit Score 740+ – Lender’s dream.
- 700–739 – Still good. You’ll likely get favorable terms.
- 620–699 – The “meh” zone. Doable, but might cost more.
- Below 620 – Cue dramatic music. But also: options still exist.
Lenders typically use your FICO score, which ranges from 300 to 850. A score under 620 is considered subprime, but that doesn’t mean you’ll be exiled to the renting wastelands forever.
Loan Options That Work with Less-Than-Perfect Credit
1. FHA Loans: The MVP of Bad Credit Buyers
- Minimum score: As low as 500 (with 10% down); 580 if you want to put just 3.5% down.
- Backed by the Federal Housing Administration.
- More flexible underwriting and low down payments.
Real Talk: FHA loans are basically the “we all make mistakes” loan option. They were designed for exactly this scenario.
2. VA Loans (for Veterans)
- No minimum credit score requirement by the VA (though lenders may have their own).
- Zero down payment and no private mortgage insurance (PMI).
- Available to veterans, active-duty service members, and qualifying spouses.
If you served, this could be your golden ticket—even with bruised credit.
3. USDA Loans (Yes, the “Rural” One)
- Zero down payment.
- For homes in qualifying rural and some suburban areas.
- Typically requires a 640+ score, but manual underwriting can allow lower scores.
Translation: If you’re cool with a quieter life—or just living 10 minutes outside the city—this is a solid option.
4. Non-QM Loans
- Stands for “Non-Qualified Mortgage.”
- For buyers who don’t fit into the neat little boxes of traditional lending.
- Higher rates, but more flexibility on credit and income.
Think of these as the experimental cocktails of the lending world—might be just the mix you need.
Tips for Buying with Bad Credit (Without Losing Your Mind)
Check Your Credit Report
Errors happen. Dispute anything fishy—like that “collection” from a gym you canceled two years ago.
Boost Your Score Before Applying
Even a 20–40 point jump can change your loan options.
- Pay down credit cards below 30% utilization.
- Don’t open or close accounts.
- Make every payment on time (even Netflix).
Get Pre-Approved by a Reputable Lender
A good loan officer (like the one who may have shared this with you) can walk you through your options and give you a realistic idea of what you can afford.
Consider a Co-Signer or Co-Borrower
Having a co-signer with stronger credit can open doors—but make sure everyone involved understands the risks.
Save for a Bigger Down Payment
Larger down payments can offset credit risk. If you can put down 10–20%, lenders might give you more favorable terms.
What About Interest Rates?
Yes, they’ll likely be higher. Bad credit signals risk to lenders, and risk costs money. But here’s the silver lining:
You can refinance later once your credit improves.
So even if you start with a higher rate, it doesn’t mean you’re stuck with it forever. Think of it as a temporary rental in Interest Rate Land until you qualify for a nicer neighborhood.
What a Good Real Estate Agent or Loan Officer Can Do for You
- Help you find lenders who specialize in low-credit loans.
- Guide you to down payment assistance programs.
- Negotiate with sellers for closing cost credits.
- Cheer you on when you’re doubting yourself.
Real-Life Scenario
Meet James and Tasha
Credit scores: 585 and 610
Savings: $9,000
Location: Fayetteville, NC
Their agent connected them with a lender experienced in FHA loans. With 3.5% down and a bit of seller credit, they bought a $220,000 home with monthly payments that fit their budget. Six months later, they refinanced after improving their credit by paying off a car loan and disputing old medical collections.
Now they’re saving $210/month. All because they didn’t give up.
FAQs
Can I get a home loan with a 500 credit score?
Yes, but you’ll likely need a 10% down payment and work with FHA or specialized lenders.
Will I pay more with bad credit?
Typically, yes. But rates vary by lender and your full financial picture. It pays to shop around.
Is renting better if my credit is bad?
Not always. Monthly mortgage payments are often cheaper than rent—and you build equity.
Can I buy with bad credit and no down payment?
Possibly, through VA or USDA loans if you qualify.
Final Thought (And a Nudge)
Buying a home with bad credit isn’t just possible—it’s happening every day. With the right game plan, support, and a smidge of patience, you can make the move from “maybe someday” to “we just got the keys.”
And if you’re working with the agent or lender who shared this with you, you’re already ahead of the game.
