Can I Really Buy a Home with Bad Credit?

Can I (Really) Buy a Home with Bad Credit?

Mar 18 2022

Buying a home can be a complicated process. If you’re worried about a bad or poor credit score preventing you from buying your first home, you’re not alone.

In a recent survey, 32% of Americans shared that their credit score prevents them from pursuing homeownership. The good news is that many loan options are available, and there are steps you can take to improve your credit score over time. 


So, what is a ‘bad’ credit score?

Credit scores typically range from 300 to 850 points. If you have a credit score in the mid-600s or lower, you may end up with a higher interest rate. Lowering your interest rate by even half a percentage point can save you thousands of dollars over the life of a loan. You may want to consider takings steps to improve your credit score before getting pre-approved or applying for a mortgage.

If your credit score is above 720, consider us impressed. Having a higher credit score means you may be eligible for lower interest rates. You may want to check out all 4 things lenders see in your credit.


What loans can I apply for with a credit score of 680 or lower?

If you are ready to buy a home and have a bad credit score below 680, here’s a list of 4 options to consider:

Conventional Loan | Credit Score: 620

Conventional loans are the most common home loan and have a minimum credit score of 620. Conventional loans are offered by mortgage lenders, mortgage brokers, and credit unions. Conventional loans are the default option for homebuyers because of their low rates and simple approvals.

Conventional loan approval requires:

  • A mortgage application
  • Lender-required documents
  • Credit history
  • Current credit score


FHA Loan | Credit Score: 500

FHA mortgages are insured by the Federal Housing Administration. They were developed in the 1930s to keep homeownership attainable, which is why FHA loans have terms that are more agreeable to folx with lower credit scores, and less cash to put towards a down payment. 

FHA loan approval requires:

  • 3.5% down payment for credit scores of 580 and more
  • 10% down payment for credit scores of 500 – 579
  • Loan lengths must be 15 years or longer


VA Loan | Credit Score: 580

VA loans are backed by the Department of Veterans Affairs. VA loans are affordable home loans for active-duty servicemembers and veterans.

Because the VA guarantees its loans against losses, mortgage lenders make VA loans at very low-interest rates, and, historically, VA mortgage rates are often the lowest of all available mortgage loans. VA loans don’t require a downpayment.

VA loans:

  • Are available as 100% mortgage loans
  • Have lower interest rates as compared to conventional loans
  • Require a Certificate of Eligibility (COE)


USDA Loan | Credit Score: 620

USDA loans are government-backed mortgages available for homes outside of densely-populated areas. The USDA program covers about 91% of the U.S., including rural areas, small towns, and many suburbs.

USDA mortgage loans don’t require a down payment and offer interest rates that average 0.50% lower than conventional loan rates. USDA guidelines require credit scores of at least 620, but exceptions can be made for home buyers with varying circumstances.

USDA loans:

  • It can only be used for non-urban home purchases
  • Have no down payment requirements
  • Require a credit score of 620 or higher


What can I do to prepare to buy a home?

There’s a lot to consider when thinking about buying a home. Taking a course like Framework Homebuyer Ed will guide you through how to buy a home, where to save, and when to negotiate. Sign up for our Keep Up newsletter to get more homeownership news and a special discount on our course.

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