How to Get Approved for a Mortgage with a Low Credit Score

Getting a mortgage with a low credit score may seem challenging, but it’s not impossible. While lenders typically prefer borrowers with good to excellent credit (above 670), there are ways to qualify for a home loan even if your score is below 600.

In this guide, we’ll cover the best strategies to improve your chances of approval, the best mortgage options for low-credit borrowers, and tips to secure a lower interest rate.

What Credit Score is Needed to Buy a House?

Most lenders use FICO scores to assess mortgage applications. Here’s how different scores impact your loan options:

Credit Score Range	Rating	Loan Eligibility
740+	Excellent	Best rates, easy approval
670 – 739	Good	Approved with competitive rates
580 – 669	Fair	FHA & VA loans available, higher rates
Below 580	Poor	Difficult approval, limited loan options

It’s possible to get approved with a score as low as 500, but you may need a larger down payment and higher interest rates.

Best Mortgage Options for Low Credit Scores

If you have a low credit score, some loan programs are designed to help borrowers with less-than-perfect credit.

1. FHA Loans (Best for Low Credit Borrowers)

• Credit Score Requirement: 580+ (with 3.5% down) or 500-579 (with 10% down).
• Government-backed loan, making it easier to qualify.
• Lower interest rates compared to conventional loans.

2. VA Loans (For Military Members & Veterans)

• No minimum credit score required (but most lenders prefer 580+).
• Zero down payment required.
• No private mortgage insurance (PMI), lowering monthly costs.

3. USDA Loans (For Rural & Suburban Homebuyers)

• Credit Score Requirement: Typically 640+, but some lenders accept lower.
• No down payment required.
• Income limits apply (for low-to-moderate-income borrowers).

4. Conventional Loans (Best for Moderate Credit Scores)

• Credit Score Requirement: 620+
• Private lenders offer flexibility, but rates may be higher for lower scores.
• Requires a 3-5% down payment, but 20% is ideal to avoid PMI.

Tip: If your score is below 620, focus on FHA or VA loans, as they have more lenient requirements.

How to Improve Your Chances of Mortgage Approval

Even if you have a low credit score, there are ways to boost your approval odds:

1. Save for a Larger Down Payment

• Lenders are more likely to approve you if you put 10-20% down.
• A bigger down payment reduces your loan amount and risk for lenders.

2. Lower Your Debt-to-Income (DTI) Ratio

• Your DTI ratio is the percentage of your monthly income used for debt payments.
• Lenders prefer DTI under 43% (the lower, the better).
• Pay down credit cards and loans before applying.

3. Get a Co-Signer or Joint Applicant

• A co-signer with good credit can help you qualify.
• Be cautious—if you miss payments, your co-signer is responsible for the debt.

4. Show Stable Employment and Income

• Lenders want to see at least 2 years of steady income.
• Provide tax returns, W-2s, and bank statements to prove financial stability.

5. Work with a Lender That Specializes in Low Credit Scores

• Not all lenders have the same credit requirements.
• Compare multiple lenders to find the best deal.

6. Improve Your Credit Score Before Applying

If possible, take a few months to boost your credit before applying for a mortgage:

• Pay all bills on time (35% of your score).
• Reduce credit card balances (keep utilization below 30%).
• Check your credit report for errors and dispute mistakes.
• Avoid opening new accounts before applying.

Tip: Raising your score by just 20-30 points can improve your interest rate significantly!

How to Get a Lower Interest Rate with a Low Credit Score

A lower credit score means you’ll likely get a higher interest rate, but there are ways to reduce it:

1. Make a Larger Down Payment

A larger down payment (10-20%) lowers your lender’s risk, which can help secure a better rate.

2. Buy Mortgage Discount Points

• Mortgage points are fees you pay upfront to lower your interest rate.
• 1 point = 1% of the loan amount, which can reduce your rate by 0.25%.
• If you plan to stay in the home long-term, this can save thousands in interest.

3. Improve Your Credit Score Before Closing

Even small improvements can make a big difference in your rate:

• Paying down a credit card before final approval may push your score higher.
• Ask your lender if they re-evaluate your rate if your score improves.

4. Consider an Adjustable-Rate Mortgage (ARM)

• ARMs offer lower initial rates than fixed-rate mortgages.
• Ideal if you plan to refinance or move within a few years.

5. Shop Around for Lenders

• Interest rates vary between lenders, so get at least 3-5 quotes.
• Some lenders specialize in low-credit borrowers and offer better rates.

Common Mistakes to Avoid When Applying for a Mortgage with Low Credit

1. Applying for Multiple Loans at Once – Too many credit inquiries can lower your score further.
2. Making Large Purchases Before Closing – Avoid buying a car or furniture before your loan is finalized.
3. Not Checking Your Credit Report – Errors on your credit report can hurt your score.
4. Skipping Mortgage Pre-Approval – Pre-approval shows sellers and lenders you’re serious.
5. Ignoring Government Loan Options – FHA, VA, and USDA loans offer lower credit requirements.

Getting a mortgage with bad credit is possible—you just need the right strategy. By choosing the right loan, saving for a larger down payment, improving your credit, and shopping for lenders, you can secure a home loan and even get a competitive interest rate.

FAQs About Getting a Mortgage with a Low Credit Score